There has been a lot of debate about how to fill Table 6 of Annual Return for 2018-19. One of the reasons behind the debate is that Table 6A of GSTR-3B would be auto-populating with figures of ITC claimed in GSTR-3B in the Year 2018-19. Now this ITC claimed in GSTR-3B of 2018-19 might include ITC of 2018-19 and ITC of 2017-18 claimed by virtue of Section 16(4). This ITC of 2017-18 would have been part of Table 13 of GSTR-9 and Table 12 of GSTR-9C (although made optional only for 2017-18 and 2018-19).
Let’s take an Example that a person has claimed Credit of Rs 150 in GSTR-3B of 2018-19 out of which Rs 100 related to 2018-19 and Rs 50 related to 2017-18. Ideally Rs 50 should have been part of Table 13 of GSTR-9 of 2017-18 and Table 12 of GSTR-9C. Table 6A is now auto-populating with Figures of Rs 150. The question is whether we have to fill Table 6B with Rs 150 i.e. ITC for 2018-19 and ITC for 2017-18 Claimed in 2018-19 or Rs 100 i.e. ITC for 2018-19 only.
a) Does Section 16(4) and the Scheme of the Act throws light upon the same?
(Ignoring the Impact of Extension of date of claiming Input Tax Credit in Section 16(4) and assuming that Annual Return for 2017-18 was available for filing in August 2018)
As per provisions of Section 16(4) of CGST Act, 2017, ITC of 2017-18 is only allowed to be claimed till due date of furnishing of the GSTR-3B of September 2018 or furnishing of Annual return of 2017-18, whichever is earlier. The intention of the legislature seems that if ITC pertaining to 2017-18 has been claimed in 2018-19 and annual return is filed before due date of GSTR-3B of September 2018, they want it should at best be claimed before filing of annual return for 2017-18 so that annual return filed for 2017-18 may contain details of ITC for 2017-18 claimed in 2018-19. On the contrary, supposedly if Annual Return is filed say in Month of March 2019 and ITC is claimed in GSTR-3B filed for the month of September 2018, therefore Annual Return since filed after September 2018 would include the information of ITC of 2017-18 claimed in 2018-19.
Had this intention not been forthcoming, there would have been no reason for linking provisions of Section 16(4) with Date of filing of annual return. Legislature would have simply provided that the Last Date for claiming credit for 2017-18 would be due date of filing of GSTR-3B of September 2018.
Conclusion-The intention in either of the circumstances and fact of linking ITC of 2017-18 with Annual Return of 2017-18 seems to be the fact that if Annual Return is filed before due date of GSTR-3B of September 2018 or Annual Return filed beyond the due date of GSTR-3B for September 2018, it should contain details of Input Tax Credit of 2017-18 claimed in 2018-19 and in no circumstances Input Tax Credit should be allowed to be claimed beyond the filing of Annual Return, if Annual Return for 2017-18 has filed earlier than due date of GSTR-3B of September 2018 since then it would not be possible to report the same in Annual Return.
In my view, information for each financial year has to be straight-jacketed in to each year’s annual return and that’s why all time limits in Section 16(4), Section 34, Section 37, Section 38, and Section 39 have been linked with Annual Return. Therefore, each year has been made a compact year wherein legislature is expecting the entire information pertaining to a year upto filing of Annual Return for that year and not beyond that date. We cannot treat that information has been sought in Table 12 and Table 13 only for statistical purposes and has no relevance for that year but would be relevant only when filled in Table 6. (Table 12 and Table 13 have been made optional only for 2017-18 and 2018-19 and not for rest of the years, so no generalized opinion should be made on that basis)
Time Limit for initiating Action under Section 73/74 also seems to based upon the same hypothesis
Taking a cue from Section 16(4) wherein ITC for a financial year can either be taken upto filing of Annual Return (in case Annual Return has been filed earlier than September of next financial year) or till September of Next Financial Year, (if Annual Return not filed before September of next Financial Year), but in either case since Annual return would then be able to have the information of the ITC availed in Table 13 of 2017-18; time limit provided under Section 73 also links the last date of issue of order to three years from the due date of furnishing of annual return for the financial year to which the input tax credit wrongly availed or utilised relates to and not to year in which it is availed or utilised.
Time Limit provided for initiating an action under Section 73 of Annual Return is as follows:
(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund.
The relevant extract of the part which is relating to ITC in above provision for the ease of having a combined reading is as follows:
(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which…..input tax credit wrongly availed or utilised relates to….
Time limit for issuing order under Section 73(10) is three years from due date of furnishing of Annual Return for the financial year to which ITC wrongly availed or utilised relates to. Supposedly an invoice is pertaining to February 2018 for which ITC is claimed in August 2018. Proper officer comes to know that this ITC has been wrongly availed by virtue of section 17(5) of CGST Act, 2017 and issues order under Section 73. The question is what would be the limitation under Section 73(10) for issuance of Order i.e.
Whether it would be 3 years from Due Date of Filing of Annual Return of 2017-18 (i.e. financial year to which Input Tax Credit availed relates) or 3 Years from Due Date of Filing of Annual Return of 2018-19(i.e. financial year in which Input Tax Credit is availed).
In my opinion, since Section 73(10) uses the words “three years from the due date of furnishing of annual return for the financial year to which input tax credit wrongly availed or utilised relates to”, therefore it would be three years from Due Date of Filing of Annual Return for 2017-18.
Taking a cue forward from above example of ITC of February 2018 claimed in the month of August 2018 and given the fact that time limitation under section 73 for issuance of order commences form Due Date of filing of Annual Return for financial year 2017-18, whether credit would be required to be shown in Table 13 of 2017-18 only (since it pertains to 2017-18 and availed in 2018-19) or in Table 6B of 2018-19 (as well since it has been availed in 2018-19).
In my opinion, when legislature itself has provided time limit for issuance of Order under Section 73(10) for the said credit from due date of furnishing of annual return of 2017-18, it is expected that the same should be part of Annual Return of 2017-18 and has to be reflected therein (irrespective of the fact that the table 12 and 13 might have been made optional but it has to be kept in mind that its optional only for 2017-18 and 2018-19 and we are arriving at a view for future years as well), it cannot be the intention of Legislature that time limit for issuance of Order in respect of such ITC has to be calculated from due date of furnishing of Annual Return for 2017-18 but they would be expecting that the same may be made part of Annual Return of 2018-19 but the time limit under Section 73 would start from financial year to which it relates.
Conclusion-In my opinion, on a combined reading of Section 16(4) read with Section 73/74, Table 6B of Annual Return of 2018-19 should be containing figures of only 2018-19 only and not for 2017-18.
Further, it would not be incorrect to say that present format of 2018-19 due to its incorrect structure, does not satisfy requirement of Taxpayer, Government and Administrators. Neither Instructions No. 2, 4 and 5 of GSTR-9 gives any clue to the same and also this is the first return Annual return which has to be filed wherein GSTR-3B of relevant year would be containing details of two years. In the case of 2017-18, GSTR-3B only contained details of single year and not multiple years. Therefore Annual Return of 2018-19 poses different set of challenges as compared to 2017-18
However, it goes without saying that the same is a personal opinion and need of the hour is either to amend GSTR9 for 2018-19 to suit to the requirements of 2018-19 or issue an advisory with this regard. Not that issue of advisory would correct anomalies in GSTR-9 for 2018-19 but it would have the impact of rationalising the different approaches being adopted by Stakeholders while filing GSTR-9 (or in other words it would work as a patchwork for GSTR 9 of 2018-19).
Taxability of Supply of Food:-Stuck between being a composite supply and Sale of Goods
Tax Rate on Supply of Food has been a bone of contention since the era when Supreme Court delivered its land mark judgement in Associated Hotels and Northern Caterers.. There has been a huge controversy regarding when supply of food would be considered as supply of service being in the nature of composite supply and when supply of food would be treated as sale of food having minimal or negligible service component. Some of the examples are supply of food across live counter, pick-up food, supply of food at the door step of customer, supply of food in restaurant, catering services, supply of food in hotel. The article tries to decipher complexity regarding nature of transaction and treatment thereof.
Entry 6(b) of Schedule II of CGST Act, 2017 is as follows:
Composite supply
The following composite supplies shall be treated as a supply of services, namely:—
(a)…..; and
(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
It is this entry which needs to be analyzed before arriving at the conclusion regarding taxability of transactions involving supply of food. The scope of the entry is covered by the term “supply, by way of or as part of any service or in any other manner whatsoever, of goods..” can be bifurcated for better understanding as follows:
a) supply by way of any service of goods, being food or any other article for human consumption or any drink
b) supply as part of any service of goods, being food or any other article for human consumption or any drink
c) supply in any other manner whatsoever of goods, being food or any other article for human consumption or any drink
“Emphasis Supplied”
The critical question now arises that when supply of food is by way of service or as part of service. Therefore, for understanding the scope of Entry 6(b) of Schedule II of the CGST Act, we would have to revisit the history from the inception and the definition of sale as was prevalent prior to 46th Constitutional Amendment and subsequent to that. Revisit is also required since the entry in Article 366(29A)(f) has been imported under Entry 6(b) of Schedule II of CGST Act, 2017. Let’s start with the definition of sale prior to 46th Constitutional Amendment Act which read as follows:
Definition of Sale prior to 46th Constitutional Amendment Act
For the sake of understanding, definition of “sale” under section 2(1)(n) of the Andhra Pradesh General Sales Tax Act reads as under:
“Section 2. (1)(n) ‘Sale’ with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or commerce, for
cash, or for deferred payment, or for any other valuable consideration …..”
The definition as reproduced above was more or less present at that time in the same form in all the State Sales Tax Act. Transaction of sale of goods was being taxed under the relevant Sales Tax Act of states under the given definition.
Changing times required evolved definition of sale of goods
The murmurs were being felt that definition of sale under the sales tax law and constitutional framework as prevalent at that time was inadequate to cover the transactions under the changing and complex scenarios of business. The purpose behind insertion of Article 366(29A) of Constitution and effect of amendment was detailed out by Hon’ble Apex Court in the matter of Bharat Sanchar Nigam Ltd. &Anrvs Union Of India &Ors on 2 March, 2006 (145 STC 91) as follows:
Having noted the various decisions of the Supreme Court as well as of the High Courts excluding certain transactions from the scope of sale for the purpose of levy of sales tax, it was said that the position had resulted in scope for avoidance of tax in various ways. In the circumstances, it was considered desirable to put the matter beyond any doubt. Article 366 was therefore amended by inserting a definition of “tax on the sale or purchase of goods” in Clause (29A).
Hon’ble Apex Court then observed
Clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale.
Clause (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome.
Clause (c) deals with hire purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale.
Similarly the title to the goods under Clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V. Meiyappan’s decision a lease of a negative print of a picture would be a sale.
Clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales.
Clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab vs. M/s. Associated Hotels of India Ltd. (supra). That decision has by this clause been effectively legislatively invalidated.
Tax on Sale of Food-Decision of Hon’ble Apex Court hit the nail in the coffin
Hon’ble Apex Court vide its decisions in State Of Punjab vs M/S. Associated Hotels Of India … on 4 January, 1972 and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi hit the final nail in the coffin and held that revenue does not have power to the levy tax on food sold in Restaurant and Hotels as it’s a contract of service and not of sale of goods and they do not have the power under the given constitutional framework at that time to split the transaction between transaction of goods and transaction of services. The two judgement are being reproduced herewith
a) Hon’ble Apex Court in the matter of State Of Punjab vs M/S. Associated Hotels Of India … on 4 January, 1972 analyzed the nature of contract while a customer stays in the hotel as follows:
“The transaction essentially is one of service by the hotelier in the performance of which meals are served as part of and incidental to that service, such amenities being regarded as essential in all well conducted modem hotels. The bill prepared by the hotelier is one and indivisible, not being capable by approximation of being split up into one for residence and the other for meals. No doubt, such a bill would be prepared after consideration of the costs of meals, but that would be so for all the other amenities given to the customer. For example, when the customer uses a fan in the room allotted to him, there is surely no sale of electricity, nor a hire of the fan. Such amenities, including that of meals, are part and parcel of service which is in reality the transaction between the parties.
