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Unreported Decisions – ST – June 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether the State’s action, of imposing IGST on oxygen concentrators, which were directly imported by individuals free of cost, without the aid of a canalizing agency, violative of Article 14 and 21 of the Constitution and unconstitutional?

Facts and Pleading: Mr. Gurucharan Singh (hereinafter “Petitioner”) is an 85-year-old, who approached the High Court of Delhi against the imposition of IGST on the import of oxygen concentrator which has been gifted to him by this nephew, asserting that the same is discriminatory, unfair and unreasonable upon his right to life and health. As per Notification No.30/2021- Customs dated 01.05.2021, IGST on oxygen concentrators imported by individuals for personal use, was scaled down to 12%. Whereas, as per Notification No.4/2021-Customs dated 03.05.2021, the State exempted, completely, oxygen concentrators imported for the purpose of COVID relief from the imposition of IGST, where the importer was the State Government, or, any entity, relief agency or statutory body authorized by the Government.

The Petitioners submitted that a perusal of Mega Exemption notification no.50/2017, would show that several items where BCD is exempted or reduced, the IGST is nil. Therefore, imposition of 12% IGST on oxygen generators, when BCD on them is exempted, is contrary to the prevailing practice. As per Petitioner, a perusal of entry no. 607A of General Exemption no. 190 completely exempts BCD and IGST on life-saving drugs/medicines imported for personal use, which are supplied free of cost by overseas supplier. Therefore, the Petitioner submitted that Oxygen concentrators, would fall within the ambit of entry no. 607A, since the definition of drugs as per the Drugs and Cosmetics Act 1940 would include the same. Further, the Petitioner submitted that there is no discernible rationale as to why the exemption from levy of IGST is not extended to oxygen concentrators imported by individuals for personal use, the distinction drawn between the two classes of importers is clearly unreasonable and hence, violative of Article 14 of the Constitution. The Petitioner also submitted that the CBEC Circular no. 9/2014-Customs, sets forth the guideline to issue exemption notification under section 25(2) of the Customs in respect of goods imported for relief and rehabilitation of people affected by natural disaster and epidemics. Even though there’s no right to claim exemption from taxes, but once the provisions under section 25 of the Customs Act are invoked, such delegated legislation can be judicially reviewed, and the same is arbitrary and violative of Article 14. The Petitioner contended that the right to life encompasses within it, the right to health and the right to affordable treatment, and the State not only has a duty but a positive obligation to ensure that the health of citizens is duly protected. There is a “distinct and noticeable burdensomeness” that is clearly and directly attributable to the impugned tax. Therefore, as per the Petitioner, the impugned notification violates not only right health but also the right to human dignity, which is interwoven in Article 21 of the Constitution.

The Respondents submitted that the GOI has provided considerable relief insofar as oxygen concentrators imported for personal use are concerned, as BCD has been reduced from 38.5% to nil, while IGST has been scaled down from 28% to 12%. This reduction has been brought to bring parity between oxygen concentrators imported for commercial use as against those imported for personal use. The duty incidence has come down from 77% to 12%. The Respondents claimed that it is felt by the State that any person importing oxygen concentrator for personal use as also those finding resources to receive gifts would be in a position to afford payment of IGST at the nominal rate of 12%. The Respondents also submitted that the decision to impose a tax and/or fixation of the rate at which tax is to be imposed cannot be subjected to judicial review. The courts have refrained from exercising the power of judicial review over matters concerning economic issues. As per the Respondents, the imposition of IGST, which are gifted for personal use, does not violate Article 21 of the Constitution, if the same is accepted that would lead to absurd consequences.

Judgment: The Hon’ble High Court held that the conditions prescribed in the notification dated 03.05.2021, exempting the imposition of IGST on only those oxygen concentrators that are imported for Covid relief through a canalizing agency, creates a manifestly arbitrary and an unreasonable distinction between two identically circumstanced users depending on how the oxygen concentrator has been imported. As per the Hon’ble High Court, the exclusion of individuals, from the benefits of the said notification only because they chose to receive the oxygen concentrators as a gift, albeit directly, without going through a canalizing agency is violative of Article 14 of the Constitution. The Hon’ble High Court held that while it is permissible for the State to identify a class of persons, to whom tax exemption would be extended, it is not permissible for the State to exclude a set of persons who would ordinarily fall within the exempted class by creating an artificial, unreasonable and substantially unsustainable distinction. The Courts and State have to adopt a humanistic approach, which in our view, is a facet of Article 21 of the Constitution. The Hon’ble High Court observed that there is a positive obligation on the State to take ameliorative measures so that adequate resources are available to protect and preserve the health of persons residing within its jurisdiction. As per the Hon’ble High Court, the State should relent, or at least lessen the burden of exactions, in times of war, famine, floods, epidemic and pandemics, since such an approach allows a person to live a life of dignity which is a facet of Article 21. The Hon’ble High Court held that persons who are similarly circumstanced as the petitioner, i.e., those who obtain imported oxygen concentrators as gifts, for personal use, cannot also be equated with those who import oxygen concentrators for commercial use. Therefore, the Hon’ble High Court held that notification bearing no. 30/2021-Customs, dated 01.05.2021, will also have to be quashed and levy of IGST is unconstitutional. The Hon’ble High Court observed that the oxygen concentrators would also fall within the ambit of entry no. 607A, since the definition of drugs as per the Drugs and Cosmetics Act 1940 would include the same, therefore also not requiring the State to issue a separate exemption notification. The Hon’ble High Court also directed that to prevent misuse of the oxygen concentrators, by any person, they would have to furnish a letter of undertaking to the officer designated by the State that the same would not be put to commercial use.

Gurcharan Singh vs Ministry of Finance (Department of Revenue), Government of India, High Court of Delhi, decided on 21.05.2021, in W.P.(C) 5149/2021, CM No. 16554/2021

2. Whether service tax is leviable on the trade discount received by the Petitioner from the manufacturers on reaching a certain sales target?

Facts and Pleading: M/s T.V. Sundram Iyengar & Sons Pvt. Ltd. (hereinafter “Petitioner”) is engaged in the business of purchasing motor vehicle parts and chassis from the manufacturers and reselling the same in its own name and on its own account. The Petitioner had entered into dealership agreements with various manufacturing entities. The Petitioner were also eligible for trade discount by way of credit notes from such manufacturers on reaching a certain sales target. The department issued a show cause notice proposing to levy service tax on the trade discounts received by the Petitioner from the manufacturers by way of credit notes. The said demand was confirmed by the adjudicating authority. The Petitioner filed a writ petition challenging the aforesaid order.

The Petitioner relied upon some relevant clauses in the dealership agreements and contended that the core activity of the Petitioner is to engage in sales of the goods sold to them by the respective manufacturers. The Petitioner further submitted that the incidental clauses regarding the attainment of business performance are not relevant for the determination of the issue in hand. The Petitioner also submitted that the relationship between the parties is on a principal to principal basis, and that there was no element of service but only sale.

The department had alleged that the Petitioner’s contention that it was having only principal to principal relationship with manufacturers was not correct, and accordingly the activity of the Petitioner would fall within Section 66E(e) of the Finance Act 1994.

Judgment: The Hon’ble High Court of Madras held that a mere reading of the dealership agreement would indicate that the petitioner purchases the goods from the manufacturers by way of sale. It is only when the Petitioner has reached a certain sales target, the manufacturer on his own disburses trade discount to the petitioner by way of credit notes, in fact the dealership agreement does not contain any clause regarding trade discount. The Hon’ble High Court referred to the reasoning adopted in AAR Ruling No. AAR/ST/11/2016 wherein it was ruled that since there was no agreement or contractual obligation between the applicant and the media owner to give volume discounts, and the same was not fixed and at the discretion of the media owner, the applicant could not be said to be providing declared services to the media owner as per Section 66E(e) of the Finance Act 1994. Further, the Hon’ble High Court also held that the adjudicating authority had only gone by some clauses of the dealership agreement, whereas the document has to be read as a whole, reference was made to Super Poly Fabricks Ltd. vs Commissioner of C.Ex. Punjab, 2008 (10) S.T.R. 545. Therefore, the Hon,ble High Court held that even though the document may be styled as a dealership agreement and the Petitioner may have to be conform to certain business standards, if the agreement is read as a whole, one can come to the safe conclusion that the relationship between the parties was one of seller and buyer on a principal to principal basis. Accordingly, the Hon’ble High Court has held that merely a discount passed by the manufacturer in a sale transaction cannot be subject to service tax.

M/s T.V. Sundram Iyengar & Sons Pvt. Ltd. vs The Commissioner of CGST & Central Excise, Madurai, High Court of Madras, decided on 30.03.2021 in W.P.(MD) No.4252 of 2021 and W.M.P.(MD) No.3448 of 2021.

3. Whether the requirement under section 107 of the CGST/SGST Act 2017 mandating a deposit of 10% of the demand as a pre-deposit for filing appeal, be waived off or reduced?

Facts and Pleading: M/s Utkal Udyog (hereinafter “Petitioner”) aggrieved by the requirement under Section 107 of the Orissa GST Act, 2017 read with Rule 10 of  Orrisa GST Rules, 2017 that mandates a deposit of 10% of the demand as a pre-deposit for the appeal to be considered, filed a writ petition before the Hon’ble High Court of Orrisa.

The Petitioner submitted that since he had no financial means at this stage, he was unable to even upload the appeal without pre-deposit. The Petitioner relied on the decision of Punjab and Haryana High Court in Kelmar (India) Exports v State of Punjab (CWP No.17975 of 2020 decided on 02.11.2020), to submit that the Court should exercise its power under Article 226 of the Constitution to either waive or reduce the pre-deposit percentage to enable the Petitioner to file the appeal.

