Indirect Tax- Case Law Update- February 2023

By CA Rajiv Luthia

1.  M/s SUMERU BUILDERS v/s COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX,RAJKOT [2023-TIOL-58-CESTAT-AHM] (CESTAT AHMEDABAD)

Facts of the Case:

  1. M/s Sumeru Builder (“Appellant”) is engaged in the business of building of residential complex. In terms of clarification issued by CBEC bearing no. 108/02/2009-ST-F.No. 137/12/2006-CX.4 dated 29th January, 2009 Appellant was exempted from payment of service tax in capacity of “Builders”.
  1. By virtue of amendmend to Finance Act, the liability to discharge service tax arose on builders with effect from 1st July, 2010. Accordingly, the Appellant obtained ST registration on 6th August, 2010 however did not start paying service tax owing to certain doubts and uncertainty regarding such levy.
  1. Appellant received summons during April, 2011 regarding payment of tax on advances received. On being pointed out by department and having explained the levy, the Appellant voluntarily discharged service tax amounting to Rs.13,71,476/- along with interest – Rs.47,925/- and late fees – Rs.2,000/- through various challans. The Appellant also filed the ST returns on 20th April, 2011
  1. Acceptance of said liability and payment made thereof was duly communicated to the officers concerned vide the Appellant letter dated 25th April, 2011.
  1. Show Cause Notice was issued to the Appellant in January, 2012 without granting the Appellant benefit of cum tax calculation of tax liability in terms of Section 67(2) of the Finance Act, 1994 thereby denying benefit of Section 73(3) of the Finance Act, 1994.
  1. The order passed by the Adjudicating Authorities upheld that the benefit shall not be granted since the payment of tax was not voluntary but only when found and pointed by the tax authorities.

Appellant contention:

  1. The Appellant has not argued/challenged the service tax liability alleged to have been unpaid. The present Appeal was filed merely with a plea to waive off the penalty imposed vide impugned SCN denying the benefit Section 73(3) of the Finance Act, 1994
  2. The Appellant strongly argued that entire service tax liability along with interest has been duly discharged before the issuance of impugned SCN and thus the benefit of cum duty should not be denied

Decision of Hon’ble CESTAT

  1. It was noted that the appellant had discharged the liability to service tax soon after the same was pointed out by revenue.
  1. The argument of Appellant that there was some confusion in their mind regarding liability to service tax in terms of CBEC was agreed since they had taken registration immediately after the amendment clause (zzq) and (zzzh) of sub-section 105 of Section 65 of the Finance Act, 1994. This clearly shows that the Appellant had no intention to evade payment of tax.
  1. It was held that Section 67(2) clearly provides for treating the amount charged by the service provider as inclusive of service tax payable unless it is specifically mentioned in the documents. In the instant case no evidence has been produced by the revenue to hold that the amount collected by the appellant is exclusive of service tax or it has been separately collected by the appellant.
  1. In view of the above, it was held that no merit is found in the department’s stand that benefit of Section 67(2) could not be extended. Considering the facts and background of instant case, it was held that Appellant discharged entire service tax along with interest soon after the same was pointed out and in this circumstances the benefit of Section 73(3) should not have been denied

 

2.   M/S. SHEKHAR RESORTS LIMITED (UNIT HOTEL ORIENT TAJ) VERSUS UNION OF INDIA & ORS. 2023 (1) TMI 256 – SUPREME COURT

Facts of the Case:

  1. M/s Shekhar Resorts Limited (Unit Hotel Orient Taj) (“Appellant”) is engaged in providing hospitality services and is registered for payment of service tax.
  1. The department conducted investigation and thereafter issued impugned SCN demanding service tax under various categories such as Accommodation in Hotels, Inn, Guest House, Restaurant Services, Mandap Keeper services etc
  1. However, proceedings under the Insolvency and Bankruptcy Code were already initiated against the Appellant. The chronology of events under IBC proceedings are as follows –
Application filed by Financial Creditors under Section 7 admitted by NCLT, Delhi : 11th September, 2018
Moratorium under Section 14 of IBC commenced from : 11th September, 2018
CoC approved the resolution plan : 4th June, 2019
Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 introduced u/s 125 of Finance Act : 1st September, 2019
Last date to made application under SVLDR scheme : 31st December, 2019
Application made by Appellant under SVLDR scheme and was issued Form No. 1 : 27th December, 2019
Designated Committee issued Form 3 requiring the Appellant to pay Rs.1,24,28,500/- under the scheme : 25th February, 2020
Appellant to make said payment under SVLDR on or before : 30 days (extended upto 30th June, 2020 due to the CoVID – 19 pandemic)
NCLT approved resolution plan vide order dated : 24th July, 2020
Moratorium ended and the insolvency proceedings came to end as on : 24th July, 2020
Appellant conveyed the conclusion of IBC proceeding and its willingness to discharge tax as ascertained by the Designated Committee vide letter dated : 9th October, 2020
Joint Commissioner vide its letter rejected the request of Appellant by stating that the payment ought to have been made within the time specified under the scheme : 19th October, 2020
  1. Since the Appellant could not obtain permission for payment of dues post lifting of the moratorium, the appellant approached the Hon’ble Allahabad High Court by way of Writ petition. By the impugned judgment and order the Hon’ble High Court dismissed said writ petition on the grounds that
      1. the High Court shall not issue a direction contrary to the Scheme;
      2. the relief sought cannot be granted as the Designated Committee under the Scheme is not existing.
  1. Aggrieved by said decision of Hon’ble Allahabad High Court the Appellant filed Appeal before the Hon’ble Supreme Court seeking relief in this matter