“Emphasis Supplied”
The Court finally held that
The transaction between a hotelier and a visitor to his hotel is thus one essentially of service in the performance of which and as part of the amenities incidental to that service, the hotelier serves meals at stated hours. The Revenue, therefore, was not entitled to split up the transaction into two parts, one of service and the other of sale of food stuffs and to split up also the bill charged by the hotelier as consisting of charges for lodging and charges for food stuffs served to him with a view to bring the latter under the Act.
“Emphasis Supplied”
Therefore it can be clearly observed that Hon’ble Apex Court observed that supply of food by the Hotel was as part of service or essentially in the nature of service whereby incidentally food I served by the hotelier. The same terms which have been used in Clause 6(b) of Second Schedule II of CGST Act, 2017.
b) The issue was re-visited by the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi(supra). The Supreme Court examined whether under the Bengal Finance Sales Tax Act, 1941 supply of food in a restaurant was exigible to tax as a sale. The Hon’ble Apex Court first analyzed as follows:
Like the hotelier, a restaurateur provides many services in addition to the supply of food. He provides furniture and furnishings, linen, crockery and cutlery, and in the eating places of today he may add music and a specially provided area for floor dancing and in some cases a floor show.
The Hon’ble Apex Court further observed that
“6. It has already been noticed that in regard to hotels this Court has in M/s. Associated Hotels of India Limited adopted the concept of the English law that there is no sale when food and drink are supplied to guests residing in the hotel. The court pointed out that the supply of meals was essentially in the nature of a service provided to them and could not be identified as a transaction of sale. The court declined to accept the proposition that the Revenue was entitled to split up the transaction into two parts, one of service and the other of sale of food- stuffs. If that be true in respect of hotels, a similar approach seems to be called for on principle in the case of restaurants. No reason has been shown to us for preferring any other. The classical legal view being that a number of services are concomitantly provided by way of hospitality, the supply of meals must be regarded as ministering to a bodily want or to the satisfaction of a human need.”
Hon’ble Court finally held that
In the result, we hold that the service of meals to visitors in the restaurant of the appellant is not taxable under the Bengal Finance (Sales Tax) Act, 1941, as extended to the Union Territory of Delhi, and this is so whether a charge is imposed for the meal as a whole or according to the dishes separately ordered.
Hon’ble Apex Court affirmed the view taken in Associated Hotels Case and observed both supply of food by Restaurant and supply of food by Hotel is of service or essentially in the nature of service. The same terms which have been used in Clause 6(b) of Second Schedule II of CGST Act, 2017.
The review petition filed against the said judgement was dismissed by the Apex Court in Northern India Caterers (India) … vs Lt. Governor Of Delhi on 21 December, 1979 and held as follows:
Indeed, we have no hesitation in saying that where food is supplied in an eating-house or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and the rendering of services is merely incidential, the transaction would undoubtedly be exigible to sales-tax. In every case it will be for the taxing authority to ascertain the facts when making an assessment under the relevant sales tax law and to determine upon those facts whether a sale of the food supplied is intended.
We are of the view that these review petitions must fail. They are, accordingly, dismissed. There is no order as to costs.
Did the above three decisions impacted power of the legislatures to levy tax on transaction wherein only sale and purchase of goods was involved without involving supply of service:
a) Situation Prior to 46th Constitutional Amendment Act
It has to be highlighted here that challenge to the power of the revenue was only affirmed by Hon’ble Apex Court in cases where there was supply of goods being food as service or as part of service. However, for cases other than that involving only sale of food, there was no challenge to the power of revenue and tax was being levied and recovered by the revenue.
Hon’ble Andhra High Court in the matter of Durga Bhavan And Ors. vs The Deputy Commercial Tax … on 19 September, 1980 categorized sale of food in restaurant in two parts and briefed about levy of tax as follows:
In this connection it has to be noticed that broadly speaking there are two types of transactions in restaurants. The supply of food, etc., by restaurants may be made to customers who sit in the restaurants and consume the food. In such a case they enjoy the amenities provided by the owners of the restaurants. The amenities may vary from restaurant to restaurant. In some cases the restaurants may provide air-conditioned halls and in others they may provide only fans. In some they provide costly furniture whereas in others they may provide only tables and chairs. The second class of cases consists of supply of food-stuffs, snacks, drinks, etc., across the counter where there is practically no service rendered or amenities provided except in the manner of supplying the goods like packing, etc.
Emphasis Supplied
Hon’ble Court finally concluded as follows:
In this connection, we may observe that sales across the counter will obviously be transactions of sale. It may be that in doing so some services are rendered by packing the food-stuffs, etc., but this part of the service is so infinitesimal and insignificant that the transaction would nevertheless be one of sale. Even in a case where a customer is asked to sit down in a chair or a more comfortable seat while the food-stuff is packed and handed over to him, still we consider that the transaction would be one of sale.
Emphasis Supplied
Therefore, transaction of sale or purchase of goods wherein there was either no or minimal service involved was not impacted by the decision of the Apex Court but the transactions wherein supply of service was prevalent alongwith the sale of goods were directly impacted by the decision of the Apex Court as the legislature could not levy the tax on such transactions.
b) Situation Subsequent to 46th Constitutional Amendment Act
Hon’ble Andhra High Court in the matter of Amba Bhavani And Ors. vs The Government Of Andhra Pradesh … on 29 January, 1986 held that
On consideration of the provisions of the Constitution Amendment Act, 1982, in the light of the judgments of the Supreme Court in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipalityand Tirath Ram Rajindra Nath v. State of Uttar Pradeshthis Court came to the conclusion that by enacting section 6, the Parliament removed the defect pointed out by the court in the then existing law thereby nullifying the effect of the judgment in Northern India Caterers’ case .
The High Court further held that
Even in Durga Bhavan’s case when this Court pointed out the defect in the Andhra Pradesh General Sales Tax Act and held that transactions by way of supply or service of food or drinks in hotels or restaurants will not be transactions of sale exigible to tax, it was categorically laid down that so far as counter sales were concerned they were exigible to tax.
Hon’ble Delhi High Court in the matter of Indian Railways Catering & … vs Govt Of Nct Of Delhi & Ors on 19 July, 2010 observed that
In fact, even in a shop- cum-restaurant, the meals are heated and beverages refrigerated and then served to the customer on his table in the crockery and cutlery provided by the shop-cum-restaurant. Even while selling a meal/snack/beverage off the counter, the seller heats the meal/snack and delivers cold/hot beverage to the customer. No one will buy meals/snacks if they are not hot, a soft drink, if it is not cold or a tea/coffee if it is not hot.
Therefore, in sale of food over the counter, the only service provided is selling of cooked and hot food which is incidental for selling the food. Other than that no service is involved in the supply of food over the counter.
Therefore Hon’ble Court held that
Since these is transfer of goods, by the petitioner company to Indian Railways, for consideration and the property in the goods also passes to Indian Railways, the transaction between them is no doubt a case purely of sale of goods under the provisions of Sale of Goods Actas well as Delhi Value Added Tax Actand the element of service by way of heating the food, heating/freezing the beverages and then serving them to the passengers is purely incidental and minimal required for sale of food and beverage in a transaction of this nature.
In the given case, the contract between the petitioner company and Indian Railways was for supply of food and there was no privity of contract between the Company and the customer of Indian Railway and the Hon’ble Court held that element of service by way of heating the food, heating/freezing beverages and then serving them to the passengers is purely incidental and minimal required for sale of food and beverage in a transaction of this nature.
Hon’ble Court also held that when transaction is purely of sale of goods and is not a case of composite supply, therefore contention that since service tax is being paid on 50% of value of the contract and therefore VAT should be payable on balance 50%. The relevant part is as follows:
For the reasons given in the preceding paragraphs, we hold that the transaction between the petitioner-company and Indian Railways for providing food and beverages to the passengers, on board the trains, is a transaction of sale of goods by the petitioner-company to Indian Railways. It is neither a contract for providing services nor a composite contract for supply of goods and providing of services.
Was 46th Constitutional Amendment brought to impact levy of tax on sale of food wherein service is negligible or minimal for supply of food
It can be clearly observed from the above para that not every supply of food is a composite supply involving supply of food as service or as part of service. It has to be checked and if service part is minimal or negligible for supply of food then it would be a case of sale of food. Levy of Tax on such transactions was always held to be as sale of goods prior to 46th Constitutional Amendment and subsequent to the 46th Constitutional Amendment Act. Therefore, 46th Constitutional Amendment was never intended to cover transactions involving sale of goods.
It is further highlighted that in case of food there are two type of services involved i.e. first being services used for manufacturing of food and second being services like amenities being provided alongwith the food or food being supplied being a part of service. Preparation of Food is considered as Manufacturing and therefore services used in manufacturing of food are covered under the ambit of sale of goods. Therefore service provided till the goods are manufactured is incidental to sale of goods. However, it’s the cost of amenities which are provided alongwith food or food being supplied as part of service like hotel or catering which have necessitated Article 366(29A)(f).
Reason behind Insertion of Article 366(29A) to Constitution of India and transactions covered by the 46th Constitutional Amendment Act
In the backdrop of the three landmark Supreme Court Cases, wherein it was held that where supply of foods is service or as part service like catering contracts, service of food in room, supply of food in restaurant; revenue does not have the power to levy sales tax as it lacks the power in the given Constitutional Framework to split transaction between supply of goods and supply of service. However, it can continue to levy tax on transactions involving only supply goods being foods wherein part of service is minimal or negligible.
Therefore, to plug the loophole as envisaged above for levy of tax involving transaction of supply of goods being food as supply of service or part of service, 46th Constitutional Amendment inserted Article 366(29A)(f). The understanding is important as firstly not all transactions of supply of food fall in the ambit of this Article but only specified transactions as other transactions were already under the ambit of levy of sales tax under the erstwhile definition of sales and secondly Entry 6(b)of Schedule II of CGST Act, 2017 has been bodily imported from Article 366(29A)(f). Therefore, understanding the scope of Article 366(29A)(f) would directly lead to understanding of Entry 6(b)of Schedule II of CGST Act, 2017.
The fact is further clear from the judgement of Hon’ble Apex Court in the matter of Bharat Sanchar Nigam Ltd. &Anrvs Union Of India &Ors on 2 March, 2006 (145 STC 91) which held as follows:
All the clauses of Article 366 (29A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerly limited. The amendment especially allows specific composite contracts viz. works contracts (Clause (b)), hire purchase contracts (Clause (c)), catering contracts (Clause (e)) by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax.
The reason for the insertion of the 366(29A)(f) was to overcome the aforementioned decisions in State of Himachal Pradesh v. Associated Hotels of India (supra) and Northern India Caterers (India) Ltd. v. Lt. Governor(supra) and other decisions, Parliament inserted Article 366 (29 A) (a) to (f) by the 46th Amendment to the Constitution. This is apparent from the Statement of Objects and Reasons (SOR) for the 46th Amendment, the relevant portions of which read as under:
In the Associated Hotels of India case (AIR 1972 SC 1131), the Supreme Court held that there is no sale involved in the supply of food or drink by a hotelier to a person lodged in the hotel. …
Besides the above mentioned matters, a new problem has arisen as a result of the decision of the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi(AIR 1978 SC 1591). States have been proceeding on the basis that the Associated Hotels of India case was applicable only to supply of food or drink by a hotelier to a person lodged in the hotel and that tax was leviable on the sale of foodstuffs by a restaurant. But over-ruling the decision of the Delhi High Court, the Supreme Court has held in the above case that service of meals whether in a hotel or restaurant does not constitute a sale of food for the purpose of levy of sales tax but must be regarded as the rendering of a service in the satisfaction of a human need or ministering to the bodily want of human beings. It would not make any difference whether the visitor to the restaurant is charged for the meal as a whole or according to each dish separately.