Judgment: : The Hon’ble High Court of Orrisa held that firstly, Section 107 of the OGST Act is a mandatory provision and that there is no discretion with the appellate authority to waive the requirement of pre-deposit, therefore, even the High Court itself cannot direct the appellate forum to do so, contrary to the statute. Further, the Hon’ble High Court also held that the as far as the judgment in Kelmar (India) Exports (supra) is concerned it was in the context of Punjab Value Added Tax Act. Further, the High Court of Punjab and Haryana in the judgment of Kelmar (India) Exports thought it fit to reduce the pre-deposit from 25 % to 10% on the basis of the facts of that case, however, the Hon’ble High Court was not persuaded to adopt the same approach in view of the clear language of the statute applicable here. The Hon’ble High Court also noticed that as per Section 107 of the OGST Act, upon making a pre-deposit of 10% there is an automatic stay on the balance of 90% of the demand, which cannot, under any circumstances, be said to be unfair or unreasonable. Therefore, the writ petition is not to be entertained and accordingly dismissed.

M/s Utkal Udyog vs Commissioner CT & GST and Others, High Court of Orrisa, decided on 30.04.2021, in W.P.(C) No.15190 of 2021

4. Whether the activity of crushing, pulverizing, converting and packing of spices into powder form amount to manufacture or not? If not, whether service tax is payable under the category of ‘Business Auxiliary Service’?

Facts and Pleadings: M/s Nilgiri Oil & Allied Industries (hereinafter referred to as “the appellant”), has contracted with M/s Shalimar Chemical Works Ltd, Kolkata to process whole ‘turmeric’ and ‘chilly’ as well as seeds of ‘coriander’ and ‘cumin’ supplied by the latter into powder which is then packed and returned.

Revenue alleged that the activity of conversion of these spices into powder does not amount to manufacture, therefore, with effect from 1.9.2009, the activity undertaken by the Appellant of job work is covered under ‘Business Auxiliary Services’.

As there were contrary decisions of the CESTAT in Jayakrishna Flour Mills (P) Ltd vs. Commissioner of Central Excise, Madura [2015 (37) STR 1079 (Tri- Chennai)] and in Sara Spices vs. Commissioner of Central Excise, Cochin [2018 (362) ELT 151 (Tri-Bang)], the matter was referred to larger bench of the CESTAT. The Hon’ble CESTAT in the case of Jayakrishna Flour Mills Pvt. Ltd. (supra) relied on the CBEC Circular No. 11/01/2012-CX.1, dated 9-7-2013 to came to the conclusion that the process, in question, would amount to manufacture and no service tax is leviable. Contrary, the Hon’ble CESTAT has held that crushing of chilli to make chilli powder does not amount to manufacture in the case of Sara Spices (supra), relying on the CEBC Circular dated 16-3-2000.

Judgement: The Hon’ble Larger Bench of the CESTAT has held that w.e.f. 01.09.2009, the Section 65(19) of Finance Act, 1994 was amended to restrict taxation to activities involving production or processing of goods that do not amount to manufacture of excisable goods which pass the test of transformation into marketable outputs that have distinct use. As per Hon’ble Larger Bench of the CESTAT, in the present case, whole spices or seeds is subject to processing for production of powder. The transformed product has its own market similar to, and yet independent of, the harvested product that is subjected to processing. It is the particular use to which powdered spice is put to that prompted the establishment of an entire industry and therefore, Hon’ble Larger Bench of the CESTAT has held that every aspect of ‘manufacture’, as settled by judicial determination, is complied with in the present issue. Thus, Hon’ble Larger Bench of the CESTAT further held that the activity of crushing, pulverizing, converting and packing of spices into powder form amounts to manufacture and no service tax is payable. Hon’ble Larger Bench of the CESTAT observed that ‘manufacturing’ as held by the Tribunal in Jayakrishna Flour Rolling Mills (P) Ltd (supra) has relevance to the present dispute rather than the decision in Sara Spices (supra) which resolved an entirely different dispute. Accordingly, the reference was answered in favour of assessee.

M/s Nilgiri Oil & Allied Industries vs CCE, Cus & ST, Larger Bench, CESTAT, Hyderabad, decided on 25.05.2021 in Service Tax Appeal No: 28261 of 2013.

Unreported Decisions – June 2021

By Ajay R. Singh, Advocate and CA Rohit Shah

1. S. 36(1)(vii): Bad Debts Written Off – Since, the debts had become irrecoverable – post amendment to clause (vii) of section 36(1) w.e.f. 1-4-1989, the only requirement is that the debt should be written off in the books:

The assessee is engaged in the business of supplyof chemicals. The business model of the assessee is that the assessee procures chemicals from M/s. Standard Mills Ltd. (in short ‘SML’) and supply the same to Ganesh Benzoplast Ltd. (in short ‘GBL’) and others on commission basis. The goods are directly supplied by SML to GBL. The transport of goods is organized by the assessee. The payment of goods is directly made by GBL to SML and the transporter. In one of the transactions in FY : 2002-03, an amount of Rs.1,66,806/- due from GBL for supplies made by SML was outstanding on account of some dispute. GBL did not pay the said amount to SML. SML adjusted the said amount due from GBL against the commission payable to the assessee. The assessee in its books debited the said amount to GBL’s account as recoverable and reflected the same under the schedule ‘Sundry Debtors’ since FY : 2003-04. During the period relevant to assessment year under appeal, the assessee written off said amount as bad debt irrecoverable.

Assessing Officer rejected assessee’s claim of bad debts written off u/s 36(1)(vii) of the Act . CIT(A) also rejected the contentions of the assessee and confirmed the addition.

Before Hon’ble ITAT, the ld. DR submitted that the assessee has failed to produce invoices raised on the said parties to show that the amount was outstanding.

Hon’ble ITAT noted that the amount written off is reflected in the books of the assessee since FY: 2003-04. This fact has not been disputed by the Revenue and therefore, followed the decision of Hon’ble SC in the case of TRF Ltd. held that post amendment to clause (vii) of section 36(1) w.e.f. 1-4- 1989, the only requirement is that the debt should be written off in the books.

Editors Note: Assessee being a commission agent and considering Business model/ modus operandi Invoices are not required for claiming bad debts.

Shri Hanuman International Corporation vs. ITO Ward25(3)(4), Mumbai [ITA No. 4450/Mum/2019, Bench. “SMC”, AY: 2012-13 dt :05/04/2021]

2. S. 250: Admission of fresh claim- MAT credit not claimed in return – claim of assessee regarding carry forward of MAT credit was to be allowed :

Brief facts of the case are that the assessee had undisputedly MAT credit of ` 54,21,075/- which the assessee did not claim in the assessment year under consideration. Therefore, when the assessee’s return was processed and intimation given u/s. 143(1) of the Act, it was not granted to the assessee. Therefore, the assessee moved an application u/s. 154 of the Act before the assessing officer for rectification of the same which was denied on the reason that the Hon’ble Supreme Court in Goetz (India) Ltd. v. CIT 284 ITR 323 has held that the assessing officer cannot entertain a claim unless the assessee has put forward such claim by filing return u/s. 139(1) of the Act. Aggrieved, the assessee preferred an appeal before the ld. CIT (Appeals), who was of the view that there was no error in the order of rectification passed by the assessing officer and since the issue is a debatable one, he refused to interfere and dismissed the appeal of the assessee.

It was submitted by the AR that there is no provision that the assessing officers should determine the tax credit, which shall be carried forward and set off. It is an inbuilt mechanism of the law of the credit and set off. Therefore, on application of a particular formula, if the tax payable under the normal computation is higher than the minimum alternate tax payable by the assessee, and if the assessee has MAT credit available, same shall be granted as a credit to the assessee against the tax liability.There is no option available either to the assessing officer or to the assessee. It is automatic.

Hon’ble ITAT held that even though the Hon’ble Supreme court in Goetz (India) Ltd. (supra) held that the assessing officer is not competent to grant any claim without the assessee claiming it in its return of income u/s. 139(1) of the Act has specifically clarified that the embargo on the power of assessing officer not to entertain claims which was not claimed by assessee while filing of return u/s. 139(1) of the Act, is not there for the appellate authorities. Therefore, claim of assessee regarding carry forward of MAT credit was accepted and matter was remanded back to AO so that he can verify the claim of the assessee and if found to be correct then AO should allow the claim of assessee in accordance with law.

The Hanuman Estates Ltd. v. Dy. CIT [ITA NO.: 1872/ KOL/2019, A.Y. 2015-16, Date: 19/08/2020 (Kolkata) (Trib)]

Unreported Decisions – ST – May 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether the orders of provisional attachment issued by the Joint Commissioner against the Appellant are in consonance with the conditions stipulated in Section 83 of the Himachal Pradesh Goods and Service Tax Act, 2017?

Facts and Pleading: M/s. Radha Krishan Industries (hereinafter referred to as ‘the Appellant’) has challenged the orders of provisional attachment issued by the Joint Commissioner against the Appellant on the count that it is not in consonance with the conditions stipulated in Section 83 of the CGST/SGST Act.

The Appellant submitted that the power of provisional attachment under Section 83 of the HPGST Act is a drastic power and must be exercised with extreme care and caution. The Appellant submitted that the power under Section 83 of the HPGST Act cannot be exercised unless there is sufficient material on record to justify that the assessee is about to dispose of the whole or part of its property to thwart the ultimate collection of tax. As per the Appellant, it has paid an output tax of approximately ₹ 12.49 crores for the relevant period, which is more than the ITC of ₹ 3.25 crores which the Appellant has allegedly taken fraudulently. Further, the Appellant submitted that even if the revenue has to attach the properties of the assessee, immovable properties must be attached, attachment of bank accounts and trading assets should be a last resort only as it paralyses the business of the assessee. Further, the Appellant also argued that the pendency of proceedings under Sections 62, 63, 64, 67, 73 or 74, of the HPGST Act, is a pre-condition for invoking the provisions of Section 83 of the HPGST Act. However, in the present case, the provisional attachment of the Appellant’s assets was made on 28-10-2020, before the proceedings were initiated against the Appellant under Section 74 of the HPGST Act on 27-11-2020. Thus, the provisional attachment was made without jurisdiction and in violation of Section 83.

