Unreported Decisions – ST – December 2021
By Vinay Kumar Jain & Sachin Mishra, Advocates
1. Whether “outdoor catering” services received by the Petitioners would be eligible CENVAT Credit in accordance with Rule 2(l) of the CENVAT Credit Rules, 2004 and as per Section 37(2)(xviaa) of the Central Excise Act, 1944 read with Section 94(2) of the Finance Act, 1994?
Facts and Pleading: M/s. Toyota Kirloskar Motor Private Limited (hereinafter referred to as the “Petitioners”) are engaged in the manufacture of motor vehicles, parts and accessories thereof. The Petitioners have established a factory under the Factories Act, 1948, and are having a canteen facility within their establishment to provide food, refreshment and beverages to their workers, employees and staff. As per the Factories Act, 1948, the Petitioner is under the obligation to establish a canteen in the premises of the factory. Similarly, as per the Mysore Factory Rules, the Petitioner is mandatorily required to maintain and supply food in the canteen. The Petitioners had therefore, engaged the services of outdoor catering viz. Sodexo Food Solutions Pvt. Ltd. Further, the Petitioners were also availing the Cenvat Credit on the said services, supposing the same to be an eligible ‘input service’, in terms of Rule 2(l) of the Cenvat Credit Rules, 2004 from September 2004 till September 2011. However, the Department issued a show cause notice for the period April 2011 to September 2011 alleging that the ‘outdoor catering’ services were not eligible input services being excluded vide Rule 2(l)(c). The same was later confirmed by the Adjudicating Authority along with interest and penalty. Thereafter, both the Commissioner (Appeals) and the CESTAT Larger Bench held against the Petitioners. Thus, the Petitioners preferred an appeal before the High Court, however, the same was again dismissed. Aggrieved by the said judgment, the Petitioners have preferred the Special Leave Petition before the Hon’ble Supreme Court.
The Petitioners placed reliance upon plethora of judgements and argued that there is a duty casted upon them to establish a canteen under the Factories Act, 1948 and by no stretch of imagination the amendment to CCR, 2004 which includes certain exceptionary services will disentitle the Petitioner from Cenvat Credit.
Judgment: The Hon’ble Supreme Court observed that the statutory provision i.e., Rule 2(l) defining “input service” post 01-04-2011, is very clear and outdoor catering services when such services are used primarily for personal use or consumption of any employee is held to be excluded from the definition of ‘input service’. The Apex Court held itself in complete agreement with the view taken by the High Court, and thus dismissed the Special Leave Petition filed by the Petitioners.
Toyota Kirloskar Motor Pvt. Ltd. vs. Commissioner of Central Tax, Supreme Court of India, in Petition(s) for Special Leave to Appeal (C) No(s). 17903-17904/2021, decided on 18-11-2021.
Toyota Kirloskar Motor Pvt. Ltd.
2. Whether refund of amount wrongly paid by the Petitioners as CGST & SGST in excess of the tax due be denied under Section 77 of the CGST Ac, 2017?
Facts and Pleading: SBI Cards & Payment Services Ltd. (Petitioners) are engaged in the business of issuing credit cards to its customers. The Petitioners during the initial stage of GST regime, due to the non-availability of the break-up of individual transactions, for the period between April 2018 to December 2018, paid CGST and SGST of about INR 108 crores approximately, considering the transactions to be intra-states sales. However, it later transpired that those transactions were actually inter-state transactions. It was under those circumstances that the Petitioners applied for refund of the amount wrongly paid. However, the Department (“Respondents”) stated that the prayer for refund would be considered only after the Petitioners made the payment under the right head i.e., IGST. Hence, the Petitioner deposited another amount of INR 108 crores approximately, as tax which was due on the inter-state transactions. However, the plea for refund was subsequently rejected by the Assistant Commissioner (Appeals). Hence, the present petition.
The Petitioner submitted that in view of the Circular F. No. CBIC-20001/8.2021-GST dated 25-09-2021, the term “subsequently held” under section 77 of CGST Act or under Section 19 of IGST Act, covers both the cases where the inter-state or intra-state supply made by the taxpayer, are subsequently found/held either by himself or by the respective tax officer in any proceedings as intra-state or inter-state supply. Therefore, the Petitioners submitted that at least one amount of INR 108 crores approximately, has to be refunded to the Petitioners along with the applicable interest.
The Respondents argued that the phrase ‘subsequently held’ in section 77 of the CGST Act, could apply only in a case where an adjudicating authority had actually held a transaction to be an inter-state or intra-state supply. They further argued that the said Circular relied upon by the Petitioners, lays down the condition that the refund would be available only if the Petitioners have paid the required amount of tax under the correct head, and thus, the matter should be remanded back to the adjudicating authority to re-decide the issue in view of the said Circular.