It is, therefore, proposed to suitably amend the Constitution to include in article 366a definition of “tax on the sale or purchase of goods” by inserting a new clause (29A)… “
In para 13 of the Statement of Reasons for the 46th Amendment to the Constitution it was observed that the “proposed amendments would help in the augmentation of the State revenues to a considerable extent.” The focus was on ensuring that State sales tax was leviable on the portion of supply of food and drinks even where it was as a part of a composite catering contract.
Hon’ble Bombay High Court in the matter of Indian Hotels and Restaurant Association vs The State Of Maharashtra on 8 April, 2014 observed the intent of Article 366(29)(f) as follows:
Article 366(29A)(f) is inserted by the Constitution (Forty-sixth Amendment) Act, 1982 so as to take care of the continuing controversy, namely, that while taxing sale or purchase of goods the State Legislature cannot impose a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration.
The challenge was to several State Acts and particularly levying, assessing and recovering sales tax on the food and meals served in a restaurant. The argument was that this is a service and not a sale of goods and particularly food items or drink. It is in that context and when the Honorable Supreme Court rendered the decisions so as not to empower the States to impose such a sales tax, that the Parliament clarified that the food or drink may have been served in the restaurant or hotel, but it is nothing but a sale of goods within the meaning of the Sales Tax Act. Therefore, it will not be possible for the hoteliers or restaurants to say and urge that they do not sell goods, but only provide services. The Parliament, therefore, inserted an inclusive definition in the Constitution vide Article 366(29A.)
This inclusive definition was inserted so as not to leave any room for argument that a tax on sale or purchase of goods does not include a tax on the supply of goods which may be food or any other article for human consumption or any drink (whether or not intoxicating), by way of or as part of any service or in any other manner whatsoever. It is for that limited purpose and to put an end to the controversy, which was dealt with by the Honorable Supreme Court and to get over the basis of its judgments or to alter them that the Parliament stepped in.
It was argued and prior to the Constitution (Forty-Sixth Amendment) Act, 1982 that the State cannot impose the sales tax on the establishments like restaurants or hotels because they do not sell goods. They only provide services and while rendering and providing such services, they may be incidentally selling the goods. However, their predominant activity is rendering services and not selling the goods. It is that argument or stand which is taken care of vide the above Constitutional definition.
Hon’ble Andhra High Court in the matter of Amba Bhavani And Ors. vs The Government Of Andhra Pradesh … on 29 January, 1986 held that
“9. The Division Bench of this Court disposed of the batch of writ petitions by its decision in Hotel Dwaraka v. Union of India [1985] 58 STC 241 holding that the exercise of the constituent power for validation of the State laws was lawful, section 6 of the Constitution (Forty-sixth Amendment) Act, 1982, did not affect the basic structure of the Constitution, it was intended to remove the causes for ineffectiveness or invalidity of the law and alter the conditions on the basis of which the judgment of the Supreme Court in Northern India Caterers’ case was rendered and thereby to nullify the effect of that judgment..”
It’s pretty much clear that 46th Constitutional Amendment was brought in to nullify the argument that while selling goods in restaurant predominant activity is rendering services and not sale of goods and such transactions would be exigible to tax on sale of goods.
Like for levy of Tax under Article 366(29A)(b) which provided for tax on transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract; there has to be transfer of property of goods in execution of works contract and not all supply of goods would fall under the ambit of the given clause. In the same way there has to be supply of food by way of service or as part of service for a transaction to fall under this clause and not supply of food will fall under the given clause.
Therefore, under the GST regime what would be important is that the language of Article 366(29A)(f) which has been imported in clause 6(b) of Schedule II of CGST Act, 2017 covers only such transactions wherein supply of goods being food is by way of supply of service or part of service and not all transactions involving supply of food wherein supply of service is minimal or negligible. The clause never intended to cover transactions of pure sale of food and nor it would cover under GST Era. It is only wherein service is involved alongwith the supply of food that Article 366(29A)(f) would be applicable and would continue to be covered under clause 6(b) of Second Schedule II of CGST Act, 2017.
Key Elements of Article 366(29A)(f)
The Constitution Forty-sixth Amendment Act, 1982 amended Article 366 of the Constitution thereafter by inserting clause (29A) therein. So far it is relevant for our purposes, it read :
“Tax on the sale or purchase of goods includes:
(a) xxxx
(b) xxxx
(c) xxxx
(d) xxxx
(e) xxxx
(f) a tax on the supply, by way of or, as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by
the person to whom such transfer, delivery of supply is made.”
Hon’ble Delhi High Court in the matter of Federation of Hotels And … vs Union Of India And Ors on 12 August, 2016 observed key requirements in Article 366(29A)(f). The requirements which have to be fulfilled before the transactions fall under the ambit of Article 366(29A)(f).
To revert to Article 366 (29A), the focus as far as the present petition is concerned is on Clause (f) which seeks to define tax on sale purchase of goods. The constituent elements as it were, of the definition are:
(i) the supply of goods being food or any other article for human consumption or any drink (whether or not intoxicating);
(ii) the supply of goods could by way of or as part of any service or in any other manner whatsoever; and
(iii) such supply or service could be for cash, deferred payment or other valuable consideration.
If the above three elements are present then “such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.”
The subject matter of “transfer, delivery or supply” are the „goods‟, which in this case would be food or any other article fit for consumption whether or not intoxicated. The key expression is not just „supply‟ but „supply of goods‟.
In K.Damodarasamy Naidu & Bros. and others v/s State of T.N. and another, reported in (2000) 1 SCC 521 Honourable Supreme Court referred to the Constitution (Forty-Sixth Amendment) Act, 1982 and particularly the definition noted above and held as under:-
“9. The provisions of Sub-clause (f) of Clause (29A) of Article 366 need to be analysed. Sub-clause (f) permits the States to impose a tax on the supply of food and drink. The supply can be by way of a service or as part of a service or it can be in any other manner whatsoever. The supply or service can be for cash or deferred payment or other valuable consideration. The words of Sub-clause (i) have found place in the Sales Tax Acts of most States and, as we have seen, they have been used in the said Tamil Nadu Act. The tax, therefore, is on the supply of food or drink and it is not of relevance that the supply is by way of a service or as part of a service. In our view, therefore, the price that the customer pays for the supply of food in a restaurant cannot be split up as suggested by learned Counsel. The supply of food by the restaurant owner to the customer, though it may be a part of the service that he renders by providing good furniture, furnishing and fixtures, linen, crockery and cutlery, music, a dance floor and a floor show, is what is the subject of the levy. The patron of a fancy restaurant who orders a plate of cheese sandwiches whose price is shown to be Rs. 50 on the bill of fare knows very well that the innate cost of the bread, butter, mustard and cheese in the plate is very much less, but he orders it all the same. He pays Rs. 50 for its supply and it is on Rs. 50 that the restaurant owner must be taxed.
Service Tax was to be levied on service portion involved in supply of food by way or as part of service or any other manner whatsoever and not transactions wherein it was pure sale of food
Hon’ble Apex Court in the matter of Bharat Sanchar Nigam Limited v. Union of India (supra) the Supreme Court analysed the various clauses of Article 366 (29- A) and observed inter alia, that
“Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been Constitutionally permitted in clauses (b) and (g) of Clause 29A of Art. 366, there is no other service which has been permitted to be so split.”
Emphasis Supplied
Hon’ble Apex Court clearly observed that Article 366(29A)(f) intended to cover transaction in case of supply of food wherein service and sale are involved at the same time.
Hon’ble Delhi High Court in the matter of Federation of Hotels And … vs Union Of India And Ors on 12 August, 2016 observed that Section 66E(i) of Finance Act, 1994 sought to levy transaction on service portion of the contract wherein supply of food is by way of service or part of service.
“46. By the same logic even if some part of the composite transaction involves the rendering of service, there should be no difficulty in recognising the power of the Union to bring to tax that portion. Section 66 E (i) of the FA which defines ‘declared service’ to be the “service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.”
Thus Section 66E(i) clearly provides specifically for levy tax on “service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity” and therefore has been provides as a ‘declared’ service. The legislative has specifically carved out service portion of the composite contract of supply of food and drinks.
Tax Research Unit (TRU) of the Department of Revenue, Government of India explained the background and the purport of levy of service tax by a communication dated 28th February 2011 and clarified that it does not seek to levy tax on transactions involving pure sale of food.
1.4 The new levy is directed at services provided by high-end restaurants that are air-conditioned and have license to serve liquor. Such restaurants provide conditions and ambience in a manner that service provided may assume predominance over the food in many situations. It should not be confused with mere sale of food at any eating house, where such services are materially absent or so minimal that it will be difficult to establish that any service in any meaningful way is being provided.
1.6 “The levy is intended to be confined to the value of services contained in the composite contract and shall not cover either the meal portion in the composite contract or mere sale of food by way of pick-up or home delivery, as also goods sold at MRP.
It would be worthwhile to highlight abatement chart under Service Tax Regime for various services wherein supply of food was involved by way of service or as part of service. This abatement chart also affirms that for a transaction falling under Entry 366(29A)(f) i.e. supply of food by ay of or as part of service, there has to be service component and cannot be a merely sale of food where minimal or negligible service component is involved.
Nature of services
Abatement
Bundled services by way of supply of food or any other article of human consumption or any drink, in a premises together with renting of such premises
30%
Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at a Restaurant
60%
Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of such outdoor catering
40%
The above clearly establishes that under the service tax regime as well entry under clause (i) of Section 66E of Finance Act, 1994 which provided an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity did not intend to cover transactions of pure sale and only intended to cover transactions involving service as part of sale.
Levy of Tax Pre 46th Constitutional Amendment Act, Post 46th Constitutional Amendment Act, Post Service Tax Regime and Post GST Regime.
a) Pure sale of Food
Pure sale of food was leviable to Sales Tax Prior to 46th Constitution has been held by the Hon’ble Andhra Pradesh High Court in the matter of Durga Bhavan And Ors. vs The Deputy Commercial Tax.
Post 46th Constitutional Amendment there has been no change as the Constitutional Amendment was never intended to impact such transactions as the law regarding levy of tax as sale of goods was fairly settled on the issue.
Post VAT and Service Tax Regime no service tax was leviable as no or minimum Service was involved and only VAT was leviable on such transactions.
Under the GST Regime, these transactions are not covered under Entry 6(b) of Schedule II of CGST Act, 2017 as the entry covers only such transactions wherein supply of food is by way or service or part of service. This is a transaction of sale of goods and not covered under composite supply Under Entry 6(b) as service element is minimal or negligible.
b) Supply of Food by way of service or as part of service; For e.g. Restaurant, Catering Services and Hotel:
This transaction was not leviable to Sales Tax Prior to 46th Constitutional Amendment Act as it was treated as transaction of service and not of sale of goods and constitutional framework did not allow splitting up of consideration between sale of goods and service. Therefore the three judgments of Hon’ble Apex Court held that the legislature does not have the power to levy taxes.
Post 46th Constitutional Amendment Act, since the law was amended to cater such situations it was leviable to Sales Tax.
Under the Post Service Tax and VAT Regime, there was a controversy regarding levy of VAT and Service tax on same transaction and value upon which it would be levied. The validity was challenged and levy of VAT on such transactions was upheld by Hon’ble Apex Court in the matter of K. Damodarasamy Naidu And Bros. … vs State Of Tamil Nadu And Anr. Etc. and Levy for service Tax on such transactions was upheld by Hon’ble Apex Court in the matter of Tamil Nadu Kalyana Mandapam Assn vs Union Of India & Ors on 15 April, 2004.