Judgment: The Hon’ble Supreme Court held that the power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled. As per Hon’ble Supreme Court, the exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment, the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue. The Hon’ble Supreme Court held that the expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment. The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue. As per Hon’ble Supreme Court, in the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal. Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards: (a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and (b) An opportunity of being heard. The Hon’ble Supreme Court held that there has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard. The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached. As per Hon’ble Supreme Court, a final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending as a result of which the provisional attachment must come to an end.

M/s. Radha Krishan Industries vs. State of HP, Supreme Court of India, decided on 20-04-2021 in Civil Appeal No 1155 of 2021.

2. Whether investment in mutual fund by appellant engaged in providing Commercial Training and Coaching Services can be considered as ‘exempt service’ of trading in goods and therefore, whether appellant is liable to pay 6%/7% of the amount of exempted services in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004?

Facts and Pleading: ACE Creative Learning Pvt. Ltd. (hereinafter “Appellant”) is engaged in providing taxable services viz. Commercial Training & Coaching Services as defined under Section 65B(44) of the Finance Act, 1994 and is availing the facility of cenvat credit of inputs, capital goods and input services under the Cenvat Credit Rules, 2004. The Appellant had also invested in the mutual funds and had earned profit during the year 2014-15, 2015-16 & 2016-17 which it had shown as under the head “other income”.

The department alleged that the investment in mutual fund is trading in mutual funds which is exempted services. Further, the department alleged that the Appellant has not maintained separate records for common input services availed in providing the output services and exempted activity i.e. trading and hence are liable to pay 6%/7% of the amount of exempted services in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004.

The Appellant argued that an investor who invested in mutual funds units cannot be designated as a service provider either at the time of forwarding money for investment or for that matter at the time of encashing investment by returning the same units to the fund. The Appellant submitted that the trading has not been defined under service tax and will have to be understood in the context of securities. It is different from redemption. Redemption is the act of redeeming which in its ordinary meaning is equal to bringing off a charge/ obligation by payment. The Appellant further submitted that for trading the mutual fund unit a person is required to have the license under Regulation 37 of SEBI and the appellant does not possess any such license to dealing mutual funds. The Appellant further submitted that the Appellant on maturity simply returns the unit to the mutual fund itself without any person being involved in transfer of units. Hence, as per Appellant, once it is not a trader in the securities, the question of proportionate reversal on common input services used for both trading and output services under Rule 6(3)(b) does not arise.

Judgment: The Hon’ble CESTAT has decided in favour of the Appellant and held that the ‘trading’ has not been defined under the Service Tax but in the context of securities, ‘trading’ means an activity where a person is engaged in selling the goods and occupy for the purpose of making profit. As per Hon’ble CESTAT, certainly trading is different from redemption of mutual fund units, in the present case Appellant cannot transfer the mutual fund units to third party and give only by redemption to the mutual fund because the Appellant is not permitted to trade mutual fund unit in the absence of a license from the SEBI. There is a restriction on the right to transfer unit and the Appellant cannot transfer units to any other person. Further, the Hon’ble CESTAT held that the Appellant cannot be termed as “service provider” because he only makes an investment in the mutual fund and earn profit from it which is shown in the Books of Accounts under the head “other income”. Hence, the Hon’ble CESTAT held that the question of invoking Rule 6 does not arise and department has wrongly invoked the provisions of Rule 6(3) demanding the reversal of credit on the exempted services.

ACE Creative Learning Pvt. Ltd. vs. Commissioner, Bangalore, CESTAT, Bangalore decided on 15-4-2021 in Final Order No. 20105/2021.

3. Whether the owner of the immovable property who rents out the property simplicitor is covered under the definition of taxable service of “renting of immovable property” in Section 65(105(zzzz) of the Finance Act, 1994? Whether levy of Service Tax on the services provided by municipalities is ultra-virus as the municipalities were not a “person” within the meaning of Section 65B(37) of the Finance Act, 1994 as it stood amended with effect from 01-07-2012 and prior to it?   

Facts and Pleading: Cuddalore Municipality along with other Municipalities (hereinafter referred to as the ‘Petitioners’) have challenged several show cause notices and order-inoriginals issued against them demanding service tax on the amounts received by the Petitioners towards renting of immoveable property. The Petitioners have challenged these proceedings on the ground that the Petitioner municipalities were not a “person” within meaning of the meaning of Section 65B(37) of the Finance Act, 1994 as it stood amended with effect from 01.07.2012 and thereafter and therefore, the question of levying tax on services provided by the respective municipalities under the provisions of the Finance Act, 1994 does not arise. The Petitioners also submitted that even if the Petitioners are to be considered as a “local authority” with the meaning of Section 65B(31) of the Finance Act, 1994 as it stood amended with effect from 01.07.2012, the Petitioners were exempted from payment of service tax in terms of Sl. Nos. 38 & 39 to the Mega Exemption Notification No. 25/2012 – ST dated 20-06-2012.

The Revenue submitted that respective Municipalities were “persons” for the purpose of Finance Act, 1994. It was submitted that the period prior to 2012, even if there was no definition for the word “person”, the definition of “person” in the General Clause Act would apply and therefore, the Petitioners were liable to pay tax. The Revenue also claimed that after 01-07-2012, the definition of “person” in Section 65B(37) includes a “local authority”. The definition of “local authority” includes the Municipality in Clause (e) of Article 243P of the Constitution of India. It was further submitted that the definition of “person” includes the artificial and juridical person and there is no dispute that the respective Petitioners were the “persons” for payment of service tax

Judgment: : The Hon’ble High Court held that for the period prior to 01-07-2012, levy under Section 65(105) (zzzz) of the Finance Act 1994 is attracted only when service was provided by “any other person”, i.e., by a person other than the owner. As per Hon’ble High Court, the expression “any other person” can only mean any other person other than the owner of the property. Therefore, Hon’ble High Court held that the owner of the immoveable property is not liable to pay tax under Section 66 of the Finance Act, 1994 for the period up to 30-06-2012. Hon’ble High Court held that since the Petitioners-municipalities are the owner of property, question of it being made liable to pay service tax for any service in relation to such renting of immoveable property does not arise even if it had rented out its immoveable property for use in the course of or for furtherance of, business or commerce of the person who was renting it. Further, for the period post 01-07-2012, the Hon’ble High Court held that if the activity carried out by the Petitioners are categorised as “Support Service”, it cannot be a provision of taxable service and such service was not liable to tax under Section 66B of the Finance Act, 1994. As per Hon’ble High Court, for support service provided, the recipient was liable to pay tax on reverse charge basis under Rule 2(1)(d)(E) of the Service Tax Rules, 1994 as amended by Notification No. 36/2012-ST dated 20-06-2012 as in force from 01-07-2012. Accordingly, the Hon’ble High Court held that the Petitioner-Municipalities can be held liable to pay service tax only for service specified in Sub-Clauses in (i), (ii) and (iii) of Clause (a) of Section 66D of the Finance Act, 1994. Further, the Hon’ble High Court held that as far as renting of immoveable property is concerned, though under Rule 2(1)(d)(E) of the Service Tax Rules, 1994, service tax is payable by the service provider, it has to be held that if such services are provided by a Government or Local Authority, they are exempted under Section 65D(1)(a) of the Finance Act,1994 as amended and as in force from 01-07-2012.

Cuddalore Municipality vs. UOI, High Court of Madras, Madras, decided on 22-03-2021 in W.P. No. 8900 of 2018.

4. Whether the Appellant is eligible to avail Cenvat credit of service tax paid on insurance premium paid in respect of “workmen compensation insurance policy”?

Facts and Pleadings:  M/s. Dharti Dredging and Infrastructure Ltd. (hereinafter referred to as the ‘Appellant’) is a service tax provider and avails Cenvat credit on the inputs and input services under Cenvat Credit Rules (CCR), 2004. The Appellant has availed Cenvat credit on service tax paid on insurance premium paid in respect of “workmen compensation insurance policy”. The same was denied by the lower authorities and the Appellant filed appeal before Hon’ble CESTAT. However, Hon’ble Single Member (Judicial), CESTAT, found that contrary views had been expressed on the same issue by two benches of the same strength (both single member benches) in Hydus Technologies India Pvt. Ltd. vs. C.C.E., CUS. & S.T., Hyderabad-ll, 2017 (52) STR 186 (Tri-Hyd) and Ganesan Builders Ltd. vs. CST, Chennai-II – 2017-TIOL-3152-CESTAT-Madras. Hence, the matter was referred to a larger Bench for a decision.

The Revenue alleged that the insurance policies where the benefit goes to individual employees being specifically excluded from the definition of “input service” under CCR, 2004, no Cenvat credit of service tax paid on ‘Workmen Compensation Insurance Policy’ is admissible to the Appellant.

In Hydus Technologies India Case, it was held that Cenvat credit is available in respect of service tax with respect to gratuity insurance, employees deposit linked insurance, employees health insurance, etc., on the ground that “the benefit bestowed by one legislation cannot be taken away or made highly difficult and impractical to be adhered to by another field of law” and accordingly, the benefit was allowed despite specific exclusion by Rule 2(l). However, in Ganesan Builders Case, CESTAT-Chennai denied the benefit of Cenvat credit on input services following the definition of input service including the exclusion clause therein under Rule 2(l) of CCR, 2004, as amended w.e.f. 01-04-2011.

The Appellant submitted that they have obtained an insurance policy to cover their liability for payment of compensation to their workers under Workmen Compensation Act, 1923. Section 3 of this Act mandates the employer to pay compensation to the workers in the event of personal injury to a workman by accident arising out of and in the course of his employment. The Appellant has taken an insurance to cover this potential liability. As per Appellant, the benefit of insurance is not going to the employees at all. As per the Workmen Compensation Act, 1923, the employees are entitled to compensation whether or not the Appellant takes the insurance policy. Therefore, the insured is the Appellant and not the individual employees. The Appellant further submitted that the decision of CESTAT-Chennai in the case of Ganesan Builders is no longer good law because it has been overruled by the Hon’ble High Court of Madras, which decision is reported in 2019 (20) GSTL 39 (Madras).

