Indirect Tax- Case Law Update- November 2022

By CA Rajiv Luthia

 1) 2022 (64) G.S.T.L. 605 (Tri. – Bang.)

CASE: Karnataka State Beverages Corporation Ltd. Versus Commissioner of Service Tax, Bangalore-I

Background and Facts of the Case:

  • The appellants, M/s. Karnataka State Beverages Corporation Ltd., are a Government of Karnataka Undertaking. The appellants are designated as a company for sole distribution of liquor in the State of Karnataka.
  • The appellant purchases liquor from distilleries from in and outside State of Karnataka and distribute the same in the State. The appellants enter into agreement with distilleries and manufacturers and to sell the same to licensed wholesale dealers in accordance with Karnataka Excise Act and Rules framed thereunder. The appellants sell liquor to various license holders keeping a profit margin varying depending on the type of liquor as per the rates fixed by the Government.
  • The appellants would also store liquor for a maximum period of 90 days without charging any storage fee. In case, the liquor is not sold within this period, the appellant is entitled to charge Rs. 2/- per carton as demmurage. The Revenue was of the opinion that the amounts collected by the appellants are towards the services rendered by them under the category of ‘Business Auxiliary Service’ and ‘Storage and Warehousing Services’. Therefore, show cause notice were issued to the Appellant and the demand as alleged in the Show cause notice was confirmed by the department.
  • Being aggrieved by the said orders confirming the demand, the Appellant preferred to file an Appeal. In respect of the period October 2011 to September 2012, the Commissioner (A) has dropped the demand following the ratio of Rajasthan High Court’s decision in the case of Rajasthan Beverages Corporation Ltd. v. CCE, Jaipur. The Revenue has filed an appeal against such setting aside by the Commissioner (Appeals) vide Appeal No. 20120/2021.

Arguments put forth:

The Appellants submitted as under:

  1. The issue is no longer res integra being decided in number of cases i.e.,
      • Rajasthan State Beverages Corporation Ltd. v. CCE: 2018 (11) G.S.T.L. 157 (Raj.);
      • Chhattisgarh State Beverages Corporation Ltd. v. CCE: 2015 (37) S.T.R. 972 (Chhattisgarh);

 Decision of Rajasthan State Beverages Corporation Ltd. (supra) has been upheld by SC by dismissing the SLP as reported in 2018-TIOL-270-SC-CX = 2018 (16) G.S.T.L. J131 (S.C.).

  1. The Revenue appeal is on the ground that the Learned Commissioner (Appeals) has followed the judgment of Rajasthan HC (supra) whereas the departmental Review Petition No. 110/2015 is pending before Rajasthan HC. However, the Rajasthan HC vide order dated 15-2-2022 has dismissed the Review Petition
  1. Hence the confirmed demand needs to be set aside and appeal allowed.

The Respondents submitted as under:

  1. The Learned Authorised Representative for the Revenue reiterated the findings of impugned orders in respect of party appeals and relied on grounds in the Revenue appeal.

Decision:

  1. It was held that the case is no longer res integra as submitted by the Learned Counsel for the appellant as the bench in the appellant’s own case finds that even if it is considered that the appellants are rendering the services of storage and warehousing, such service is only in respect of the goods owned by them for which, no Service Tax can be levied.
  2. The appellants are only recipients of the services of storage and warehousing, and it cannot be said that they are providing the services of Storage and Warehousing so that they would be liable to payment of Service Tax under that category in terms of Finance Act, 1994. The fact that they record the charges collected as “storage charges” would alone be not a proper reason for treating them as storage charges in view of the decisions of the Hon’ble Apex Court holding that the substance of a transaction would prevail over the form.
  3. The appellants have discharged their statutory functions as the mandate given by the Karnataka State Excise Act and Rules thereunder and have not rendered any services such as ‘Business Auxiliary Service’ and ‘Storage and Warehousing Service’. Therefore, the payments received by them in the form of commission or warehousing charges are not exigible to service tax.

Therefore, the impugned orders as far as they relate to the party’s appeals were held not sustainable and hence set aside.