Under the post GST Era, Entry 6(b) covers such transaction and are taxable as supply of service as falling under Composite Supply.
Scenarios where there is a thin line differentiating the transactions between supply of service and supply of goods:
The below mentioned situations are subjective ones and the scenario may change on a case to case basis and a straightjacket formula cannot be devised for the same. However, in the broader context, the below-mentioned situations can be analysed as follows:
a) Sale of Food across Live Counters i.e. Pick Up Food: Hon’ble Andhra High Court prior to insertion of 46th Constitutional Amendment, held in the matter of Durga Bhavan And Ors. vs The Deputy Commercial Tax … on 19 September, 1980 that supply of food-stuffs, snacks, drinks, etc., across the counter where there is practically no service rendered or amenities provided except in the manner of supplying the goods like packing, etc would be treated as sale of goods. This would still hold good wherein there are no facilities or amenities being provided and customer has to take the packed food and eat the same as per his convenience without any facility being provided by the supplier.
The important issue is that sale of food by the supplier is not by way or as part of service to the customer and charges charged by him do not include any charges for the services supplied. In such case, as held by Hon’ble Delhi high Court in the matter of Indian Railways Catering & … vs Govt Of Nct Of Delhi & Ors on 19 July, 2010 would hold good that such transaction are purely of sale of goods and the element of service by way of heating the food, heating/freezing the beverages and then serving them to the passengers is purely incidental and minimal required for sale of food and beverage in a transaction of this nature.
However, if unit starts providing amenities to the customer, then the supply could be treated as supply of service. It is immaterial whether customer choses to eat the food at the premises or opts to takeaway, because the amenities have been offered to have been provided by the supplier and the price charged for the food somewhere includes price for the amenities.
Therefore, if the facilities are offered, then the supply would fall in the ambit of the supply of food by way of service or as part of service, irrespective of the fact that the customer avails the service or not and that’s why Notification No. 11/2017 dated 28th June 2017 provides the rider of “supply of food by way or part of service …whether forconsumption on or away from the premises”. But if no such services are provided by the supplier, then it would be difficult to fall within the ambit and could be classified as supply of goods. Further, if price charged for the two i.e. price for takeaway without being consumed or being served at the premises is different, the price charged might be the yardstick to arrive at the nature of supply and whether being a supply of food by way of service or part of service or pure sale of food.
Supposedly, a shop owner who provides snacks across the counter and generally people consumes it across the counter but he has not provided any or little facility or amenity cannot be said to have supplied food by way of service or part of service. If these case would be treated as supply of food by way of or as part of service then a kirana shop owner selling packed goods with no facility can also be held to falling under the composite supply. However, the magnitude of arrangements and amenities to be provided would be subjective and would have to be assessed on a case to case basis as the critical factor to be covered under Entry 6(b) is supply of food should be by way of or as part of service.
b) Delivery of Food to the Customer premises: At the time of levy of service tax it was clarified by TRU that levy of service tax was never intended to mere sale of food by way of pick-up or home delivery, as also goods sold at MRP. If we look at the contact of the delivery of food to the place of the customer, it is clear that it is a contract for sale of goods and fall under the same category of supplies wherein the supplier has agreed to deliver the finished good to the premises of the customer. It might just fall in the ambit of supply of goods and the s the example has been quoted for definition of composite supply under clause 2(30) of the CGST Act, 2017
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
c) Supply of Food in Sweetshop-Cum-Restaurant: In a Sweet Shop Cum Restaurant, there may be multiple supplies i.e. Supply of Food in Restaurant, Supply of Jalebi and snacks across the live counter and supply of sweets. All the three can be takeaway or can be consumed at the shop. The question now arises that out of three which can be considered as supply of food byway of service or as part of service. Supply of Food in restaurant is surely supply as part of service and therefore a composite supply. Supply of Jalebi and Snacks across the live counter has been discussed in Para 11(a) above.
Supply of Sweet is the trickiest of all. Can it be said that the sweets have been supplied for consumption at the premises or only away from the premises. In a general scenario, sweets are packed and taken away from the sweet shop and most rarely it is consumed at the premises.
For help in understanding, let’s go back into the service tax regime and take similar case of sweetshop cum restaurant supplying sweets. Would like to highlight that under Service Tax Regime, service portion in the activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) was supplied in any manner as a part of the activity, at a Restaurant was taxable @ 40% of the entire sales value. Here again point to be emphasized is that the entry sought to tax service portion in the activity wherein food is supplied by way of or as part of service just like entry 6(b) of Schedule II of CGST Act, 2017. Under that regime as well, whereas VAT was charged on the entire value of sweets being supplies but service tax was not charged @ 40% of value of sale of goods treating the same as sweets could have been consumed at the shop and the amenities are being provided to consume the sweets. It was a pure case of sale of goods. Therefore, in such cases, sale of sweets would be a case favoring levy of tax of sale of food treating as supply of goods unless a strong case can be made showing that primarily the sweets are consumed at the premises using the amenities provided and not taken away as a packed food, which would be a bit tough.
Further in Kundan Mishthan Bhandar, AAR Uttarakhand held that in the instant case the nature of restaurant services is such that it may be treated as the main supply and the other supplies combined with such main supply are in the nature of incidental or ancillary services. Thus restaurant services get the character of predominant supply over other supplies. The view might need reconsideration as composite and mixed supply are looked for each transaction and supply individually and cannot be looked from the point of view of a person as a whole wherein supply of restaurant services are main and other supplies are ancillary.
Conclusion: The key factor to be falling under the composite supply is to fall within the ambit of supply of food by way of or as part of service i.e. amenities and services being provided alongwith the supply of food. The facilities should be such which are not purely incidental and minimal required for sale of food and beverage in a transaction of this nature. How one satisfies the equation is the key factor in deciding the question. It would not be wrong also to state that it’s a subjective question but the Decisions of Apex Court, High Court, CBEC Circular gives the clue in how to interpret cases.
At the outset, would like to state that this post is specifically restricted to analyse (without going into the judgements on this subject) levy of tax on reverse charge on services of renting of immovable property provided by director to the company vis-à-vis relevant entry in notification and also surrounding entries in notification to see if any help can be sought for understanding, one of the most controversial aspects in GST. This article is intended to give a different perspective to the relevant entry relating to services provided by director to the company.
a) Provision should be construed in context of other clauses to make consistent reading of the entire enactment
Referring to judgement of Hon’ble Apex Court in the matter of Padmausundara Rao (Dead) &Ors vs State Of T.N. & Ors on 13 March, 2002 which emphasised that provision should be construed together and in context of statute and other clauses to make consistent reading of entire enactment. Relevant extract of judgement is as follows:
“for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute.”
Therefore, this article is an attempt to understand the relevant entry of Service Supplied by Director vis-à-vis other similar entries in the notification to have a consistent reading of the notification.
c) Whether entry “services supplied by a director” covers only services provided by virtue of being a director or all service provided since he is a director
The entry starts with the phrase “services supplied by a director…”.The question is
1. Whether entry is relating to service being supplied by a person which can only be supplied as director or
2. Any service provided by a person which can also be supplied without being a director but since he is a director, whether all services would be covered.
d) Reference to Similar Entries in Notification No. 13/2017-Central Tax Dated 28th June 2017 (as amended from time to time)
e) Inference which can be taken from a combined reading of above entries
All the above entries refer not to the “person” i.e. an individual/government/firm/company, but to the capacity in which services sought from such person by the recipient could only be provided i.e. “Director”, “Insurance Agent”, “Recovery Agent” and “Direct Selling Agent”.
Now for entries standing on same footing, if we treat that all services provided by a person as director would be covered under Entry No. 6 since he is a director to the company therefore, on a corollary and same footing whether services of renting of immovable property provided by Direct Selling Agent to a Bank or NBFC carrying on insurance business would also be covered under Reverse Charge for which being a DSA is not necessary and can be provided by any person whether or not he is a DSA.
It is never interpreted in such a way and nor its the intention of the legislature while incorporating the entry in the notification. The intention of the legislature is not so in case of DSA is evident from the Agenda to 28th GST Council Meeting which is as follows:
“DSAs, who are mainly from the small and medium enterprise segments, operate on very thin margin and find it challenging to cope with the requirements of the GST compliance provisions. These DSAs consisting of several thousands in numbers are spread across the country. The commissions are paid to large majority of DSAs by the banking and financial companies (including non-banking financial companies) which are large corporations having robust teams to ensure compliances with the GST provisions. RCM would ensure that”
1. The Government receives the tax amount on such services provided by DSAs on a timely basis;
Recommendation of the Fitment Committee
3. By bringing in tax payment of DSAs under RCM, Banks / NBFCs will be required to pay the GST. There will be less defaults and evasion in payment of GST as commission / compensation payable to DSAs will be paid post adjustment of GST and will be like payment of TDS by these companies. DSAs, who are mostly small and medium enterprises, will be freed from the compliance burden of GST relating to payment, return filing and record keeping for ITC etc. and will increase their ease of doing business.
Emphasis Supplied
Thus, as can be seen from the above that intention of the entry “Services supplied by a DSA” covers only scope of services provided as “DSA” and payment made as commission to them. If the intention of bring entry of DSA under RCM is limited only to the extent of commission payable to them for services rendered in the capacity of DSA then all similar entries referring to the services provided in a particular capacity should be restricted to services provided as such in that capacity and not to all services provided for which being a director or insurance agent or recovery agent or DSA was not at all necessary.
Conclusion-From a bare reading of the notification and the relevant entry and surrounding similar entries to the entry for services provided by director, it can be concluded that when intention for other similar entries in the notification is that only those services provided by the person for which it was necessary to be in that capacity are covered and not all services provided by such person which can also be supplied without being in that capacity, then the same principle should also be applied for the entry relating to the services provided by Director. Thus, services provided by way of renting of immovable property for which being a director is not necessary should not be covered under the scope of RCM.
Below is the compilation of Rulings by AAAR West Bengal. The Compilation provides the subject of the Ruling along with the Date of Ruling. Link to Download has also been given alongwith the Ruling.
Case: Assistant Commissioner of State Tax, Park Street Charge, Kolkata (South) Circle dated: 25/09/2019
Query:
The Applicant is a joint venture of The West Bengal Housing Board and The Peerless General Finance and Investment Company Limited for developing real estate projects in West Bengal. It is developing a residential housing project named ‘Avidipta II’ and supplying construction service to the recipients for possession of dwelling units in the year 2023. The Applicant is enjoying abatement, prescribed for construction service under Sl No. 3(i) read with Paragraph 2 of Notification No 11/2017 – CT (Rate) dated 28/06/2017 (corresponding State Notification No. 1135-FT dated 28/06/2017), as amended from time to time; hereinafter collectively called the Rate Notification. In addition to the construction service, the Applicant provides services like preferential location service, which includes services of floor rise and directional advantage. It seeks a ruling on whether the supply of these services constitutes a composite supply with construction service as the principal supply, and if so, whether abatement is applicable on the entire value of the composite supply
No abatement prescribed for construction service under Sl No. 3(i) read with paragraph No. 2 of Notification No. 11/2017-CT(Rate) dated 28-06-2017 (corresponding State Notification No. 1135-FT dated 28-06-2017) as amended from time to time is applicable on the value of Preferential Location Service realised separately from the buyers.
Case: East Hooghly Agro Plantation Pvt. Ltd. dated: 26/09/2019
Query:
The Applicant, stated to be a manufacturer of tarpaulins made from High Density Polyethylene (hereinafter referred to as “HDPE”) woven fabric, seeks a ruling on whether’HDPE Woven Tarpaulin” is classifiable as textile under Section Xl of the First Schedule of the Customs Tariff Act, 1975 (hereinafter the Tariff Act) and, if so, whether it is classifiable under HSN 6306, 6301 or 5903 of the Tariff Act.