Judgement: The Hon’ble Larger Bench, held that the present case is identical to the case of Ganesan Builders decided by the Hon’ble High Court of Madras inasmuch the policy in question pertains to workmen compensation scheme. As per Hon’ble Larger Bench, the insured, as can be seen from the insurance policies is the Appellant and not the individual employees. In other words, the benefit of the policy, if any, goes to the Appellant and not to the individual employees. The Hon’ble Larger Bench held that the Section 3 of Workmen Compensation Act, 1923 places the liability for compensation upon the employer and Section 4 determines the amount of compensation to be paid. As per Hon’ble Larger Bench, if the Appellant had not taken this insurance policy the employees would still be eligible for full compensation as per sections 3 and 4 of the Workmen Compensation Act, 1923. Thus, the Hon’ble Larger Bench held that what is sought to be covered by these insurance policies in the present case is the liability of the Appellant against any potential claim under Sections 3 and 4 of the Workmen Compensation Act, 1923. Therefore, in the present case the workmen are not the beneficiaries of the policy but it is the Appellant. Therefore, the benefit of the insurance in the present case flows directly to the Appellant themselves and not to individual employees. Therefore, as per Hon’ble CESTAT Larger Bench, the view expressed by the Tribunal in Hydus Technologies India lays down the correct position in law and the view expressed by the Tribunal in Ganesan Builders has been over ruled by the Madras High Court in 2019 (20) G.S.T.L. 39 (Mad.). Therefore, Hon’ble Larger Bench held that the present policy is not excluded by clause (C) of Rule 2(l) as has been held by the Hon’ble High Court of Madras in the case of Ganesan Builders.

M/s. Dharti Dredging and Infrastructure Ltd. vs. CCT, Larger Bench, CESTAT, Hyderabad, decided on 01-04-2021 in Service Tax Appeal No. 30531/2018.

Unreported Decisions – May 2021

By Ajay R. Singh, Advocate and CA Rohit Shah

1. S. 12A: Rejection of Application for Registration u/s 12AA of the Act

The process of registration is not an occasion for deciding the issue of exemption of donation u/s. 11 of the Act and other aspects. Only thing to be verified is that Trust is Charitable in Nature and Activities of the Trust are genuine.

The assessee, a charitable trust registered under Bombay Public Trust Act, 1950 made an application seeking registration u/s. 12AA of the Act. The CIT(Exemption) rejected the application seeking registration on the ground of non-payment of taxes on surplus fund and treated the activities of the assessee as non-genuine. Further, he held that the assessee collected various fees and also kept funds idle in FD‟s without utilizing them for the objects of the trust.

The CIT(Exemption) neither objected on the activities carried out by the assessee and nor did he show a single rupee of the FD is utilized for any object other than object of the trust.

While allowing Assessee’s appeal against rejection of application us 12AA, Hon’ble ITAT held that it is a settled principle that the grant of registration and the issue of assessment or exemption u/s. 11 of the Act are separate and distinct. The process of registration is not an occasion for deciding the issue of exemption of donation u/s. 11 of the Act. The issue of exemption cannot be examined during the process of registration. Therefore, the order of CIT(Exemption) in denying the registration u/s. 12AA of the Act was set aside.

Gujrathi Shikshan Sanstha vs. CIT (Exemptions), Pune [ITA No. 10/Pun/2021, Bench. “A”, DOH:16/03/2021 (Pun)(Trib)]

2. S. 56(2)(vii)(b) read with section 50C: Addition u/s 56(2) (vii)(b) cannot be made in the hands of buyer unless reference is made to DVO as per proviso to section 50C(2).

The assessee is an employee of a Engineering College. The Assessing Officer noted that during the year under consideration, the assessee had purchased immovable property, wherein the market value was ₹ 1,60,00,000/-. However, valuation adopted by the stamp valuation authority was ₹ 1,80,74,000/-.The assessee stressed that price paid by assessee was the prevalent market price in the area and various other flats were also sold at the same rate. AO did not accept the same and added the difference between consideration and FMV u/s 56(2)(vii)(b) of the Act . Similar arguments were made before CIT(A). The CIT(A) upheld the order of Assessing Officer and thus, additions were sustained.

It was submitted before Hon’ble ITAT that under the said provisions of section 56(2)(vii)(b) of the Act, incomes are enlisted which are chargeable to Income-tax under the head ‘Income from other sources. Said section refers to an immovable property, wherein

(i) it has been received without consideration and where stamp duty value of the said property exceeds ₹ 50,000/- and

(ii) for consideration which is less than stamp duty value of property by an amount exceeding ₹ 50,000/-,

Then the difference between stamp duty value of property and the consideration is to be added in the hands of assessee. The proviso under section 56(2)(vii)(c) of the Act lays down that where the stamp duty value of immovable property as referred to in sub-clause (b), is disputed by the assessee on the ground as mentioned in section 50C(2) of the Act, then the Assessing Officer may refer the valuation of such property to the Valuation Officer and the provisions of section 50C of the Act and 155 of the Act shall apply as far as may be, in relation to the stamp duty value of such property for the purpose of sub-clause (b), as it applies for valuation of capital asset under those sections.

Also, the word ‘may’ used in the statute is not discretionary as section 50C being a deeming provision. Thus, AO should refer the matter to DVO for determining FMV of the property wherever the Valuation has been disputed by the assessee.

In the instant case, it was held that the assessee before the Assessing Officer and also before the CIT(A) has pleaded that the value adopted for stamp duty purposes exceeded the fair market value of property as on the date of purchase and had submitted not only the evidence of circular rate at the relevant time but also valuation report by the registered valuer, which was filed before the Assessing Officer and CIT(A), then in such circumstances, it was incumbent upon the Assessing Officer to refer the matter to the District Valuation Officer in order to determine the fair market value of the property as on the date of purchase.

Mrs. Harmeet Kaur Khanuja v/s. ITO Ward 13(2), Pune [ITA NO.: 1573/PUN/2018, A.Y. 2015-16, Bench. “SMC”, Date: 14/03/2019 (Pune)(Trib)]

Unreported Decisions – April 2021

By Ajay R. Singh, Advocate

1. Low Tax Effect Appeals – Applicability to penalty appeals- Clause 10(e) of the CBDT Circular No. 3/2018 (as amended on 20.08.2018), the same applied only to additions which were based on information received from external sources – Since the levy of penalty by no means could be construed as an addition within the meaning of Clause 10(e) of the aforesaid circular.

The assessee company which is engaged in the business of manufacturing of AC and grills dampers etc, had e-filed its return of income for A.Y. 2011-12 on 20.09.2011, declaring a total income of ₹ 2,11,35,525/-. On the basis of information received from the DGIT(Inv.), that the assessee as a beneficiary had obtained accommodation bills of purchases, its case was reopened u/s. 147 of the Act.

During the course of the assessment proceedings it was observed by the A.O. that the assessee had claimed to have made purchases, from the Renuka Sales Corporation of ₹ 47,89,018/-. As the assessee failed to substantiate the genuineness and veracity of the aforesaid purchase transaction, the A.O, disallowed the entire amount of the aforesaid purchases. At the same time, the A.O while culminating the assessment also initiated penalty proceedings u/s. 271(1)(c) of the Act.

As the assessee did not assail the quantum assessment any further in appeal before the CIT(A), the same, thus attained finality. After the culmination of the assessment proceedings, the A.O vide his notice issued u/s. 274 r.w.s 271(1) (c) called upon the assessee to explain as to why penalty under the aforesaid statutory provision may not be imposed on it for furnishing of inaccurate particulars of income relating to claim of nongenuine purchases. The A.O not finding favour with the claim of the assessee imposed a penalty of ₹ 14,79,806/- for furnishing of inaccurate particulars of income within the meaning of Sec. 271(1)(c) of the Act r.w. Explanation 1.

Aggrieved, the assessee assailed the penalty imposed by the A.O under Sec. 271(1)(c) before the CIT(A). The CIT(A) found favour with the claim of the assessee that no penalty under Sec. 271(1)(c) was liable to be imposed .

The revenue carried the matter in appeal before ITAT. The Tribunal held that the quantum of penalty under dispute is ₹ 14,79,806/- which is substantially below the threshold limit of ₹ 50 lac as had been provided in the latest CBDT circular No. 17/2019, dated 08.08.2019, that contemplates the tax effect for filing of the appeals by the revenue. It is the claim of the ld. D.R that as the present appeal is covered by the exception carved out in clause 10(e) of the CBDT Circular No. 3 of 2018 (as amended on 20.08.2018) thus, the appeal filed by the revenue is maintainable.

The exception carved out in clause 10(e) of the CBDT Circular No. 3/2018 (as amended on 20.08.2018), which reads as under:

“10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax

effect: –

(e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI / ED / DRI / SFIO / Directorate General of GST Intelligence (DGGI)”.

The Tribunal held that it is a settled position of law that quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition/upholding of a penalty u/s 271(1)(c) of the Act. Adopting the same logic, it was held that unless a specific exception is provided in the circular w.r.t penalty also, it could by no means be construed that penalty was to be treated at par with the quantum additions. As is discernible from Clause 10(e) of the aforesaid CBDT Circular No. 3/2018 (as amended on 20.08.2018), the same applied only to additions which were based on information received from external sources. Since the levy of penalty by no means could be construed as an addition within the meaning of Clause 10(e) of the aforesaid circular, therefore, the contentions advanced by the revenue is rejected Accordingly, the appeal of the revenue is covered by the CBDT Circular No. 17/2019, dated 08.08.2019, the same, thus, is not maintainable. Accordingly, the appeal of the revenue was dismissed, for the reason, that the tax effect therein involved is lower than that contemplated in the aforesaid CBDT Circular fixing the monetary limit of filing of appeals by the revenue before the Tribunal.

Income-tax Officer-12(1)(1) v. M/s. Air Vision Technologies, [ ITA No. 4130/Mum/2019, A.Y. 2011-12, Bench. “A”, DOH:19/02/2021 (Mum) (Trib)]

2. S. 147: Reassessment – notice was issued beyond the period of four years – Where reasons recorded by Assessing Officer nowhere stated there was failure on part of assessee to disclose fully and truly all material facts necessary for assessment of that assessment year -the reopening of assessment is bad in law.