2) 2022 (64) G.S.T.L. 578 (Tri. – Mumbai)

CASE: B.G. Exploration & Production India Ltd. Versus Commissioner of CGST & CX., Navi Mumbai

Background and Facts of the Case:

  • In 1992, the GOI issued a Notice Inviting Offers for JV to develop medium sized oil fields in India. Pursuant to the said Notice Inviting Offers, the GOI entered into contracts with private parties for production of petroleum and the costs and profits were shared between the Government and the private parties as per the formula prescribed and agreed in the Contracts. The purpose of the said Contracts was to obtain capital investment and technical expertise from the private parties to achieve the objective of optimum production. The common objective was to explore, develop and produce the maximum amount of mineral resource for commercial sale.
  • Pursuant to a Notice Inviting Offers issued for a JV to develop medium sized oil and gas fields, the GOI on 22-12-1994, entered into two separate contracts with Enron Oil and Gas India Ltd. (now the appellant), Reliance Industries Ltd. [RIL] and Oil and Natural Gas Corporation Ltd. [ONGC] for the discovery and exploitation of petroleum resources in ‘Panna and Mukta’ and ‘Mid and South Tapti’ fields [the Contract Areas].
  • The Appellant, RIL and ONGC entered into a Joint Operating Agreement on 22-12-1994 to define their respective rights, duties and obligations with respect to their operations under the Contracts. In terms of the Agreement, liabilities incurred by any Holder were required to be borne by all the Holders in accordance with the ratio for performing their obligations. These expenses were required to be debited in the joint account and cash calls raised and reimbursement taken from the Joint Account, basis the participating interest of each of the parties to the Contract. There was to be no profit margin on the reimbursement/cost charged to the joint account in fact, such a profit was strictly prohibited under the Agreement and the same was to be charged on actuals.
  • On 14-2-2002 all the shares of Enron Oil and Gas India Ltd. were acquired by B.G. Mumbai Holdings Ltd. and the name of Enron Oil and Gas India Ltd. was changed to M/s. B.G. Exploration and Production India Ltd. (which is the appellant). To reflect the aforesaid change in ownership of Enron Oil and Gas India Ltd., the Contract was amended on 19-1-2005, whereby the Holders were made ‘Joint Operators’ of the Contract and all rights and liabilities of Enron Oil and Gas India Ltd. were assumed by the appellant.


    Initially, the contract required an investment cycle in which the Government did not invest. This investment was made by the Holders. In this phase, since there is a recurring need of finance/capital investment, a joint account is created, and capital contributions are made from time to time depending upon the project requirements through ‘Cash Calls’. In case the exploration is successful, the mineral is extracted. The said mineral is first used by the Holders to recover the expenses incurred i.e. Cost Petroleum and then the excess share is the profit, known as “Profit Petroleum” which is shared amongst the parties to the Contract i.e. the GOI and the Holders in the prescribed proportion as per the investment multiple in the terms agreed in the Contract.
  • The Appellant had filed an Appeal against the Order that confirmed the demand of service tax with interest and penalty on entitlement towards “Cost Petroleum” under the “Production Sharing Contract” by treating the same as “consideration” for rendering “mining services” to the GOI for the period April 2011 to June 2017.
  • Hence, the present appeal.

Arguments put forth:

The Appellants submitted as under:

  1. Reliance was placed on the decision of Appellant’s previous matter wherein the decision was held in the favour of the Appellant –
    1. BG Exploration Production India Limited v. Commissioner of Service Tax (Audit-I) [2021 (10) TMI 306-CESTAT(Mum) = 2022 (63) G.S.T.L. 351 (Tri. – Mum.)]
    2. BG Exploration & Production India Limited v. Commissioner of CGST [2020 (10) TMI 579-CESTAT (Mum) = 2021 (49) G.S.T.L. 143 (Tri. – Mumbai)].
  1. The activities undertaken by the co-venturers within the framework of a “joint venture” cannot be considered as rendition of “service”, liable to service tax.
    • The appellant has not received any “consideration” under the Production Sharing Contract
    • Under the Production Sharing Contract, co-venturers act at their own risk.
    • “Cost Petroleum” or “Profit Petroleum” does not flow from the GOI to the appellant
    • The components of “Cost Petroleum” and “Profit Petroleum” are inherent and embedded part of the Production Sharing Contract. Consequently, such components cannot be treated as “consideration” for the “services rendered” by the appellant
    • The Circular dated February 12, 2018, clarifies that the Holders carry out the operations under the Production Sharing Contract on their own account
    • The Circular dated September 24, 2014, is inapplicable to the present case.
    • The show cause notice dated December 15, 2016, is barred by limitation.
    • Interest is not leviable under Section 75 of the Finance Act; and No penalty under Sections 76, 77 and 78 of the Finance Act, could have been imposed on the appellant.
  1. Hence the confirmed demand needs to be set aside and appeal allowed.

The Respondents submitted as under:

  1. Shri S.K. Mathur, Learned Authorised Representative appearing for the Department made the following submissions:
    (i) The activity of the appellant of doing “mining services” for consideration to the Joint Venture, which is not an Incorporated Association of persons, from the common pool lies within the ambit of service tax applicability.
    (ii) The Joint Venture Committee is a body of companies and the appellant is one of the constituent member providing “mining services” for consideration received from the common pool of fund of the Joint Venture and ultimately reimbursed by the beneficiary GOI as Cost Petroleum to the Joint Venture Companies and, therefore, satisfies the criteria of applicability of service tax;
    (iii) The activities of the Joint Venture Companies is in the interest of the Government as the three Companies have no field of their own but the fields belong to the GOI, for which the work has been carried out.
    (iv) In connection with the Final Order dated 11-6-2020 passed by the Tribunal in Service Tax Appeal No. 87085 of 2017, the department has preferred an appeal before the Bombay High Court;
    (v) The SC in State of West Bengal v. Calcutta Club Limited [2019 (29) G.S.T.L. 545 (S.C.)] has clearly held that the doctrine of mutuality continues to be applicable to incorporated and unincorporated members club after the 46th Amendment to the Constitution by adding Article 366(29A) to the Constitution of India.
  1. Thus, the PMT-JV and the appellant have to be treated as distinct persons and the appellant has rendered service for consideration and hence liable for payment of service tax.

Decision:

  1. From the provisions of the Production Sharing Contract, it is clear that Cost Petroleum and Profit Petroleum cannot be said to be consideration flowing from the GOI to the appellant and that the components of “Cost Petroleum” and “Profit Petroleum” are inherent and embedded part of the Production Sharing Contract. Consequently, such components cannot be treated as “consideration” for the “services rendered” by the appellant.
  2. Contractors carry out the exploration and production of petroleum for themselves and not as a service to the GOI and “Cost Petroleum” is not a consideration for service to GOI and thus not taxable per se. It is, therefore, more than apparent that the aforesaid Circular only confirms the view taken by the Tribunal in the decision rendered on 6-10-2021.
  3. The Circular dated 24-9-2014, on which reliance has been placed by the Learned Special Counsel appearing for the Department, is not applicable to the facts of the present case. It needs to be noted that the said Circular is generically in relation to Joint Ventures. The subsequent Circular dated 12-2-2018 is specifically on the issue involved in the present case, namely taxability of “Cost Petroleum” in relation to a Production Sharing Contract.
  4. Therefore, the appeal was allowed.

3) 2022 (64) G.S.T.L. 564 (Tri. – Mumbai)

CASE: Flemingo Travel Retail Ltd. Versus Commr. of CGST & C. Ex., Mumbai East

Background and Facts of the Case:

  • The appellant is in the business of running ‘duty free shop’ in the arrival and departure terminals of Mumbai International Airport and the tax included in the billings raised by the airport operator had, for long, been the subject of litigation with tax authorities insisting that the levy under Finance Act, 1994 was payable on ‘rent’ charged for immovable property within coverage of ‘airport service’ for the period prior to 1st July, 2012 and of ‘service’ for the period thereafter.
  • Aggrieved by the dismissal of their appeal challenging the rejection of claim for refund of service tax borne by them in relation to their transaction with Mumbai International Airport Ltd. (MIAL) for the period from 1st October, 2011 to 30th June, 2017 as not subject to levy under Finance Act, 1994, M/s. Flemingo Travel Retail Ltd. (formerly known as DFS India Pvt. Ltd.) seeks setting aside Order-in-Appeal No. CKJ/GST/A-I/82-88/2020-21, dated 25th September, 2020 of Commissioner of GST & CX (Appeals-I), Mumbai and consequential relief amounting to Rs. 57,11,16,849 involved in the seven claims.
  • Hence, the present appeal.