Case: T P Roy Chowdhury & Company Pvt. Ltd. dated: 26.09.2019
Query:
The Applicant is stated to be acting as a stevedore and handles imported raw whole yellow peas. lt seeks a ruling on whether such imported yellow peas are ‘agricultural produce’ and services by way of handing of it is eligible for exemption under Sl No. 54(e) of Notification No. 12t2017 – Central Tax (Rate) dated 2810612017 (conesponding State Notification No. 1136 – FT dated 28t00t2017), as amended from time to time
Case: Macro Media Digital Imaging Pvt. Ltd. dated: 19/09/2019
Query:
The Applicant is stated to be engaged in the business of printing of trade advertisement material. lt prints the content provided by the recipient on the base of polyvinyl chloride cloth, paper etc. The Applicant provides the printing ink and the base material. lt seeks a ruling on whether such printing is a supply of goods or service. The Applicant further wants to know the classification of the trade advertisement material if its transaction is a supply of goods
The Applicant is stated to be a manufacturer of pharmaceuticals, APIs and other medicaments. He seeks a ruling on classification of fifteen products. Advance ruling is admissible on classification of any goods or services or both under section 97(2)(a) of the GST Act.
No infirmity was found in the order passed by the WBAAR and the appeal failed.
The Applicant is stated to be a company limited by guarantee and registered with ROC as a nonprofit making company. It is engaged in providing its members privileges and amenities of a club such as swimming facility, gymnasium, indoor games, restaurant service etc. It seeks an advance ruling on the rate of GST applicable on the services it offers, like the restaurant service offered along with the supply of food, services like valet parking, music, decoration and other such services associated with organizing social gatherings etc. The Applicant also wants to know the admissible proportion of the input tax credit for services other than the supply of food.
The order of WBAAR is modified in respect of rate of tax applicable in case of supply of food at events organised by the appellant in the club premises. No other infirmity in the order passed by the WBAAR was found.
Case: Shiva Writing Company Pvt. Ltd. dated: 11.07.2019
Query:
The Applicant is stated to be in the business of manufacturing and supplying of ball point pens, for which pen tips and balls to be used inside the tips are required in order to make the same tips working, and also trades and supplies ball point pen tips and refills to various dealers. The Applicant seeks a Ruling on
a) Whether tips and ball, both being pen parts under HSN Chapter Head 9608, used in manufacturing process of ball point pens, are taxable at the rate of 12%;
b) If the tips and balls used in the manufacturing of ball point pens are not taxable at the rate of 12% under HSN 9608, then at what rate shall they be taxable and under which HSN.
No infirmity was found in the order passed by the WBAAR and the appeal failed.
The Applicant is stated to be the owner of a private boarding house and is providing services of lodging and food exclusively to the students of a secondary school, run by a Charitable Society, namely Sunshine Educational Society. He seeks a ruling on whether his service to the students for lodging along with food is a composite supply within the meaning of section 2(30) of the GST Act, and whether supply of such service is eligible for exemption under Sl. No. 14 of Notification No. 12/2017–CT (Rate) dated 28/06/2017 (hereinafter the Exemption Notification). The Applicant also wants to know what should be the rate of tax for the combination of services he provides, if it is not considered a composite supply
No infirmity was found in the order passed by the WBAAR and the appeal failed.
Case: Assistant Commissioner, CGST & CX, Joka Division, Kolkata South Commissionerate dated: 01.03.2019
Query: The Applicant, stated to be an Educational Institution funded by the Government of India, engaged, inter alia, in the provision of Educational Services to the students, seeks a Ruling within the meaning of the CGST/WBGST Act, 2017 (hereinafter collectively referred to as “the GST Act”) on the following questions:
(i) After the introduction of the IIM Act wef 31/01/2018 (hereinafter referred to as “the IIM Act, 2017”), whether or not the Applicant should be considered an “Educational Institution”
(ii) If the Applicant is eligible for Exemption under Entry No. 66(a) of the Notification No. 12/2017 Central Tax (Rate) dated 28/06/2017 (hereinafter referred to as “the Exemption Notification”), and from which date it should be
effective.
(iii) Whether or not the Applicant is eligible to get Refund of the Tax amount already paid by the Applicant.
Indian Institue of Management, Clacuuta is held to be an ‘education institution’ and eligible for exemption under Sl. No. 66 or 67 of Notification No.12/2017-CT (Rate) dated28.06.2017 wef from 31.01.2018 to31.12.2018 and under Sl. No. 67 of the said notification wef from 01.01.2019
Case: The Association of Inner Wheel Clubs of India dated: 21.12.2018
Query:
The Applicant, stated to be affiliated to International Inner Wheel and the administrative body for all Inner Wheel Clubs spread in 27 Inner Wheel Districts all over India (two of which fall within West Bengal), seeks a Ruling on whether the activities that are undertaken by them maybe termed as “business” and “supply of services” as defined under the WBGST/CGST Act, 2017
It is held that the supply of services to the members of the association shall be treated as supply of services as defined in Section 7 of the West Bengal Goods and Services Tax Act, 2017 and the Central Goods and Services Tax Act, 2017.
Case: Indian Oil Corporation Limited dated: 10.12.2018
Query:
Indian Oil Corporation Ltd, stated to be in the activity of refining crude petroleum oil into, inter alia, High Speed Diesel (HSD), Motor Spirit (petrol), and Aviation Turbine Fuel (ATF), no tax on supply of which is leviable date under the CGST/WBGST Acts, 2017, (hereinafter collectively referred to as “the GST Act”) is seeking a ruling on whether or not GST paid on the railway freight for transportation of the above goods from the its Haldia Refinery to the its export warehouse at Raxaul can be availed as Input Tax Credit under the GST Act.
Input credit is not admissible for GST paid on freight for transporting Petro products to export warehouse
The Applicant is stated to be a Re-seller and Importer of Sun Glasses, Frames, Lenses, Contact Lenses, etc. having Head Office in West Bengal. Goods, namely, Optical Lenses and Frames for Spectacles and Accessories, are transferred from the Head
Office in West Bengal to its branches in other states. Advance Ruling has been sought on whether such goods supplied to the branches in states other than West Bengal can be valued in terms of the Cost Price under the Second Proviso to Rule 28 of CGST Rules, 2017, instead of 90% of MRP as required under the First Proviso of the same Rule
The AAAR modified the Ruling by adding the sentence “No input tax credit, however, would be available for supply of goods / services at Zero Value.” at the end of the second paragraph of the ruling pronounced by the AAR
Case: M/S East Hooghly Polyplast Pvt. Ltd. dated: 12.03.2019
Query:
The Applicant is stated to be a manufacturer of tarpaulins made from High Density Polyethylene (hereinafter referred to as “HDPE”) a woven fabric seeks a Ruling on whether “HDPE Woven Tarpaulin” will be classified under HSN 6306 of the GST Tariff.
Advance Ruling pronounced by the WBAAR is confirmed
Case: Assistant commissioner of Central Tax, Sankrail division dated: 25.10.2018
Query: Classification of Polypropylene Leno Bags
The ruling prononced by the AAR have been set aside and it is ordered that Polypropylene Leno Bags manufactured by the respondents be classified under Tariff Heading 39232990
Case: Global Reach Education Services Private Limited dated: 24.07.2018
Query: The Applicant states that it provides Overseas Education Advisory whereby it promotes the courses of foreign universities among prospective students and wants a ruling on whether the service provided to the Universities abroad is to be considered “export” within the meaning of Section 2(6) of the IGST ACT, 2017, (hereinafter referred to as “the IGST Act”), and, therefore, a zero-rated supply under the CGST / WBGST Act 2017 (hereinafter referred to as “GST Act”).
The AAAR is in conformity with the ruling rendered by the AAR and the appeal failed.
Levy of Service Charges/Tips for the distribution amongst the staff is a common practice in case of hotels/restaurants. In this matter, it would be apt to highlight that Department of Consumer Affairs Food and Public Distribution, New Delhi issued Guidelines No. J-24/9/2014-CPU(pt.) on dated 21st April 2017 provided that the levy of service charges would be subject to consent of the customers and no customer can be forced to pay the service charges. They would be voluntary in nature.
This article tries to analyse the taxability of the service charges in view of the guidelines issued by the Department of Consumer Affairs on the matter of collection of service charges by hotel/restaurant. Since the guideline seems to be binding on the hotel/restaurant therefore, they play a major role in deciding the taxability of the service charges in GST regime. Let’s try to analyse the issue which has been a bone of contention for long and has been disputed by the department for inclusion in sales price.
Part–I-When Service Charges are Voluntary in Nature and Entry of the Customer to the Restaurant/Hotel is not considered as an implied consent to pay the service charges (Scenario Contemplated by the guidelines issued by the Department of Consumer Affairs)
1.What are Service Charges and how does the transaction takes place:
a) Component of Service to be provided by the hotel/restaurant is inherent in supply of Food, thus anything over and above the price of the product displayed on the menu card cannot be collected from the customer in name of service provided to the customer: “A component of service is inherent in provision of food and beverages as ordered by the customer. Pricing of the product therefore is supposed to cover both the goods and service components.”
The guidelines clarifies that pricing of product is supposed to cover both goods and services components. That’s the final price charged by the hotel/restaurant for the supply of the goods alongwith the delivery thereon. The price towards the service portion is already included in the price of the product displayed in the menu card therefore no other amount can be charged in the guise of service portion of the food or beverages.
This is also the most common contention laid down by the hotels/restaurants for service charges that amount of service charges has been collected towards service portion of the product being supplied and price displayed on the menu card is only towards cost of the food or beverages. The guidelines clearly negate this contention.
b) Placing of Order by the customer amounts to agreement to pay the price displayed on the menu card alongwith applicable taxes: “Placing of an order by a customer amounts to his/her agreement to pay the prices displayed on the menu card alongwith applicable taxes. Charging for anything but the aforementioned, without express consent of the consumer, would amount to unfair trade practice under the Consumer Protection Act, 1986.”
Once a customer places an order, it’s an agreement to pay the price displayed on the menu card and applicable taxes thereon for the provision of food and beverages. Hotel/Restaurant is supposed to charge the same price displayed on the menu card alongwith the taxes thereon. The circular further clarifies that charging anything excess but for the price displayed on the menu card, without express consent of the consumer, it would amount to unfair trade practice under the Consumer Protection Act, 1986.
Therefore, any other charges in the name of service charges firstly are not connected with the provision of foods and beverages by the hotel/restaurant and secondly when a customer places an order he only agrees to pay the price of the product displayed on the menu card and any other charges in excess of the price of the product cannot be collected from him except for his consent.
c) Tip or Gratuity paid is a transaction between the Customer and staff of the hotel/restaurant: Tip or Gratuity paid by the customer is towards hospitality received by him/her, beyond the basic minimum service already contracted between him/her and the hotel management. It is a separate transaction between the customer and the staff of the hotel or restaurant, which is entered into, at the customer’s discretion.
The basic minimum service is contracted between the hotel/restaurant and the customer. The charges for basic minimum service to be provided by the hotel/restaurant have already been included in the price of foods and beverages as displayed on the menu card alongwith the applicable taxes.