Appellants Contentions

  1. The Appellant submitted that during the moratorium period, no payment could have been made as per the provisions of IBC. Thus, at the time when Form No.3 was issued and even during the period under the Scheme 2019, the appellant was subjected to the rigor of the provisions of the IBC by virtue of the moratorium period which ended only on 24th July, 2020 i.e. when the NCLT approved the Resolution Plan.
  1. Thus, the appellant bonafidely could not deposit settlement dues, on or before 30th June, 2020 on account of operation of law. It is contended that if any payment would have been made during the mortarium period the same would have been in breach of the provisions of the IBC.
  1. Appellant specifically mentioned that as per the Resolution Plan, Applicant is required to deposit the amount payable to creditor in an escrow account within 6 months from the effective date and that said deposit shall be treated as effective payment to the relevant Operational Creditor. In instant case, effective date is 24.07.2020, the date on which the Resolution Plan was approved by the NCLT. So, Service Tax dues along with other statutory dues were deposited in an escrow account on 8th January, 2021 before the expiry of the period of six months.
  1. The Appellant submitted that Designated Committee under the Scheme was formed as per Rule 5 of the Scheme, 2019 and comprised of the Joint Commissioner and the Commissioner who are officers associated with the offices of Respondent in present case. That the Designated Officers continue to act as the Designated Committee under the Scheme till the completion of the proceedings under the Scheme. Also, the DC under the Scheme is being constituted on a need basis to comply with the orders of the courts across the country. That in many cases the DC rejected the applications under the Scheme, 2019 erroneously and the different courts set aside the decisions of the DC after 30.06.2020 and directed the DC to consider the case of the respective applicants under the Scheme, 2019. It is submitted that to reconsider the cases pursuant to the orders passed by the courts/High Courts, the CBEC issued the instructions dated 17.03.2021 allowing for manual processing of declarations under the Scheme by the respective DC. It is submitted that therefore even after 30.06.2020 the respective DC carried out their functions under the Scheme, however by manual processing.
  1. It was submitted that the reasoning given by the Hon’ble High Court that the Designated Committees are not in existence after 30.06.2020 and therefore the appellant is not entitled to any relief, may not be accepted, as even after 30.06.2020 and even as per the instructions issued by the CBEC, the respective Designated Committees continued to function and processed the declarations manually.
  1. Making the above submissions and owing to the legal disability, it was prayed that the instant appeal be allowed and the payment of Rs.1,24,28,500/- be appropriated towards settlement dues under the Scheme 2019 by issuance of discharge certificate in this matter.

Decision of Hon’ble Apex Court

  1. On going through the facts of present case the Hon’ble Apex Court was of the opinion that the short question which is posed for consideration before this Court is, whether,
    1. when it was impossible for the appellant to deposit the settlement amount in view of the bar and/or the restrictions under the IBC, the appellant can be punished for no fault of the appellant?
    2. Can the appellant be made to suffer for no fault of its own, and be rendered remediless and denied the benefit/relief though it was impossible for the appellant to carry out certain acts, namely to deposit the settlement amount during the moratorium?
  1. It was thus held that in light of the law laid down by this Court in various decisions to the facts of the case on hand, the Appellant cannot be punished for not doing something which was impossible for it to do. There was a legal impediment in the way of the appellant to make any payment during the moratorium. Even if the appellant wanted to deposit settlement amount within the stipulated period, it could not do so in view of the bar under the IBC as, during the moratorium, no payment could have been made. In that view of the matter, the appellant cannot be rendered remediless and should not be made to suffer due to a legal impediment which was the reason for it and/or not doing the act within the prescribed time. The Courts are meant to do justice and cannot compel a person to do something which was impossible for him to do.
  1. So far as the other ground given by the High Court, that the DC are not in existence, is concerned, it is required to be noted that the CBCE has issued a circular that in a case where the High Court/courts have passed an order setting aside the rejection of the claim under the Scheme after 30th June, 2020, the applications can be processed manually. In many cases the High Courts have remanded the matter to the Designated Committees which consist of the officers of the Department and the applications thereafter are processed manually.
  1. It was thus held that the appellant was otherwise entitled to the benefit under the Scheme as the Form No.1 submitted by the appellant has been accepted, the Form No.3 determining the settlement amount has been issued, the High Court has erred in refusing to grant any relief to the appellant as prayed.
  1. By allowing the present appeal, the impugned judgment and order passed by the High Court was quashed and set aside. The payment of Rs.1,24,28,500/- already deposited by the appellant was directed to be appropriated towards settlement dues under the SVLDR scheme and the appellant be issued discharge certificate.