The assessee company is engaged in the business of marketing, promotion and distribution of ‘Red Hat Subscriptions’ to customers in Indian Sub-Continent. The assessee basically acts as a distributor of Red Hat Subscription which enables the customers in India to avail the support services for open source software systems. The return of income for the Asst Year 2007-08 was filed by the assessee company on 31.10.2007 admitting loss of ₹ 5,27,32,540/-. The original assessment was completed u/s. 143(3) of the Act on 26.11.2009 determining total loss of ₹ 5,03,97,261/-. Later this assessment was sought to be reopened by the ld AO vide issuance of notice u/s. 148 of the Act dated 2.12.2013. This reopening notice was admittedly issued beyond 4 years but within 6 years from the end of the relevant assessment year.

Tribunal held that it is mandatory on the part of the ld AO to duly mention in the reasons recorded itself as to whether there is any failure on the part of the assessee in disclosing fully and truly all material facts necessary for the assessment. In the instant case, from the reasons recorded, it could be seen that there is absolutely no mention of any failure on the part of the assessee in disclosing fully and truly all material facts necessary for the assessment during the original assessment proceedings. Admittedly the original assessment proceedings were completed u/s. 143(3) of the Act. Further, Tribunal find that the law is now very well settled that the reasons recorded by the ld AO for reopening the assessment should duly mention the failure, if any, on the part of the assessee in disclosing full and true information relevant for the assessment if the reopening is made beyond 4 years from the end of the relevant assessment year; and that the reasons recorded cannot be substituted at a later point in time by subsequent evidences by the ld AO and that the reasons recorded should speak by itself and duly express the clear mind of the ld AO which enabled him to frame an opinion that income of the assessee had escaped assessment within the meaning of section 147 of the Act. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional wherein it was held that where reasons recorded by Assessing Officer nowhere stated there was failure on part of assessee to disclose fully and truly all material facts necessary for assessment of that assessment year and notice was clearly beyond the period of four years reassessment was barred by limitation. The reopening of assessment is bad in law.

Respectfully following the aforesaid decision of Hon’ble Jurisdictional High Court, Tribunal held that the reopening of assessment made for the Asst Year 2007-08 is to be declared void abinitio and quashed..

M/s. Red Hat India Pvt. Ltd v DCIT-15(3)(1), [ITA NO.: 5832/M/2017, A.Y. 2007-08, Bench. “D”, date : 30/03/2021 (Mum)(Trib)]

Unreported Decisions – ST – April 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Unreported Decisions – March 2021

By Ajay R. Singh, Advocate

1. S. 68 Bogus share capital – The assessee had furnished PAN, copies of the income tax returns of the investors as well as copy of the bank accounts in order to prove genuineness of the transactions – credit worthiness of the creditors were concerned, the bank accounts of the investors showed that they had funds to make payments – not required to prove source of the source – no addition is justified

The assessee company is engaged in the business of Designing, Manufacturing and Marketing of Jewellery. During the year the A.O made the addition of ₹ 4,00,00,000/- made by the AO u/s. 68 of the Act on the basis of assessee has taken accommodation entries in the form of share premium money from the companies operated and managed by known hawala operator Shri Pravin Kumar Jain.

The CIT(A) deleted the addition on the basis that the assessee has produced all evidences to prove the identity, source and the genuineness and credit worthiness. It is submitted that the assessee has done everything in its control to establish the bonafides. It is also submitted that, even if it proved that the creditor has advanced funds from undisclosed sources, still it would be the income of the creditor. The assessee has produced all the details, confirmation with PAN, even the return of income of the share applicants. When such material is produced the assessee can be said to have discharged his onus and the onus would shift to the AO to bring some material on record which would prove that the material’s produced by the assessee is either not genuine or are insufficient. The AO’s response to the assessee’s material is simply that the assessee has not proved the source of funds in the hands of the share applicants. In the case of CIT V/s. U.M. Shah, Proprietor, Shrenik Trading Co. 90 ITR 396 (Bom.) the Hon’ble jurisdictional High Court held that once credible material is produced before the AO, the AO is expected to make efforts to dislodge the explanation given by the assessee. No such thing has been done by the AO. The AO cannot simply reject explanation/materials produced by the assessee without bringing any contrary findings on record.

The Tribunal held that the CIT(A) has examined all the necessary ingredients to prove the transactions such as identity, creditworthiness, genuineness of the claim. The details of the necessary documents have been mentioned by CIT(A) in his order. Initially, the AO has not verified the claim of the assessee and was not having proper material to decline the claim of the assessee. The documents relied by the assessee nowhere discredited with the sufficient evidence on record. Admittedly, all the necessary documents were filed by the assessee before the AO and no adverse inference was drawn by the AO on the said documents except merely stating that the share subscribers have negative reserves in their balance sheet thereby doubting their creditworthiness. It is pertinent to note that the AO remained silent after this. He did not even resort to issue notice u/s. 133(6) of the Act to the share subscribers and seek their replies before arriving at a conclusion that the receipt of share capital by the assessee is to be added as unexplained cash credit under section 68 of the Act. In these circumstances, the CIT(A) went through each and every document filed by the assessee before the AO and concluded that the assessee had duly proved all the three necessary ingredients viz identity and creditworthiness of share subscribers together with the genuineness of transactions, apart from placing reliance on various decisions.

Further, Tribunal find that the same parties from whom share subscription money is received by the assessee has been the subject matter of adjudication and this tribunal in various decisions as listed by the CIT(A) had considered them to be genuine and having sufficient creditworthiness apart from proving their identity beyond doubt. The decision of Hon’ble Jurisdictional High Court in the case of CIT vs Gagandeep Infrastructure Pvt. Ltd. in Income Tax Appeal No. 1613 of 2014 dated 20.3.2017 held that the proviso to s. 68 (which creates an obligation on the issuing Co to explain the source of share capital & premium) has been introduced by the Finance Act 2012 with effect from 01.04.2013 and does not have retrospective effect. Prior thereto, as per Lovely Exports 317 ITR 218 (SC), if the AO regards the share premium as bogus, he has to assess the shareholders but cannot assess the same as the issuing company’s unexplained cash credit.

Therefore, Tribunal affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.

The Income Tax Officer 12 v M/s. Kundali Jewels (India) Pvt. Ltd, ITA No. 4337/MUM/2019, dated: 23/02/2021 (Mum- Trib)

2. Section 271(1)(c) – Penalty – concealment of income – where income surrendered by assessee during survey had been shown by it in its regular income-tax return filed within prescribed time – no penalty could be imposed upon it u/s. 271(1)(c) of the Act.

The assessee is a company engaged in the business of manufacturing and marketing of plastic products and had filed its return of income for the A.Y.2009-10 on 24/09/2009 declaring total income of ₹ 2,99,94,911/-. During the year under consideration, the assessee has purchased land along with house at Hyderabad for ₹ 10.50 Crores vide sale deed dated 10-06-2008. The survey u/s. 133A of the Act was conducted on the assessee’s premises on 29-07-2008. During the course of survey proceedings, statement on oath of Shri Sanjay Damji Shah, authorised signatory on behalf of the assessee company for purchase of land at Jubilee Hill Road, Hyderabad was recorded and later on in the post survey proceedings on 08-09-2008, statement of Shri Jadavji Lalji Shah, Director of the assessee company was recorded wherein they had admitted additional income of ₹ 4.50 Crores as cash component towards purchase of property at Hyderabad. However, in the return of income, the assessee offered only a sum of ₹ 3 Crores as onmoney payment made for purchase of property at Hyderabad as its additional income by duly crediting the same in its profit and loss account under the head ‘other income’ by clearly mentioning that this sum of ₹ 3 Crores was the additional income offered during survey.

The A.O completed the assessment without considering the income of ₹ 3 Crores offered by the assessee in the return of income and made a total addition of ₹ 4.50 Crores based on the statement recorded as stated supra as unexplained investment u/s. 69B of the Act. The ld. CIT(A) in the quantum appeal deleted the addition made in the sum of ₹ 1.50 Crores and also held that the sum of Rs.3 Crores has already been disclosed by the assessee in the return of income which was accepted by the ld. AO while completing the assessment.

Thereafter, the ld. AO levied the penalty u/s. 271(1)(c) of the Act on the sum of ₹ 3 Crores ultimately offered by the assessee pursuant to the survey. This action of the ld. AO was upheld by the ld. CIT(A) on the ground that assessee had not recorded the cash of ₹ 3 Crores in its regular books of accounts, and that , but for the survey, the assessee would not have come forward to offer the same to the Income Tax department.

The Tribunal find that the profit and loss account for the year ended 31-03-2009 and the schedule for the other income thereon, the sum of ₹ 3 Crores has been disclosed by the assessee exclusively as income declared under survey under the head ‘other income’. This itself goes to prove that the assessee had duly recorded that income offered in the survey in its books of accounts. This sum of ₹ 3 crores was also duly offered to tax by the assessee in the return of income filed. Moreover, we find that similar issue had been the subject matter of adjudication by the Hon’ble Delhi High Court in the case of CIT vs. SAS Pharmaceuticals reported in 335 ITR 259 (Del) wherein it was held that for the purpose of imposing penalty u/s. 271(1)(c) of the Act, concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee has to be in the income tax return filed by the assessee. The facts before the Delhi High Court was that certain income was surrendered by the assessee during survey and the same was shown by it in regular income tax return which was filed within the prescribed time. The Hon’ble Delhi High Court held that no penalty would be eligible in such scenario. The facts of the case before us are exactly similar and identical to the facts before the Hon’ble Delhi High Court. In the instant case also there is no dispute that assessee had indeed disclosed ₹ 3 Crores additional income in the income tax return filed by it.

Further, we also find similar view was taken by the Hon’ble Gujarat High Court in the case of PCIT vs. Shree Sai Developers reported in 418 ITR 306. In the facts before the Hon’ble Gujarat High Court, a survey took declared during the survey of the assessee firm which was also subsequently included in the return of income filed by the assessee firm for the A.Y. 2012-13.The assessment was completed accepting the returned income thereon. The Hon’ble Gujarat High Court held that since there was no concealment in the return of income filed by the assessee which was ultimately accepted by the Revenue, there cannot be any levy of penalty u/s. 271(1)(c) of the Act.