The tip or gratuity paid by the customer is a contract between the customer and staff of the hotel/restaurant towards the hospitality received by him beyond the basic minimum service assured by the hotel/restaurant. This transaction of tip/gratuity is entered into between the staff and the customer at customer discretion and hotel/restaurant has nothing to do with it as it has already displayed its price of the food and beverages for the goods and service part on the menu card.
d) Time at which the tip becomes payable: “The point at which the customer decides to give a tip/gratuity is not when he/she enters the hotel/restaurant, and also not when he/she places an order. It is only after completing a meal that the customer is in a position to assess the quality of service, and decide whether or not to pay a tip/gratuity, and if so, how much. Therefore, if a hotel/restaurant considers that entry of a customer amounts to his/her implied consent to pay a fixed amount of service charge, it is not correct. Further, any restriction of entry based on this amounts to a trade practice which imposes an unjustified cost on the consumer, forcing him/her to pay service charge as a condition precedent to placing order of food and beverages, and as such it falls under restrictive trade practice as defined under Section 2(1)(nnn) of the Consumer Protection Act, 1986.”
The circular further clarifies that when a customer decides to pay the tip. The following situations have been spelt out by the circular alongwith the point at which the customer decides to pay the tip.
Situation
Whether customer decides to pay the tip at this point
When he/she enters the hotel/restaurant
No
When he/she places an order
No
Whether the customer decides to pay the tip after completing the meal as he is in a position to assess the quality of service. Whether then he decides whether or not to pay a tip/gratuity, and if so, how much.
Yes
Thus, the point of determination of the tip/gratuity to be paid to the staff of the hotel/restaurant is only after completion of the service by the hotel/restaurant. The tip/gratuity does not becomes payable as soon as he enters into the hotel/restaurant.
The guidelines also clearly specify that payment of service charges cannot be made a pre-condition for placing the order otherwise it would be violation of the provisions of Consumer Protection Act, 1986. It’s an amount decided after completion of service of foods and beverages looking to the nature of service and an amount decided between the consumer and the staff.
2.Whether service charges collected by the hotel/restaurant are part of Transactional Value for the purpose of levy of GST: Clause (c) of Section 15(2) of Central Goods and Services Tax Act, 2017 provides that
“(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;”
The above clause can be divided into two parts i.e.
Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply.
Any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.
It is the second part of the clause (c), wherein service charges collected by the hotel/restaurant are sought to be treated as part of sale price on the premise that it’s an amount charged for anything done by the supplier at the time or before the delivery of the goods or supply of services. The above contentions can be argued to be not valid contention on the basis of following arguments:
The basic premise upon which the said service charges were to be included in the transactional value has been clarified to be non-existent by the guidelines issued by the Department of consumer Affairs.
a) Whether service charges collected by the hotel/restaurant can fall into the limb of Section 15(2)(c) of CGST Act, 2017 of “any amount charged for anything done by the supplier at the time of, or before delivery of goods or supply of services”
The charges towards provision of food and beverages are included in the price shown on the menu card. Hotel/Restaurant cannot charge anything in excess of the price displayed for the food and beverages on the menu card. The hotel/restaurant is bound to provide the basic minimum services as assured on the basis of price displayed on the menu card.
The guideline issued by the Department Of Consumer Affairs clearly provides that question for payment of tip/gratuity comes into question on completion of the meal. Any amount is includible in the transaction value if it is for “any amount charged for anything done by the supplier at the time of, or before delivery of goods or supply of services”. The Price paid as service charge is not towards service provided by the hotel/restaurant but the services provided by the staff to the customer over and above the basic services assured by the hotel/restaurant and it’s a contract between the customer and the staff and hotel/restaurant has nothing to do with it.
Therefore, service charges paid by the customer is not an amount to be paid to the supplier for anything done by him at the time of or before the delivery of goods or supply of services but amount payable to the staff by the customer.
b) Whether merely collection of service charges would result in them being added to the transaction value:
The next contention can be that as the amount is collected by the hotel/restaurant thus it forms part of price collected by the hotel/restaurant, therefore it has to be included in the transaction value. The amount charged from the customers can be excluded from the transactional value if it satisfies the conditions laid down under Rule 33. Rule 33 of the Central Goods and Service Tax Rules, 2017 enunciates principal of Pure agent and amount to be excluded from the purview of transactional value. A supplier has to first satisfy the condition of pure agent and once he satisfies those conditions then he has to satisfy the conditions as provided in Rule 33 for exclusion of charges from the purview of transactional value.
c) Whether hotel/restaurant can be considered as a pure agent for the purpose of collection of service charges: The definition of pure agent as provided under the said rules is as follows:
Condition-1:-Pure Agent enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both.
Although there is no written agreement between customer of the restaurant and the restaurant but it can be said that when the hotel/restaurant charges service charges from the customer with the consent of the customer, then there is an implicit contract between the customer and the hotel/restaurant that this amount would be paid to the staff. Further as the guidelines issued by the department of consumer affairs clearly specify that payment of the tip/gratuity is a contract between the customer and the staff. Therefore even if the hotel/restaurant charges the amount from the customer, legally it is on or behalf of the staff of the restaurant. The hotel/restaurant or the restaurant can only charge upto the price of the food or beverages supplied as displayed on the menu card and tax applicable on the price thereon and the service charges are purely upon the consent of the customer and that too towards the services of the staff of the hotel/restaurant.
Taking one step ahead to conclusion, guidelines issued by the department of consumer affairs only allow the restaurant to charge from the customer price of the product and tax applicable thereon. When the guidelines do not allow the restaurant to charge amount in addition to the price of the product then going one step ahead it cannot also charge any tax additional to the tax applicable on the product. The guidelines significantly provide that
“In view of the above, the bill presented to the customer may clearly display that service charge is voluntary, and the service charge column of the bill may be left blank for the customer to fill up before making payment.”
The guidelines can be deciphered for a better understanding as follows:
The bill is to be prepared by the restaurant.
The bill should clearly display that the service charges are voluntary.
The column in the bill for service charges may be left blank.
The blank column can be filled by the customer, if he wants to pay service charges.
Therefore, the theory goes that when an amount has to be decided for
a transaction between the customer and staff of the restaurant,
a transaction for which hotel/restaurant is not entitled to charge anything from the customer without his consent, and
a transaction for which hotel/restaurant has been suggested to leave the space blank only to be filled by the customer, therefore, when a customer is asked to fill the consideration and that too after the preparation of the bill, it clearly shows that the amount is collected by the restaurant with an express consent of the customer that restaurant would act as the pure agent and pay the amount directly to the staff.
Further guidelines also admit that agreement of the customer to pay service charges is in no way related to the provision of food and beverages. Service of hotel/restaurant comes to an end with the provision of food or beverages to the customer and consideration for services rendered by the hotel/restaurant is the price shown on the menu card. Therefore, when a hotel charges amount as service charge it is nothing but an agreement with the customer to act as his pure agent to pay the amount to the staff of the hotel.
Condition-2:- Pure Agent neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply:-
In this regard guidelines clearly specify that payment of the tip/gratuity by the customer to the staff is decided once provision of food and beverages is complete. Therefore, any transaction payment of which is decided subsequent to the provision of food and beverages and is between persons other than the hotel/restaurant, then it is implied that restaurant or the hotel/restaurant does not have any role to play for in the transaction and once there is no role to play by the restaurant or the hotel/restaurant except for collection of the service charges, therefore no question arises for the holding of any title thereof of the services. The services are purely provided by the staff directly to the customer over and above the basic services assured by the hotel.
Condition-3:-Pure Agent does not use for his own interest such goods or services so procured:-
Tip/Gratuity is a consideration given by the customer to the staff for the services received over and above the basic standard as assured by the restaurant or hotel/restaurant. The guidelines also admit that
“Tip or Gratuity paid by the customer is towards hospitality received by him/her, beyond the basic minimum service already contracted between him/her and the hotel management”
In this regard the guidelines clearly specify that payment of the tip/gratuity is a transaction between the customer and the staff which is decided once the provision of food and beverages is complete. Therefore, in such case there is no question of the services for which amount is charged as service charges are used by the hotel/restaurant in their own interest. The services are purely provided by the staff directly to the customer over and above the basic services assured by the hotel.
Condition-4:-Pure Agent receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account:-
This is the most important condition which has to be fulfilled by the restaurant or the hotel/restaurant. It should receive only that much amount as service charges which would be distributed between the employees. The customer gives his consent for the amount to be paid as service charges to the staff. Therefore, if the hotel/restaurant retains that amount of service charges collected from the customer, then it would be charging from the customer over and above the price of the product which is prohibited by the guidelines issued by the department of consumer affairs. Once the entire amount collected is distributed between the staff, the given condition is fulfilled. However, if the entire amount collected is not distributed, then firstly it’s the violation of the guidelines issued by the Department of consumer Affairs and secondly it might be leviable to tax.
Conclusion: Thus, it can be concluded that the hotel/restaurant acts as a pure agent in the case of collection of service charges. However for the purpose of the amount of service charges collected by the hotel/restaurant from the purview of transactional value, it would have to satisfy additional conditions laid down in Rule 33 of CGST Rules, 2017. The same has been discussed herein below:
d) Conditions Laid down in Rule 33 of CGST Rules, 2017:
Following conditions have been laid load down for the purpose of exclusion of such amount from the transaction value of supply
the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;
the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
All the three conditions are being fulfilled by the hotel/restaurant it acts as a pure agent when he makes payment to the staff of the hotel/restaurant, payment made or to be made to the staff is separately indicated in the invoice and the supplies procured by the hotel/ restaurant are in addition to the basic services assured by them to the customer.
Conclusion: Therefore any amount collected by the hotel/restaurant has to be excluded from the purview of transaction value as the same is being collected as a pure agent by the supplier.
Part–II-Service Charges are not Voluntary in Nature and Entry of the Customer to the Restaurant/Hotel is considered as an implied consent to pay the service charges
In most of the cases till then, service charges were levied mandatorily upon the customers. It can very well be argued that the amount to be paid in the nature tip/gratuity became payable as soon as the customer enters the hotel/restaurant as it was a pre-condition by many of the hotel/restaurant at that time. As the customer entered the hotel/restaurant, he was bound to pay the service charges along with the price of the product and only the food would be served to them. It was not a contract between the customer and the waiter but a contract between the customer and the hotel/restaurant. Therefore, as an assumption it has been taken that it was mandatory for every consumer to pay the service charges.
Conclusion: As has been discussed in detail and held by Hon’ble Bombay High Court in the matter of Sun-N-Sand Hotel Private Ltd. vs The State Of Maharashtra on 2 December, 1968, once the service charges are mandatorily payable by the customer then it difficult to dissociate this part of the bill from the total contract which a customer enters into with the assessee when ordering any food. Therefore, service charges in such case would be treated as part of transaction value and thus tax would be leviable thereon. However, if the hotel/restaurant or the restaurant is able to prove that the service charges collected were subject to consent of the customer and payable to the staff, then service charges can be sought to be excluded on the same premise as discussed earlier in scenario subsequent to the issue of guidelines by department of consumer affairs.
3.Legal decisions for inclusion of service charges in the transaction value:
a) Sun-N-Sand Hotel Private Ltd. vs The State Of Maharashtra on 2 December, 1968:-Hon’ble Bombay High Court in the given matter upheld that
“16. In view of the conclusion which we have arrived at that the 10 per cent of the service charges charged to the customers are properly included in the sale price.”
However, it would be apt that before reading into the conclusion we go into the observation made by the court which only further strengthens the conclusion that service charges which are not mandatory for every customer and are only voluntary contribution would not form part of selling price.
In the case of service charges, the customers have no option but to pay these charges when demanded by the assessee, irrespective of the fact whether the employees were serviceable or had rendered useful service.
The Hon’ble High Court further observed that
We are unable to accept the contention of the petitioner that what is charged to the customer in the hotel by the assessee inclusive of 10 per cent by way of service charges is really not the “sale price” for the goods which are offered and consumed by the customer in the establishment. Once it is found that there is no option to the customer whether to pay or not to pay the service charges at the rate of 10 per cent over and above the tariff, we find it difficult to dissociate this part of the bill from the total contract which a customer enters into with the assessee when ordering any food.