Arguments put forth:

The Appellants submitted as under:

  1. The Learned Senior Counsel, Mr. Vikram Nankani, drew attention to the foundational facts pertaining to the claims filed on 21st September, 2018 for the period from 1st October, 2011 to 31st March, 2014 and on 25th September, 2018 for the period from 1st April, 2014 to 30th June, 2017 following the decision of the Tribunal in Commissioner of Service Tax v. Flemingo Duty Free Shop Pvt. Ltd. [2018 (8) G.S.T.L. 181 (Tri. – Mum.)] on 28th September, 2017 arising from a dispute with service tax authorities that upheld their entitlement to refund of tax paid on ‘services’ procured for undertaking ‘duty free’ supply.
  2. According to him, the pendency of their dispute, even as they obliged, as a tentative measure, in remitting the tax amount with the approval of the Hon’ble High Court, did shift the ‘relevant date’ for the purpose of determining eligibility under Section 11B of Central Excise Act, 1994, applied under the authority of Section 83 of Finance Act, 1994, for disposal of claims for refund of service tax. The tortuous course of the litigation on the coverage of two specified services, enumerated in Section 65(105) of Finance Act, 1994, invoked for charging the appellant with tax on payments made to the airport concession-holder was elaborated upon by him to discountenance the bar of limitation which the lower authorities took refuge in to repel the claims.
  3. Reliance was placed on the decision of the Hon’ble Supreme Court in M.G. Shahani & Co. Ltd. v. Collector of Central Excise, New Delhi [1994 (73) E.L.T. 3 (S.C.)]
  4. It was also pointed out that the contrived discarding of the decision of the GOI, in revisionary jurisdiction, in re Arish Altaf Tinwala [F. No. 371/142/B/2018-RA/1391, dated 31st August 2018] as well as the affirmation of the very same principle in A-1 Cuisines Pvt. Ltd. v. Union of India [2019 (22) G.S.T.L. 326 (Bom.)], which attained finality with dismissal of appeal of Revenue before the Hon’ble SC, by the lower authorities demonstrates unwillingness to accept the legal foundations of tax levy. On the finding that unjust enrichment was an impediment to the grant of refund, it was brought to our notice that pricing of products in ‘duty free shops’ is not linked to the costs but to prices charged by competitors at the several airports around the world and that, furthermore, they had furnished the prescribed certificate from chartered accountant in support of having borne the incidence of tax which was ignored by the lower authorities.
  5. The finding of applicability of ‘unjust enrichment’ is, thus, not only beyond the sanction of law but is also entirely superfluous as the notice issuing authority, cognizant of deficiencies – factual and cognitional – in the claim, had already mapped the boundaries within which claim would be adjudicated. Submissions on the interpretation of principle of restitution by the original authority that did not render a finding on bar of ‘unjust enrichment’ is too remote a crutch to substitute for the statutory mandate of Section 128A(3) of Customs Act, 1962 which the first appellate, admittedly, did not resort to.
  6. Hence the Order needs to be set aside and appeal to be allowed.

The Respondents submitted as under:

  1. The Learned Authorised Representative for the Revenue reiterated the findings of impugned orders in respect of party appeals and relied on grounds in the Revenue appeal.

Decision:

  1. In view of the submissions, the claims for refund were filed within the period permitted under Section 11B of Central Excise Act, 1944, relate to levy which the law did not authorize for collection, and which had been borne by the appellants, appeals are allowed with consequential relief.
  2. Therefore, the appeal was partly allowed.