Judgment: The Hon’ble High Court of Punjab and Haryana primarily observed that there exists no dispute about the amount of tax paid by the Petitioners and no claim that any tax is due from the Petitioners. The Court observed that rather it was on the requirement of the Respondents that the Petitioners paid an additional amount of INR 108 crores approximately, therefore the submission of the Respondents about the condition laid down in the Circular is not applicable in the present case, since additional tax has already been paid under the correct head by the Petitioners. Thus, the Hon’ble High Court held that once the Petitioner have paid an additional amount on the direction of the Respondents under IGST, the liability of the Respondents to refund an amount of INR 108 crore wrongly deposited under CGST and SGST cannot be disputed, and that interest ought to be paid, since the money has now lain for past two and a half years with the Respondents. Thus, the Hon’ble High Court allowed the petition and directed the Respondents to refund the entire amount to the Petitioners along with interest.
SBI Cards & Payment Services Ltd. vs. Union of India & Ors., High Court of Punjab & Haryana, decided on 08-10-2021, in CWP–8108– 2021 (O&M).
SBI Cards & Payment Services Ltd.
3. Whether in case of derailment of a project Cenvat Credit is available to an assessee for the input services used for providing such EPC output services?
Facts and Pleading:
L&T Hydrocarbon Engineering Ltd. (hereinafter “the Appellant”) had entered into a Turnkey contract for rendition of Engineering, Procurement and Construction Services for erection of bridge, Jacket and Piles. The Appellants hired services of M/s. Global Industries Asia Pacific Pte Ltd. (“Global Industries”), entrusted with the work of installation and commissioning of Bridge. Till 07-05-2009 the fabrication of Bridge, Jacket and Piles was completed, however, during installation, the tripod tilted and sunk, due to which the project was derailed. The Appellants made payments along with service tax to Global Industries for their services and took the Cenvat Credit of the service tax paid. Further, the Appellants also availed Cenvat Credit on services provided by various foreign vendors in relation to installation and commissioning of bridge. However, subsequently, the design and drawing were changed, and the project was completed. However, the Department issued a show cause notice disallowing the Cenvat Credit on such input services. The same was later confirmed by the adjudicating authority. Hence, the present appeal.
The Appellants submitted that Rule 2(l) of Cenvat Credit Rules, 2004 defines "input service" as any service used by a provider of taxable service for providing an output service. The Appellants argued that although, initially the project was derailed, however, later on, further design and drawing was changed, and work was executed by the Appellant on which the service tax was paid. Therefore, it was submitted that in terms of Rule 2(l) of CCR, 2004, being a provider of output service, for any service used by the Appellants, the Appellants are entitled to take the Cenvat credit of the same.
The Respondents submitted that as the project was derailed, the input services utilized by the Appellant have not resulted in providing any output service, and therefore, the Cenvat Credit on such input services cannot be allowed. It was further submitted that the Appellants had also not paid service tax on the insurance amount of ` 46.26 crores claimed by them, for the accident occurred during installation. Therefore, the Respondents argued that since, the input services availed have not resulted in providing the output service, the Appellants are not entitled to take Cenvat credit of ` 5,57,25,547/- for the period April-2009 to March-2010.
Judgment: The Hon’ble CESTAT, Ahmedabad observed that ‘input service’ as per Rule 2(l) of CCR, 2004 means any service used for providing an output service. Therefore, the Tribunal observed that since it is not in dispute that the Appellants have provided the output service and paid service tax thereon, any service received by the Appellants is an input service and thus, they are entitled for Cenvat Credit in terms of Rule 3 of CCR, 2004. The Tribunal observed that the adjudicating authority fell in error by holding that as the project was derailed, no service has been provided by the Appellant. The Tribunal stated that during the impugned period i.e. April-2009 to March-2010, the project was work in process and therefore, it cannot be held that no taxable service has been provided by the Appellant. Therefore, the Tribunal observed that the Appellant is entitled to take Cenvat Credit of the service received, and hence no demand is sustainable against the Appellant, consequently, no penalty is imposable on the Appellant.
L&T Hydrocarbon Engineering Ltd. vs. C.C.E. & S.T. Vadodara – I, CESTAT, West Zonal Bench, Ahmedabad, decided on 09-11-21, in Service Tax Appeal No. 11229 of 2015.
L&T Hydrocarbon Engineering Ltd.