It was clearly observed that as there was no option before the consumer to not to pay the amount of service charge, therefore it was not possible to disassociate the amount payable by the customer from the sales price. The Hon’ble court further provided that
“It is not as if the sale price of food or articles supplied in the hotel has been statutorily fixed. It is all a matter of agreement between the customers and the assessee; accordingly when the assessee tells the customer the moment he (the customer) enters the hotel, that for the purposes of goods supplied, the customer will have to pay not only the tariff rates which are fixed but also over and above it 10 per cent, by way of service charges, the sale price quoted must include service charges. We have already observed that so far as the customer is concerned, he has to note by virtue of the tariff card that he has to pay the tariff rates plus 10 per cent, as service charges plus 5 paise as sales tax per rupee; and all this is part of the contract or agreement between the customer and the assessee in respect of the price the customer has to pay for the food that is supplied to him. In other words, all this constitutes and goes into the formulation or fixation of the price for the goods supplied, and, therefore, it must be treated as “sale price” within the meaning of section 2(29) of the Bombay Sales Tax Act, 1959.”
Thus, Hon’ble High Court clearly observed that the service charges in the given case were told to the customer the moment he enters into the hotel. The customer has to be pay for the purpose of goods supplied not only the amount fixed as tariff but also the service charges thereon. This has been clearly struck down by the Department of consumer affairs in their guidelines issued on dated 23rd April 2017 whereon they have clarified that
“The point at which the customer decides to give a tip/gratuity is not when he/she enters the hotel/restaurant, and also not when he/she places an order. It is only after completing a meal that the customer is in a position to assess the quality of service, and decide whether or not to pay a tip/gratuity, and if so, how much. Therefore, if a hotel/restaurant considers that entry of a customer amounts to his/her implied consent to pay a fixed amount of service charge, it is not correct.”
b) Madras High Court in the matter of Hotel Ashoka vs The State Of Tamil Nadu on 28 October, 1976 Equivalent citations: 1977 40 STC 347 Mad
The facts of the case were similar to the case in the matter of Sun-N-Sand Hotel Private Ltd. vs The State Of Maharashtra on 2 December, 1968.
The case of the petitioner was that previously the workers were collecting tips from customers, that subsequently under an agreement entered into between the management and the employees under Section 12(3) of the Industrial Disputes Act, 1947, it was agreed that the employees would not collect tips from the customers and instead the management would collect 5 per cent of the tariff value of the articles served as service charges and utilise the service charges so collected byway of paying 50 per cent thereof immediately to the employees and appropriating the other 50 per cent to increase the wages and food allow-ance of the employees and also to introduce a provident fund scheme for the employees, that, therefore, the service charges so collected do not stand on a footing different from the tips previously collected by the employees and that, consequently, the same cannot be included in the taxable turn-over.
The Hon’ble High Court after referring to the various parts of the decision of Hon’ble Bombay High Court
“If we may say so, with respect, we entirely agree with the above reasoning and conclusion of the Bombay High Court. In view of this,we are of the opinion that the conclusion of the Tribunal in this case in including the service charges in the taxable turnover of the assessee is correct.”
In the both the above cases, payment of service charge was mandatory. The situation might be different wherein Service Charges are payable after the consent of customer (is not mandatory in every case) and does not become payable on the entry of the consumer to the hotel/restaurant on the goods ordered by him.
c) Delhi High Court Commissioner Vat vs India International Centre on 19 November, 2010
In the given matter, Hon’ble High Court held that service charges collected by the organization are not part of the selling price following that the judgement as laid down by the Hon’ble Bombay High Court and Madras High Court were not applicable in the instant matter. This meant that the Hon’ble High Court did not refuted the conclusion of the earlier judgments given by the two high courts but only distinguished the facts of the case. The relevant extract of the judgement are as follows:
“No doubt, the proposition of law that whatever is charged from the customers becomes the sale price and therefore, the dealer is liable to pay sales tax thereon is unquestionable but at the same time it cannot be treated as absolute principle of law, which is to be applied in all circumstances, irrespective of the nature of the charge.
The Hon’ble High Court further observed that
Normally, what happens is that whatever services in a restaurant or club are utilized by a member, a member may give tip to the waiter/employee voluntarily. This may be given in cash to such an employee by a person utilizing service while making payment of bill. In these circumstances, naturally component of that tip would not be reflected in the bill. However, in order to ensure that there is no heart burning in a situation where some of the employees are luckier enough as compared to another collecting more tips than the other, the employees may decide that all these tips be pooled so that the same are distributed among them equally. In order to facilitate this move on the part of the employees, management comes to their aid by collecting those tips on behalf of these employees. In these circumstances, we find force in the submission of Mr. Sangal that the respondent assessee is naturally a trusty who collects the amount on behalf of the employees and then distributes the same amongst them.
“Emphasis Supplied”
It can be clearly observed that the emphasis of the Hon’ble High Court was on the word voluntarily and once it is established that the charges are voluntary then the same would not form part of the sales price.
Conclusion: In view of the discussion we can conclude for the scenario subsequent to the issue of the Guidelines by the Department of Consumer Affairs dated 21st April 2017 which is also the period subsequent to the implementation of GST that :
a) Pricing of the product therefore is supposed to cover both the goods and service components.
b) Placing of an order by a customer amounts to his/her agreement to pay the prices displayed on the menu card alongwith applicable taxes.
c) Charging for anything but the aforementioned, without express consent of the consumer, would amount to unfair trade practice under the Consumer Protection Act, 1986.
d) Tip or Gratuity paid by the customer is towards hospitality received by him/her, beyond the basic minimum service already contracted between him/her and the hotel management.
e) Tip or Gratuity is a separate transaction between the customer and the staff of the hotel /restaurant, which is entered into, at the customer’s discretion.
f) The point at which the customer decides to give a tip/gratuity is not when he/she enters the hotel/restaurant, and also not when he/she places an order. It is only after completing a meal that the customer is in a position to assess the quality of service, and decide whether or not to pay a tip/gratuity, and if so, how much. Therefore, if a hotel/restaurant considers that entry of a customer amounts to his/her implied consent to pay a fixed amount of service charge, it is not correct.
g) Further, any restriction of entry based on this amounts to a trade practice which imposes an unjustified cost on the consumer, forcing him/her to pay service charge as a condition precedent to placing order of food and beverages, and as such it falls under restrictive trade practice as defined under Section 2(1)(nnn) of the Consumer Protection Act, 1986.
h) In view of the above, the bill presented to the customer may clearly display that service charge is voluntary, and the service charge column of the bill may be left blank for the customer to fill up before making payment.
Therefore, if service charges were to be paid mandatorily by the customers and pre-decided at the entry point of the customer, then as per the principle laid down by Hon’ble Bombay High Court in the matter of Sun-N-Sand Hotel Private Ltd. vs The State Of Maharashtra on 2 December, 1968, it would be difficult to dissociate this part of the bill from the total contract which a customer enters into with the assessee when ordering any food. Therefore, service charges in such case would be treated as part of transaction value and thus tax would be leviable thereon. However, if the point of decision for payment of service charge arises after completion of service of hotel/restaurant to customer and is subject to the consent of customer thus voluntary in nature; service charges cannot be considered as part of the transaction value for the purpose of levy of tax. How does one proves it is a matter to be taken care of.
Sawariya Traders v. State of Gujarat [2020] 114 taxmann.com 497 (Gujarat)
Issue-Discrepancies in the notice issued under Section 130 of CGST Act
Petitioner brought to notice of Court about order of detention made under section 129(1) of CGST Act that same is totally silent as regards discrepancy noticed after physical verification of goods and conveyance. Referring to notice issued under section 130 of CGST Act in Form GST MOV-10, it was pointed out that
a) Grounds set out in notice have got nothing to do with goods which were in transit.
b) There is no allegation as regards any contravention in respect of the goods in transit. Reference was made to section 130 of the CGST Act to point out that the same contemplates five contingencies in which the action can be taken thereunder. It was submitted that, in the impugned notice, it has not been specified as to which of the five clauses of sub-section (1) of section 130 of the CGST Act has been infringed in the present case.
c) Notice under section 130 of the CGST Act has to be issued to the person who contravenes the provisions of the CGST Act whereas, in the facts of the present case, such notice has been issued to the driver, who would not be the proper person to answer such show-cause notice.
Held-Having regard to the submissions advanced by the learned advocate for the petitioners, issue Notice.
Kalpana Stores v. State of Tripura [2020] 113 taxmann.com 616 (TRIPURA)
Issue- Order U/sec 129 without giving proper opportunity of Hearing
Facts of the Case- The petitioner in the course of his business, purchased 3(three) bars of different measurements weighing approximately 25.990 Metric Tons for a sale consideration of Rs. 10.59 lakhs (rounded off). On such purchase according to the petitioner IGST of Rs. 1.90 lakhs (rounded off) was paid. Tax invoice to this effect was also generated. The seller had also generated e-Way bill dated 06.10.2018 for transport of the goods. According to the petitioner, along with all legal documents the consignment was being transported on 15.10.2018 when respondents intercepted transport vehicle, detained vehicle and seized goods. On 25.10.2018 the official respondents raised a demand of sum of Rs. 5,10,066 lakhs comprising of basic tax with penalty. The petitioner was under compulsion to deposit the said amount since failing which the State respondents would not release the goods or the vehicle. The petitioner made the payment and got the same released on 26.10.2018 after which the present petition came to be filed.
Contention of Petitioner- Action of State authorities are totally illegal and unlawful. Goods in question were fully covered by necessary documents of payment requisite taxes. The respondents raised an unlawful demand of tax with penalty without affording any opportunity of hearing to the petitioner.
Contention of Respondent- Order dated 25.10.2018 is an appealable order. The petitioner has directly approached the Court without availing such appeal.
Held: The determination of payable tax and interest in terms of clause (a) or (b) of sub-section (1) of section 129 upon payment of which goods or transport vehicle would be released or upon furnishing security in terms of clause (c), has to be after a notice to the person concerned and granting an opportunity of being heard in this respect as provided in sub-sections (3) and (4) of Section 129 of the said Act. In the present case, no such steps were taken. The State authority straightway passed the order dated 25.10.2018 which is titled as “Order of Demand of Tax and Penalty”. This order thus clearly breaches the requirement of sub-sections (3) and (4) of Section 129 of the said Act. In view of such facts despite availability of appellate remedy, present petition should be entertained. The said order is, therefore, quashed.
Since petitioner has already deposited amount indicated in said order dated 25.10.2018 and goods along with the transport vehicle are already released, High Court moulded the relief as under:
a) The respondents shall give a notice of hearing to the petitioner why the said tax with penalty demand should not be confirmed giving clear 4(four) weeks time to respond;
b) The petitioner will file written opposition to such demand with documents as may be found necessary within the said stipulated period;
c) The competent authority shall thereafter pass a speaking order within a period of 4(four) months from today;
d) The amount of Rs. 5,10,066 which is already deposited by the petitioner shall be adjusted towards the final crystallized tax/penalty if any as per such order. If the demand is dropped partially or fully, refund shall be made with statutory interest.
Anil Bapulal Patil v. State of Gujarat [2020] 114 taxmann.com 473 (Gujarat)
Issue: Release of Conveyance on payment of fine levied in lieu of confiscation of conveyance
Petitioner had sought direction to respondent department to release conveyance bearing No.MH-18-M-8155 on payment of fine of Rs.60,795/- in lieu of confiscation of conveyance. Respondents were directed to release Truck No.MH-18-M-8155 belonging to the applicant petitioner upon the petitioner depositing a sum of Rs.60,795/- proposed to be levied by way of fine in lieu of confiscation of conveyance in the notice issued by the respondents under section 130 of the CGST Act. Rule is made absolute accordingly with no order as to costs.