Following the aforesaid decisions, it was held that no penalty u/s. 271(1)(c) would be eligible thereof in the hands of the assessee. Accordingly, the appeal of the assessee was allowed.

M/s. Balee Plastics Pvt. Ltd. v. ITO 5(1)(2), ITA No. 7663/MUM/2013, dated: 23/02/2021 (Mum- Trib)

Unreported Decisions – ST – March 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether the cost of free supply diesel for running the drilling vessel made by M/s. Oil & Natural Gas Corporation Limited (ONGC) i.e. the service recipient should be included in the value of taxable service provided by the Appellant i.e. the service provider while providing mining services to M/s. ONGC for performing drilling operations on Oil Wells? Whether the same stand is correct after Section 67 of the Finance Act, 1994 was amended w.e.f. 14.05.2015 to include inter alia, any reimbursable expenditure or cost incurred by the service provider?

Facts and Pleading: M/s. Vantage International Management Company (hereinafter the ‘Appellant’) was engaged in providing mining services to M/s. ONGC for performing drilling operations on Oil Wells in the East and West Costs of India. The agreement inter alia, provided that there will be an average consumption of diesel @ 50 KL/per day, which will be provided by M/s. ONGC at their cost.

The Appellant argued that for the period prior to 14.05.2015, the term ‘consideration’ finding place in the valuation provisions under Section 67 of the Finance Act, 1994 meant only the amount, which was payable for the provision of the taxable service. Thus, it was submitted that since M/s. ONGC was not required to make payment towards the cost of fuel to the Appellant, its value cannot be added to the taxable value for the purpose of computation of service tax liability thereon. It was further submitted that even the amended provisions to Section 67 w.e.f.14.05.2015 would not be applicable to the case of Appellant inasmuch as it had never charged the cost of fuel to the service receiver M/s. ONGC for providing the taxable service. the Appellant relied upon the judgment of Hon’ble Supreme Court in the case of Commissioner of Service Tax vs. Bhayana Builders (P) Ltd., 2018 (10) G.S.T.L. 118 (S.C.) and Union of India vs. Intercontinental Consultants & Technocrats Pvt. Ltd. – 2018 (10) G.S.T.L. 401 (S.C.), to argue that value of free supplies made under the contractual arrangement by the service receiver to the service provider cannot be added to the value of taxable service provided by the service provider.

Judgment: The Hon’ble CESTAT has held that the Appellant had never charged any cost of fuel to M/s. ONGC over and above the amount claimed by it for providing the taxable service. Since, M/s. ONGC was not required to make payment of fuel to the Appellant, its value cannot be added to the taxable value both under the un-amended and amended provisions of Section 67 of the Finance Act, 1994. Further, it was held that the Appellant herein had received the entire consideration for provision of service in monetary terms, hence, it cannot be said that it was not properly able to determine the value of taxable service, in order to attract the provisions of Rule 3 (b) of the Service Tax (Determination of Value) Rules, 2006. The Hon’ble CESTAT also held that the provisions of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 also would not attract in this case inasmuch as no cost of fuel was charged or billed by the Appellant to the recipient of service. In this regard, the Hon’ble CESTAT followed the judgment of Hon’ble Supreme Court in the case of Commissioner of Service Tax vs. Bhayana Builders (P) Ltd., 2018 (10) G.S.T.L. 118 (S.C.).

M/s. Vantage International Management Company vs. Commissioner, CESTAT Mumbai, decided on 12.2.2021 in Final Order No. A/85359/2021.

2. Whether the Appellant is liable to pay service tax under Reverse Charge Mechanism on the Export Pass fee and Import fee, Storage License Renewal fee, Excise Staff Salary and Overtime charges, Permit fee paid to the State Excise department?

Facts and Pleading: M/s. Anheuser Busch Inbev India Ltd (hereinafter referred to as the “Appellant”) are engaged, inter alia, in manufacture and sale of alcoholic beverages. The Appellant was paying Export Pass fee and Import fee, Storage License Renewal fee, Excise Staff Salary & Overtime charges and Permit fee paid to the State Excise department.

The department alleged that the aforesaid fees paid by the Appellant are with respect to the purported service provided by the State Government and in view of the amendment made to Section 66D of the Finance Act vide Finance Act, 2015, read with Notification No.06/2016-ST dated 18.02.2016, the Appellant is liable to pay service tax under reverse charge mechanism on the same.

The Appellant submitted that in terms of Entry 8 of List-II of Seventh Schedule of the Constitution of India, production, manufacture, possession, transport, purchase and sale of intoxicating liquors is the “exclusive privilege” of the State. It was also submitted that the State Government instead of engaging itself, can part with its “exclusive privilege” of trade in liquor on payment of such fee and on such terms and conditions as it can deem fit from time to time. Thus, there is no quid quo in the license fee and service, if any, rendered by the State Government. The license fee charged by the State Government is neither any tax nor fee, but it is the consideration charged by the State Government for parting with its privilege and granting it to licensee for manufacture and sale of liquor. In this regard, reliance was placed on Har Shankar Vs. Excise & Taxation Commissioner, (1975) 1 SCC 737 – 1975-VIL-14-SC. The Appellant also argued that the license fee charged by the State Government is not subject to tax as the same is not for any service. Pursuant to the retrospective amendment vide Section 117 of the Finance Act, 2019, it became even more clear that no service tax is leviable or payable on the license fee paid to the State Excise Department.

Judgment: The Hon’ble CESTAT has held that the fee charged for grant of license is not a consideration for service, but a price charged for “exclusive privilege” parted by the State, the export fee does not have an element of service and therefore not a service and accordingly not subject to levy of service tax. The Hon’ble CESTAT further observed that to deal with intoxicating liquor is part of the State responsibility and it is in exercise of these privileges, State has exclusive rights to manufacture, possession, consumption, transport etc. of liquor within its territory and to grant licenses and permits to ensure compliance. The Hon’ble CESTAT further held that in August, 2019, the Finance Act, 2019 was enacted amending Section 66B of the Act, to the effect that service tax was not leviable on services provided by the State Government by way of grant of liquor licenses against consideration in the form of license fee or application fee “by whatever name called”, during 01-04-2016 to 30-06-2017 along with this amendment the dispute regarding the leviability of service tax on fee paid to State Government in relation to alcoholic liquor for human consumption has come to an end and it is clear that service tax is not leviable on the said fees from April 2016 to June 2017. Specific inclusion of word “by whatever name called”, the Legislature made it abundantly clear that any fee paid under the purview of State Excise legislation would not be leviable to service tax. However, as far as levy of service tax on Storage License fee for CO2 was concerned, the Hon’ble CESTAT held that the said license is issued to the Appellant by the State Excise department for the specific purpose of storing CO2. The Appellant has paid the fee against the renewal of license for storing CO2 and the same cannot be considered as fee paid towards grant of liquor license. Therefore, the demand on the Storage License fee for CO2 was upheld.

M/s. Anheuser Busch Inbev India Ltd vs. Commissioner, CESTAT Bangalore, decided on 18- 02-2021 in Final Order No. 20038/2021.

3. Whether service tax is payable on the amount of liquidated damages/penalty collected by the Appellant for non-compliance of the terms of the procurement contracts and the amount collected towards theft charges from consumers for unauthorized use of electricity or for tampering of meters?

Facts and Pleading: M/s. M. P. Poorva Kshetra Vidyut Vitran Company Ltd. (hereinafter referred to as the ‘Appellant’) is a wholly owned undertaking of the Government of Madhya Pradesh and is engaged in the distribution of electricity in the eastern area of the State. In the course of business, certain contracts were executed by the Appellant in which a clause provided for levy of penalty for non-observance/breach of the terms of the contract. The Appellant also collected theft charges as penalty for unauthorized use of electricity as contemplated under section 135 of the Electricity Act, 2003 read with Chapter-X of the Madhya Pradesh Electricity Supply Code, 2013.

The department contended that this amount was not included in Section 66D(k) of the Finance Act, 1994 i.e. the negative list and the said penalty amount and the amount collected towards theft of electricity by the Appellant was towards consideration for tolerating an act and covered as a “declared service” under section 66E(e) of the Finance Act w.e.f. July 1, 2012. The department argued that at the time of signing the contract, both the parties planned and agreed to tolerate any breach of contract through the payment of liquidated damages, hence, the consideration is both intentional and at the desire of the parties. The department relied upon decision of the Constitution Bench of the Supreme Court in Fateh Chand vs. Balkishan Das AIR 1963 SC 1405 wherein it is held that reasonable compensation for a breach of contract has to be proportionate to the actual injury suffered, which means injury tolerated since the word “suffering” is synonymous to “tolerating”. The department also argued that a case of compensation or damages for breach of a contract always involves one party tolerating/suffering an injury, hence, the claim of the Appellant in the present case that their contract is not for tolerating anything is fundamentally wrong. In this regard, department relied upon XL Energy Limited Vs. Mahanagar Telephone Nigam Limited MANU/DE/1892/2018.

The Appellant relied upon the decision of the Tribunal in M/s. South Eastern Coalfields Ltd. Vs. Commissioner of Central Excise and Service Tax 2020-TIOL-1711- CESTAT-DEL to submit that the amount collected towards liquidated damages and theft of electricity cannot be subjected to service tax.

Judgment: The Hon’ble CESTAT held that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided under Section 67 of the Finance Act, 1994. The same refer to “where the provision of service is for a consideration”, whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a “consideration” for the provision of such service. The Hon’ble CESTAT observed that the Explanation to sub-section (1) of Section 67 clearly provides that only an amount that is payable for the taxable service will be considered as “consideration”. The Hon’ble CESAT emphasized on the fact that the term “consideration” is couched in an “inclusive” definition. The Hon’ble CESTAT also considered the basic difference between “conditions’ to a contract and “consideration for the contract” to held that certain “conditions’ contained in the contract cannot be seen in the light of “consideration’ for the contract and merely because the service recipient has to fulfil such conditions would not mean that this value would form part of the value of the taxable services that are provided. Accordingly, the Hon’ble CESTAT while relying on M/s. South Eastern Coalfields Ltd case and several other decisions to held that the amount collected towards liquidated damages and theft of electricity cannot be subjected to service tax.