4. Whether the activities carried out by the Appellant in India would constitute a supply of "Intermediary Service" classifiable under Heading 9961/9962 or any other classification of services as specified under GST laws?
Facts and Pleadings: M/s. Airbus Group India Pvt. Ltd. (hereinafter “the Appellant”) are operating as a subsidiary of Airbus Invest SAS, France. The Airbus Group generally procures parts, components or services from both domestic and international markets which are required for manufacturing and assembly of aerospace products like aircrafts, helicopters, etc. Therefore, Airbus France has entered into an "Intra-Group Services Agreement" with the Appellant, wherein the Appellant is required to perform Procurement Operations and Procurement Transformation & Central Services functions, against which they are remunerated with a service fee on a ‘cost plus mark-up’ basis. As per the Agreement, the Appellants are specifically restricted to decide or select any supplier and agree upon the terms and conditions of supply. Further, the Appellants are also not responsible for issuance of purchase order or payment for the supply made by the vendor. In order to obtain a ruling on classification of the service provided by them, the Appellants approached the AAR. The AAR classified the said services rendered by the Appellants as ‘intermediary services’ and not export of services. Aggrieved by the said order, the Appellants have approached the AAAR.
The Appellants submitted that the activities undertaken by the Appellants are only in the nature of identification, information gathering, providing technical expertise, advisory support and operation assistance concerning important areas of procurement to Airbus France, which is an independent service and does not involve any transaction relating to supply of goods. The Appellants further submitted that, the definition of the term ‘intermediary’ implies that it should be a ‘tripartite transaction’, which is not the present case. The Appellants while placing reliance upon a plethora of judgments also argued that they are neither an ‘agent’ nor a ‘broker’ nor are they covered under the phrase ‘any other person’ since they are not undertaking the supply of services on behalf of another, instead they are providing the services on a principal-to-principal basis. The Appellants also drew attention to the Circular dated 4-9- 2018 issued in the GST regime wherein the scope of principal-agent relationship was clarified and submitted that the activities of the Appellant are not undertaken on behalf of Airbus France. The Appellants stressed on the fact that there is no supply of goods by Airbus France to any person in India, rather the supply of goods is by the Indian supplier to Airbus France, wherein the Appellant is not an intermediary for the Indian supplier as no contract has been entered into with the Indian supplier. Lastly, the Appellants submitted that the services are correctly classifiable as ‘export of service’, since all the conditions as provided under S.2(6) of the IGST Act are fulfilled.
Judgement: The Hon’ble AAAR, Karnataka observed that the services provided by the Appellants are correctly classifiable as ‘intermediary services’. The AAAR observed that the terms ‘broker’ and ‘agent’ are fundamentally different and are not substitutes for each other. The AAAR stated that it would not be proper to use the terms Broker or Agent or Intermediary, interchangeably, as these terms have completely different essence and characteristics. In common parlance there may seem to be similarity in the terms Broker, Agent and Intermediary, however, they do not form any category or class, nor do they constitute a genus under the legal provisions of the GST Act. The AAAR stated that the principle of ‘ejusdem generic’ cannot be applied for interpreting the phrase ‘any other person, by whatever name called’, and that it cannot draw its color from the preceding words which are altogether different. It observed that the said phrase is to be interpreted so as to include persons who are not necessarily similar to ‘broker’ or ‘agent’. The AAAR further stated that an intermediary is a person between the supplier and the recipient who arranges or facilitates such supply and is given a consideration for this activity, and that the entire gamut of the activities carried out by the Appellant with the ultimate aim of assisting their principal i.e., Airbus France to procure a supply of goods from Indian vendors is nothing but arranging or facilitating a supply between two persons i.e., between the Indian supplier and Airbus France. The AAAR observed that the Appellant renders a service to Airbus France in arranging for the main supply between two principals i.e. the Indian supplier and Airbus France, to take place, and therefore, the activity of the Appellant is nothing but an intermediary service. The AAAR placed reliance upon the Board Circular No 159/15/2021 GST dated 20- 09-2021, observing that the said Circular clearly states that the concept of intermediary requires a minimum of three parties, two of them transacting in the supply of goods or services or securities and one arranging or facilitating the said main supply, and since the Appellant is not supplying such goods on its own account, the Appellant does not fall within the ambit of the exclusion contained in the definition of ‘intermediary’. Therefore, the AAAR upheld the order passed by the Advance Ruling Authority and dismissed the appeal filed by the Appellant.
M/s. Airbus Group India Pvt. Ltd, AAAR, Karnataka, decided on 09-11-2021, in Order No. KAR/AAAR/09/2021-22.