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.