 

3.   DRISHTYCOMMUNICATION PRIVATE LIMITED VERSUS C.C.E. & S.T. – RAJKOT (2023 (1) TMI 297 – CESTAT AHMEDABAD) 

Facts of the Case:

  1. M/s DRISHTY COMMUNICATION PVT LTD (“Appellant”) is engaged in the business of providing advertising service to get customized and was registered as the “The Indian Newspaper Society” (INS).
  1. The Appellant was remitting 85% of total amount received from its customers on getting space/time from media agencies or news papers or various publications. Remaining 15% of the amount was being retained by Appellant as commission. Appellant had duly paid tax on Commission received by it.
  1. Show Cause Notice was issued to the Appellant seeking clarification as to why the services provided by it should not be classified under the category of “Advertising Agency service” and thereby taxable under Section 65(105)(e) of the Finance Act, 1994
  1. Impugned SCN sought to levy tax on the payments received by the Appellant from its sub-agents for purchase of time and space for advertising by alleging that the same falls under the category of Advertising Service.

 

Arguments by Applicant:

  1. It was alleged that though the services provided by one of Appellants sub agents M/s. Surya Publicity, to their client/customers were exempted by way of Exemption Notification, the services provided by Appellant to M/s. Surya Publicity were not exempted as the appellant was not exempted under said notification.
  1. In response to this it was argued that Appellant has not provided any services to their client / sub agents. It has been argued that it is only the sub agents who provide services to their client and since Appellant is not providing any service, the question of levy and payment of any Service Tax does not arise.
  1. Further, the Appellant contended that it was merely acting as an intermediary between the sub agents and the advertising agency/platforms. The Appellant was working on commission basis and thus discharging service tax thereon.
  1. The Appellant also relied on Clarification issued by CBEC vide Circular No. 96/7/2007- ST dated 23rd August, 2007 wherein following has been clarified: 
Ref. Code Issue Clarification
004.01/ 23.08.07 Persons/agencies canvass advertisements for publishing, on commission basis. Such persons/ agencies do not provide any other services like making preparation, display or exhibition of advertisement. Whether merely canvassing advertisement for publicshing on a commission basis by persons/agencies is classifiable as Advertising Agency Service [section 65 (105)(e)] or not? Merely canvassing advertisements for publishing, on commission basis, is not classifiable under the taxable service falling under section 65(105) (e) such services are liable to service tax under business auxiliary service [section 65(105) (zzb)].
  1. Reliance was also placed in decision of tribunal in case of Adbur Pvt. Ltd.- 2017 (5) GSTL 334 (Tri. – Del.) and H. K. Associates – 2009 (14) STR 543 (Tri.-Del.)

Decision of Hon’ble CESTAT

  1. After hearing both parties it was held that in the instant case M/s. Surya Publicity was providing Advertising Services to its client. M/s. Surya Publicity was not discharged any service tax liability as the same was not liable for the levy of Service Tax.
  1. M/s. Surya Publicity was purchasing time and space in the newspaper / media companies through the Appellant. The amount paid by M/s. Surya Publicity to the appellant for purchase of time M/s. Surya Publicity to the appellant for purchase of time and space was sought to be tax by revenue under the category of Advertising Service.
  1. It is seen that no evidence has been placed from record to establish that the appellant were providing “Advertising Agency Services.” The role of appellant was limited to being an intermediary in the sale of space/ time for media agency on commission basis.
  1. Owing to the Tribunal decision in case of K. Associates which has also been upheld by the Hon’ble Supreme Court, and the clarification issued by CBEC, the impugned SCN was set aside and the Appeal was consequently allowed.