M/s. M. P. Poorva Kshetra Vidyut Vitran Company Ltd Vs Principal Commissioner, CESTAT Delhi, decided on 14.01.2021 in Final Order No. 51024/2021.

4. Whether the Tribunal was correct in law in travelling beyond the Show Cause Notice and remanding the matter for fresh adjudication on a ground which was never raised by the Revenue in the Show Cause Notice or in the adjudication order i.e. to remand the matter to original authority to issue a fresh show cause notice to the Petitioner as regards its very entitlement for CENVAT credit?

Facts and Pleading: M/S Chemplast Sanmar Ltd (hereinafter the ‘Petitioner’) is engaged in the manufacture of caustic soda and chloromethane products. Show cause notices were issued against the Petitioner alleging wrong availment of service tax credit based on debit notes, the eligibility of the Cenvat credit otherwise was not disputed. The matter reached to the Tribunal level, wherein Hon’ble CESTAT remanded the matter back to the original authority to issue a fresh show cause notice to the Petitioner as regards its very entitlement for CENVAT credit.

The Petitioner contends that the Tribunal was incorrect in law in travelling beyond the Show Cause Notice and remanding the matter for fresh adjudication on a ground which was never raised by the Revenue in the Show Cause Notice or in the adjudication order. The Petitioner also contended that the Tribunal was wrong in law in directing the adjudicating authority to examine the eligibility of credit in the light of Section 37(2) of the Central Excise Act when no such contention was raised by the Revenue in the Show Cause Notice. The Petitioner also contended that the Tribunal was acting beyond its jurisdiction in holding that the adjudicating authority should examine whether the impugned services can be considered as eligible input services under the Cenvat Credit Rules when the only issue in appeal was whether a debit note is a valid document or not for availing cenvat credit. The Petitioner further stated the Tribunal was wrong in holding even after accepting the submissions made by the Petitioner with reference to the allegations in the Show Cause Notice that they can remand the matter for denovo adjudication with a fresh proposal which was not the subject matter of the appeal.

The Respondent Authorities contended that the Tribunal would be entitled to examine all issues, when it seized of an appeal arising out of an order in original or an order in appeal.

Judgment: The Hon’ble High Court held that firstly, the appeal was filed by the Petitioner and not the Revenue. The Revenue did not prefer any cross appeal/objection. Therefore, the Petitioner cannot be worse off in its own appeal before the Tribunal. Further, the Tribunal has not recorded as to who had advanced such submission. In the absence of any such observation, the Hon’ble high Court held that it is suo motu exercise by the Tribunal, which is uncalled for and without jurisdiction. The Hon’ble High Court relied on on the decision of the Hon’ble Supreme Court in SACI Allied Products Ltd., vs. Commissioner of C. Ex., Meerut, 2005 (183) ELT 225 (SC) to held that the Tribunal cannot sustain the case of the Revenue against an assessee on a ground not raised by the Revenue either in the show cause notice or in the order in original passed by it. Accordingly, the Hon’ble High Court held that the direction issued by the Tribunal to issue a fresh show cause notice to the Petitioner as to whether the impugned services are eligible input services or not is wholly without jurisdiction and the same is liable to be set aside.

M/s Chemplast Sanmar Ltd Vs The Commissioner of Central Excise, Anaimedu, Salem, High Court of Madras, decided on 11.02.2021 in C.M.A.Nos.2200 to 2202 of 2010 and M.P.Nos.1, 2 & 2 of 2010.

Unreported Decisions – ST – February 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether Transportation facilities arranged by employers for their employees, liable to GST as ‘Supply between related persons’?

Facts and Pleading: M/s Beumer India Private Ltd. (hereinafter the ‘Applicant’) had engaged a transport agency for employees of the company to travel to and from the workplace. The services were provided free of cost as a part of human resource policy, but in case of air-conditioned buses, the Applicant recovered a nominal amount of Rs. 600/month. The advance ruling was sought on the aspects of taxability of such facility provided by the employer to the employee with or without recovery of cost from employees.

The Applicant contended that the free transportation facility is provided by the employer to its employees during the course of employment, more particularly, in return to the services supplied by the employee. Thus, the said services can be construed as a consideration for the supply of services by the employee. The services from employee to employer are covered under Entry 1 of Schedule III to the Central Goods and Services Tax Act, 2017 (‘CGST Act’), hence, the consideration paid for such services shall not be liable to tax. Alternatively, the transportation facilities are provided by employer to employee free of cost, thus the same being supply without consideration cannot be construed as supply under Section 7(1)(a). The provision of said facility does not fall under Section 7(1)(c), which covers activities or transaction between related person made in course or furtherance of business, to be treated as supply even if made without consideration, because said facilities are not provided in course or furtherance of business for the following reasons: –

• Firstly, the provision of transportation facility is not the business of the applicant, and neither does the applicant provide bus transportation facility to its employees nor are the employees buying this facility from the Applicant.

• Secondly, the applicant does not intend to earn any income out of this facility.

• Thirdly, the transportation facility is not mandated by law rather, the same is provided as an additional facility to employees.

• Hence, the transportation facility provided by company (employer) to the employees can be construed as a related party transaction, but it cannot be construed to be supply by virtue of Entry 2 of Schedule I as it is not done in the course or furtherance of business.

Judgment: The Authority held that the transportation facility provided by employer to employee qualifies as a transaction between related parties, as employer and employees are deemed to be related persons by virtue of the explanation attached to Section 15 of CGST Act. The transportation facility provided by the applicant to its employees qualify as an activity in furtherance of his business, as the expression ‘furtherance of business’ is broad enough to cover anything done in relation to business, while carrying out business or simply an ordinary activity of that organization to run its business. Thus, as per the Authority, the transport facilities provided by employer to employee either free of cost or upon collection of a nominal amount, would be a taxable service under GST and for valuation of such services, provision under Section 15 shall be applicable.

In RE: M/s Beumer India Private Ltd., Haryana Authority of Advance Ruling Goods and Service Tax, decided on 29.10.2020 in AAR Order No. HAR/HAAR/2020-1/1.

2. Whether a person is required to submit an application for revocation of cancellation of their GST Registration on the GST portal as there stands no manual restoration of the GST Registration even in case where the person has an order passed by Appellate Authority in his favor for the restoration?

Facts and Pleading: Vidyut Majdoor Kalyan Samiti (hereinafter referred to as the ‘Petitioner’) is a registered society. The Petitioner failed to file monthly returns (GSTR-3B) for more than six months for the period from October to March in assessment year 2018-19 and from April to June in assessment year 2019-20 as required under the Goods and Service Tax Act, 2017. This led to a show cause notice being uploaded on the GST Portal on 22.08.2019 granting seven days’ time to the petitioner to show cause. However, during this period of seven days, the petitioner never visited the portal and, therefore, was not able to reply to the show cause notice. As a consequence, vide order dated 02.09.2019, the GST registration of the petitioner was cancelled. The Petitioner upon approaching the Additional Commissioner, Grade-02 (Appeal)-I, Commercial Tax, Bareilly received a relief when the order was set aside upon such an appeal. The appellate order restored Petitioner’s GST registration with effect from 02.09.2019. However, the Petitioner is aggrieved as the abovementioned relief has not been implemented on the GST Portal and the same has been inactive.

The Respondents argued that restoration of the GST registration is the responsibility of the Petitioner. The Respondents submitted that the Petitioner should submit a fresh application and obtain a GST registration online. So, the Respondents case was that there can be no manual restoration of the GST registration and, therefore, the writ petitioner is liable to be dismissed. The Respondents also argued that the Petitioner wrongly assailed the registration cancellation before the Additional Commissioner without applying for its revocation on the portal. It has also been argued that the Petitioner is required to furnish details of old returns, tax, interest or penal interest along with his revocation application, which has not been done.

Judgment: The Hon’ble High Court held that the Respondents failed to show that the order passed by the Commissioner (Appeals), restoring Petitioner’s GST registration, is either illegal or without jurisdiction, they cannot take a plea of non-compliance of an appellate order, passed by a competent appellate authority. The Hon’ble High Court further held that that the contention raised by the Respondents that there is no provision of restoration of a GST registration, once it has been cancelled borders on an absurd understanding and merely because such provision has not been made by the Respondents, the Petitioner cannot be made to suffer. The Hon’ble High Court observed that in case, no provision for its restoration has been made in the software, the same is not the fault of the petitioner and it is for the department and the respondents to make provisions for the same in the software and on the GST Portal. Accordingly, the petition was allowed.

Vidyut Majdoor Kalyan Samiti Vs State of U.P., High Court of Judicature at Allahabad decided on 18.1.2021 in W. P. No. 638 of 2020.

3. Whether non-maintenance of records of personal hearings while hearing appeals through video conferencing during the Covid-19 pandemic period can be a breach of natural justice and hence the order invalidated?

Facts and Pleading: M/s Metrolite Roofing Pvt. Ltd. along with others Petitioners (hereinafter referred to as the ‘Petitioners’) have challenged the orders passed by the Respondent Appellate Authority (hereinafter referred to as the Respondent) without maintaining a record of personal hearing at the time of disposal of the appeals preferred by the Petitioners against orders of the original authority.

It is the submission of the Petitioners that in connection with the procedure stipulated for hearing appeals through video conferencing during the Covid-19 pandemic period, the Respondent was obliged to maintain a record of personal hearing and issue a copy of the same to the Petitioners so as to comply with the requirements of natural justice. In the instant cases, it is the contention of the Petitioners that neither such records of personal hearing were maintained, nor copies of the said record of personal hearing were sent to them.

The Respondent contended that they have heard the said authorised person on behalf of the Petitioners and accepted the common written submissions filed by them. The Respondent admitted that the record of personal hearing was inadvertently omitted to be sent to the Petitioners although the argument notes already submitted by the authorised representative of the Petitioners was available with the appellate authority.

Judgment: The Hon’ble High Court held that the Respondent ought to have complied with the said procedure strictly as the procedure for maintaining a record of personal hearing was a formal one that was devised to take care of the compliance with the rules of natural justice during the period when the personal hearing had to be undertaken through video conferencing, taking note of the covid pandemic situation. As the said procedure was not complied with, the Hon’ble High court quashed the impugned orders and directed the appellate authority to pass fresh orders after complying with the said procedure and after hearing the Petitioners. The Appellate Authority were also directed to pass fresh orders within two months from the date of receipt of a copy of this judgment.

M/s Metrolite Roofing Pvt. Ltd Vs The DY. Commissioner of Central Tax and Central Excise, Palakkad, High Court of Kerala at Ernakulam decided on 21.12.2020 in WP(C). No. 23270 of 2020(G).

4. Whether once inquiry has been initiated under a State GST Act, similar proceeding can be initiated under CGST Act even if basis of material of inquiry/investigation may be different?

Facts and Pleading: M/s G.K. Trading Company (hereinafter the ‘Petitioners’) is trading in Iron Bars and Rods and Non-Alloy Steel etc. and had obtained registration in Form GSTREG-06 under the U.P. GST Act. The State Respondent Authority upon conducting a survey at the premises of the Petitioners found no business activity and therefore issued a summon dated 02.06.2018 under Section 70 of the U.P. GST Act requiring him to submit details of purchases and sales, list of buyers and sellers and certain other documents. Another summon was issued to the Petitioner under Sections 70 and 174 of the CGST Act, 2017 by the Central Respondent Authority, requiring the petitioner to appear in person on 25th or 26th July, 2019 at 12.00 hours to tender statement in person. A trail of summons issued on 26.08.2019 and 26.08.2020, to which the Petitioner did not respond, and finally wrote a letter dated 11.09.2020 that detailed inquiry is being conducted by the State Respondent Authority.

The Petitioner contends that as the State Respondent Authority has conducted a survey of his business premises on 30.05.2018 and is investigating in the matter pursuant to the aforesaid survey, no inquiry can be initiated or summon can be issued under Section 70 of the C.G.S.T. Act by the Central Respondent Authority against the Petitioner even if basis of material of inquiry/ investigation by the State and Central Respondent Authority may be different. The Petitioners contends that this is barred by the provisions of Section 6(2)(b) of the C.G.S.T. Act.

The Respondent Authorities have contended that Section 6(2)(b) under which the Petitioner claims that the inquiry is barred, does not define the meaning of “subject matter”. The Respondent relies on the interpretation of the Hon’ble Supreme Court in Ballabh Das vs. Dr. Madan Lal and others, (1970) 1 SCC 761 where the courts interpreted the word “subject matter” in context of the Civil Procedure Code where also these words have not been defined. It was Contended by the Respondent that the word “proceedings” used in Section 6(2)(b) is qualified by the words “subject-matter” which indicates an adjudication process/ proceeding on the same cause of action. However, these proceedings are subsequent to inquiry under Section 70 of the Act. The words “in any inquiry” used in Section 70 of the Act which is referable to the provisions of Chapter XIV. The Respondent therefore contends that proper officer under the U.P.G.S.T. Act or the C.G.S.T. Act may invoke power under Section 70 in any inquiry. And prohibition of Section 6(2)(b) of the C.G.S.T. Act shall come into play only when any proceeding on the same subject- matter has already been initiated by a proper officer under the U.P.G.S.T. Act.

Judgment: The Hon’ble High Court held that the word “inquiry” in Section 70 is not synonymous with the word “proceedings”, in Section 6(2)(b) of the U.P.G.S.T. Act/ C.G.S.T. Act and that it has a special connotation and a specific purpose to summon any person whose attendance may be considered necessary by the proper officer either to give evidence or to produce a document or any other thing. It cannot be intermixed with some statutory steps which may precede or may ensue upon the making of the inquiry or conclusion of inquiry. The Hon’ble High Court held that the process of inquiry under Section 70 is specific and unified by the very purpose for which provisions of Chapter XIV of the Act confers power upon the proper officer to hold inquiry. The court held that Section 6(2)(b) of the C.G.S.T. Act prohibits a proper officer under the Act to initiate any proceeding on a subject-matter where on the same subject-matter proceeding by a proper officer under the U.P.G.S.T. Act has been initiated and in the present case a mere inquiry by a proper officer was carried out under Section 70 of the C.G.S.T. Act. Hence the court dismissed the writ petition on such grounds.

M/s G.K. Trading Company Vs Union of India., High Court of Judicature at Allahabad decided on 2.12.2020 in Writ Tax No. 666 of 2020.

Unreported Decisions – February 2021

By Ajay R. Singh, Advocate

1. S. 271(1)(c) : Penalty –Concealment – debited the deferred tax asset written off in the profit and loss account as exceptional item – However, the same has not been disallowed in the computation of taxable income -Bona fide mistake – Deletion of penalty is held to be justified.

The assessee, a trader in capital goods filed its ROI for the AY: 2012-13 on 27.11.2012 declaring total loss of Rs.7,70,94,246/-. During the course of assessment proceedings, it is noticed by the A.O that the assessee has debited an amount of Rs.2,02,33,602/- as deferred tax asset written off in the profit and loss account as exceptional item. However, the same has not been disallowed in the computation of taxable income. In response to a query raised by the AO, the assessee explained vide order sheet noting dated 12.03.2015 that the same remained to be added inadvertently and accepted the addition. Accordingly, the AO made an addition of Rs.2,02,33,602/- to the total income of the assessee. Thus the total loss reflected by the assessee in the return of income was reduced to loss of Rs.5,68,60,644/-.

The AO then initiated penalty proceeding u/s 271(1)(c) of the Act. In response to the penalty notice u/s 274 r.w.s 271(1)(c) of the Act. The assessee filed a reply stating inter alia that the return of income was assessed declaring a total loss of Rs.5,68,60,644/-.

Further, during the course of assessment proceedings, assessee had accepted the addition made on account of deferred tax asset written off in the profit and loss account as exceptional item and also offered its explanation that the said expenditure was mistakenly allowed in the computation of total income, there was no intention of evasion of tax or understating its total income in any manner. In view of the above, Explanation 1 to section 271(1)(c) of the Act is not attracted by the A.O and is deemed bona fide.”

The Tribunal held that the carried forward loss has not been set off subsequently and the assessee has huge carry forward assessed losses of earlier years which were otherwise available for set off. As mentioned earlier, the financial statements of the assessee were placed before the AO during the course of assessment proceedings which clearly stated the deferred tax asset written off as a separate line item on the face of the profit and loss account. Also in Note 19 (Significant Accounting Policies) forming part of financial statements, has the details and explanation.

The Tribunal held that the facts clearly indicates that deferred tax asset written off was reported in the financials, however, the same was inadvertently left to be added back to the net loss before tax while making the tax computation. This error is only a computation error made in the return of income which occurred due to overlooking the contents of the profit and loss account. The contents of the financial statements do not conceal any particulars. The error committed by the appellant is a bona fide and inadvertent one. The obtaining factual matrix in the instant case is broadly similar to the decision in Price Waterhouse Coopers Pvt. Ltd [348 ITR 306](Supreme Court) instead of Dharmendra Textiles Processors (2008) 306 ITR 277 (SC). In view of the above factual scenario and position of law the penalty of Rs.65,64,793/- levied by the AO is deleted.

Illies Engineering India Pvt. Ltd. v DCIT 2(2)(1),[ ITA No. 109/MUM/2019, dated: 01/02/2021 (Mum- Trib)]

2. The amounts received by the assessee as the alternative accommodation – which is a compensation on account as hardship compensation, rehabilitation compensation and for shifting – capital receipt – not liable to tax.

During the course of appellate proceedings, the ld. CIT(A) found on the basis of details forwarded by from M/s. Calvin Properties that assessee has been given compensation for alternative accommodation of Rs.2,60,000/- as per in terms of Development agreement. According to the ld. CIT(A), the amount received was over and above the rent actually paid by the assessee and therefore, the same has to be taxed accordingly. The ld. CIT(A) issued notice u/s.251(2) dated 24/02/2017 qua the proposed enhancement. This was replied by the assessee by submitting that assessee received monthly rental compensation during the year aggregating to Rs.2,60,000/- for the alternative accommodation which is a compensation on account of her family displacements from the accommodation and tremendous hardship and inconvenience to her caused thereby and submitted that the said compensation is towards meeting / overcoming the hardship and it is a capital receipt and therefore, is not liable to be taxed. The assessee relied on the decision of the Coordinate Bench in the case of Kushal K. Bangia vs. ITO in ITA No.2349/Mum/2011 for A.Y.2007-08 wherein the AO did not tax the displacement compensation as it was held to be a receipt not in the nature of income, however, the ld. CIT(A) has rejected the contentions of the assessee and enhanced the assessment to the extent of Rs.2,60,000/- by holding that assessee has not paid any rent.

The Tribunal find that compensation received by the assessee towards displacement in terms of Development Agreement is not a revenue receipt and constitute capital receipt as the property has gone into re-development. In such scenario, the compensation is normally paid by the builder on account of hardship faced by owner of the flat due to displacement of the occupants of the flat. The said payment is in the nature of hardship allowance / rehabilitation allowance and is not liable to tax. The case of the assessee is squarely supported by the decision of the Co-ordinate Bench in the case of Shri Devshi Lakhamshi Dedhia ITA No.3526/ Mum/2017 Ms. Delilah Raj Mansukhani 4 vs. ACIT in ITA No.5350/Mum/2012 wherein similar issue has been decided in favour of the assessee.

Following the co-ordinate Bench decision, Tribunal set aside the findings of the ld. CIT(A) on this issue and direct the AO to delete the addition made of Rs.2,60,000/-.

Smt. Delilah Raj Mansukhani v ITO 35(1)(3) [ITA No. 3526/ MUM/2017, dated: 29/01/2021 (Mum- Trib)]