Suleman Valji Dayma V. State of Gujarat [2020] 114 taxmann.com 327 (Gujarat)
Issue: Release of Conveyance on payment of fine levied in lieu of confiscation of conveyance
Petitioner had sought direction to respondent department to release conveyance bearing No. GJ-01-DZ-8549 on payment of fine of Rs. 17,962/- in lieu of confiscation of conveyance. Respondents were directed to release Truck No. GJ-01-DZ-8549 belonging to the applicant petitioner upon the petitioner depositing a sum of Rs. 35,924/- proposed to be levied by way of fine in lieu of confiscation of conveyance in the notice issued by the respondents under section 130 of the CGST Act.
Shameer Chinganam Poyil v. Assistant State Tax Officer [2020] 114 taxmann.com 475 (Kerala)
Detention of Goods in absence of Original Invoice valid even though invoice shown in electronic format at the check post
The goods transported by petitioner were detained as at the time of detention, original invoice was not produced by driver of vehicle. It is stated that the original of the invoice was shown to the check post authorities in the electronic format, and therefore, there was no justification for the detention.
Contention of Respondent- In terms of Rule 138A of the SGST Rules, transporter of goods is obliged to produce a copy of invoice and a copy of e-way bill. While the latter document can be produced either as a document or in electronic format, the invoice has necessarily to be produced in documentary format. In the instant case, it is stated that the invoice was not produced, and this was why the goods were detained.
Held: It was held thatthe absence of an invoice can be a valid ground for detention under section 129 of the GST Act. Accordingly, detention order is justified. However, if petitioner furnishes bank guarantee for tax and penalty amount determined, then respondent shall release consignment and vehicle to petitioner, and thereafter proceed for adjudication in terms of section 138 of GST Act, after hearing petitioner.
Kannangayathu Metals v. Assistant State Tax Officer [2020] 113 taxmann.com 176 (Kerala)
There cannot be a mechanical detention of a consignment solely because driver of vehicle had opted for a different route, other than what is normally taken by other transporters of goods covered by similar e-Way bills.
Facts: Detention notice was issued to petitioner detaining goods and vehicle at a place called Vazhayila. The reason shown in notice for detention is that e-Way Bill in respect of consignment showed that it was to cover a transportation from Pazhoor-Peppathi to Vettoor road- Kaniyapuram whereas the vehicle was detained at Vazhayila which was not on that route.
Contention of Petitioner- Since the driver of vehicle had taken an alternate route through MC Road, vehicle had to reach Vazhayila before turning to Kaniyapuram and it was therefore that the vehicle was intercepted at Vazhayila by the respondents. There is no mandate under section 129 of the GST Act for detaining goods that were covered by a valid e-Way Bill merely because the driver of the vehicle took an alternate route to reach the same destination.
Held- It was held that there cannot be a mechanical detention of a consignment solely because driver of vehicle had opted for a different route, other than what is normally taken by other transporters of goods covered by similar e-Way bills. No doubt, if vehicle is detained at a place that is located on an entirely different stretch of road and plying in a direction other than towards destination shown in the e-Way bill, then a presumption could be drawn that there was an attempt at transportation contrary to the e-Way Bill. In the instant case, there is no such indication. The writ petition was allowed by directing respondent to forthwith release goods and consignment to petitioner.
Relcon Foundations (P.) Ltd. v. Assistant State Tax Officer [2019] 112 taxmann.com 255 (Kerala)
Non-filing of GSTR-3B and GSTR-1 cannot be a valid ground for detention of grounds under Section 129 or issuing notice under Section 130
Facts: Vehicle carrying goods was detained on the ground that GSTR 3B returns had not been filed from June 2018 and GSTR I had not been filed from March 2019.
Contention of Petitioner-It is submitted by the learned counsel for the petitioner that the said grounds cannot be justified for detention of the vehicle under Section 129 of the KGST Act.
Held: It was held that the non-filing of returns cannot be a justification for detaining goods in terms of Section 129 of the KGST Act. Similarly, the said ground cannot form the basis notice proposing confiscation of the goods detained inasmuch as the ingredients of the offence covered by Section 130 are not satisfied in the instant case. The writ petition was disposed of by directing the respondent to forthwith release the goods and the vehicle to the petitioner.
National Steel Agencies v. Assistant State Tax Officer [2020] 115 taxmann.com 36 (Kerala)
Detention made on account of validity of e-way bill expired cannot be held to be unjustified
Facts: The detention was on ground that validity period of e-way bill that accompanied transportation had already expired at the time of detention.
Held: It was held that under the said circumstances, I find that the detention cannot be said to be unjustified. It was directed that if petitioner furnishes a bank guarantee for tax and penalty for the amount quantified in order, then respondents shall release consignment and vehicle to petitioner. Respondents shall, thereafter, proceed to adjudicate the issue after notice to petitioner and in accordance with procedure prescribed under section 130 of the GST Act.
Opportunity of Hearing to be provided before passing order confirming demand of tax and penalty
Facts: The challenge in the writ petition is against order of detention, and adjudication order that followed, imposing a liability to tax and penalty on the petitioner under the CGST and SGST Acts. The detention was made on the ground that incharge of the goods had failed to produce e-Way Bill as per Rule 138 of the CGST and SGST Rules, 2017, at the time when the vehicle was intercepted by the authorities, and further it was found that the vehicle was plying in a wrong direction when compared with the destination shown in the invoice.
Contention of Petitioner-E-Way Bill was actually available with the driver of the vehicle and the findings in the detention notice are contrary to facts. Simultaneous with issuance of detention notice, order confirming demand of tax and penalty was also passed, without affording petitioner an opportunity of being heard.
Held: It was held by the Court that at the time of detention, driver of vehicle did not produce any e-Way Bill, either manual or electronic, corresponding to goods that were carried on in vehicle. It was further pointed out that a statement was given by the driver before the authorities wherein he had stated that there was no e-Way Bill with him. Therefore, prima facie there appeared to be a justification to the Court for detention of the vehicle.
However, there was no opportunity granted to petitioner to rebut inferences drawn by authorities while detaining goods, through a hearing afforded to petitioner before passing order confirming demand of tax and penalty on petitioner. Therefore, order was quashed and respondent was directed to pass fresh orders.
2. Smeara Enterprises v. State Tax Officer [2019] 111 taxmann.com 511 (Kerala)
Deposit of 10% of disputed tax as a condition for maintaining appeal cannot be a basis for direction to release goods without any security
Facts: An appeal had been preferred by the petitioner against the order of penalty stating that 10% of disputed tax was paid as a condition for maintaining appeal. It was further prayed, for release of goods pending disposal of appeal.
Held: It was held by the Court that mere pendency of an appeal cannot be basis for a direction to release goods without any security, since non-payment of security in respect of the goods can independently lead to a confiscation of goods under Section 130 of CGST Act. Accordingly, writ petition was disposed of by directing to consider and pass orders on appeal within a period of three months, after hearing the petitioner. The petitioner may seek a release of goods by furnishing the necessary Bank guarantee for the tax and penalty amounts confirmed against him, pending disposal of the appeal or in the alternative, await the outcome of the confiscation proceedings under the Act.
3. Kesar Farm v. Additional Commissioner of Commercial Taxes (Enforcement Bengaluru) [2019] 112 taxmann.com 374 (Karnataka)
Order passed for detention of goods and vehicle under section 129 is appealable under Section 107
Facts: The petitioner assailed order of demand of tax and penalty under section 129(1)(b) of CGST Act and, KGST Act read with section 20 of IGST Act as well as detention order dated 23.09.2019 passed under section 129(1) of CGST Act read with section 20 of IGST Act and the demand notices inter alia seeking for other consequential reliefs.
Held: An attempt was made by petitioner to contend that order impugned is not appealable under provisions of the Act bur the same was negated by the Court for reason that section 107 of Act explicitly makes it clear that, any person aggrieved by any decision or order passed under the Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person. It was further clarified by section 121 which deals with non-appealable decisions and orders. In terms of Section 121, no appeal shall lie against any decision taken or order passed by an officer of central tax if such decision taken or order passed relates to any one or more of the following matters, namely:—
an order of the Commissioner or other authority empowered to direct transfer of proceedings from one officer to another officer; or
an order pertaining to the seizure or retention of books of account, register and other documents; or
an order sanctioning prosecution under this Act; or
an order passed under section 80.
It is not in dispute that the case on hand would not fall in any of the aforesaid clauses mentioned in section 121 of the Act. Hence, without going into merits or demerits of the case, court relegated the petitioner to the Appellate Authority to avail the alternative remedy of appeal.
4. Insha Trading Company v. State of Gujarat [2019] 112 taxmann.com 175 (Gujarat)
Preparation of Reports in Part A of Form GST EWB-03, Form GST MOV-04 or Part B of Form EWB-03 imperative to prove physical inspection being carried out, No confiscation under section 130 of CGST Act be carried out on reasons which are not in any way connected with the transportation of goods and independent actions can be taken in other provisions
Facts: The petitioner was registered under GST and Ramgarhia Trading Company, which was located at New Delhi and was registered under GST Act, placed an order for brass electrical parts through Jay Gujarat Goods Carrier. Truck was intercepted by State Tax Officer on 14.01.2019 at 00:30 a.m. at Soyal Toll Gate. The driver of the truck had produced documents relating to goods which were being transported; however, State Tax Officer detained truck on the ground that genuineness of goods in transit (its quantity etc.) and/or tendered documents requires further verification. Accordingly, on 14.01.2019, the State Tax Officer issued an order in Form GST MOV-01 recording statement of driver as well as an order for physical verification/inspection of conveyance and goods and documents in Form GST MOV-02. Thereafter, by an order dated 14.01.2019, passed under section 129(1) of CGST Act, the truck as well as goods contained therein was ordered to be detained. The ground stated in order of detention as translated into English reads thus: “On a perusal of the details in bilty No.15615, it prima facie being disproportionate, vehicle has been detained for verification of the same”. Order of physical verification in Form GST MOV-02 and the order under section 129(1) of the CGST Act have been passed on the same day, that is, on 14.01.2019.
Thereafter, by an order dated 29.01.2019, passed in Form GST MOV-09; the petitioner was called upon to pay the tax and penalty as computed therein. Thereafter, a notice came to be issued in Form GST MOV-10 under section 130 of the CGST Act for confiscation of the conveyance and goods in question on the grounds that on a perusal of the details in bilty No.15615, it prima facie being disproportionate, the same required verification; and that upon primary examination of the dealer online, it is found that in December 2018, he has generated 42 e-way bills wherein IGST of Rs. 3,64,30,800/- is shown, and that it appears that either the dealer has not paid such amount or the purchases are not genuine. Thereafter, by the impugned order dated 08.04.2019, the goods and conveyance are ordered to be confiscated in exercise of powers under section 130 of the CGST Act.
Contention by Respondent- After conveyance in question was intercepted, State Tax Officer had conducted search at business premises of the petitioner on 21.01.2019 as well as on 22.01.2019 and found that the petitioner did not maintain any stock or books of accounts at his business premises. It was further submitted that the petitioner and the transporter – Jay Gujarat Goods Carrier are working in collusion with each other and that, the petitioner is stated to have purchased the goods which were being transported from parties located at Kolkata, West Bengal; however, upon verification by the GST Department, it was found that such parties are not in existence. It was submitted that, therefore, it appears that the petitioner has purchased the goods from the local market without paying any local tax and is selling the same to the dealers in New Delhi mentioning State tax in the invoice and thereby, claiming input tax credit. It was submitted that the authority under the GST Act had issued DRC-1 under section 74 of the GST Act on 25.04.2019 and the petitioner is facing prosecution for wrongfully availing the benefit of input tax credit and a charge-sheet has been filed against the petitioner on 05.10.2019 for the offence punishable under sections 132(1)(c) as well as 132(1)(d) of the GST Act. It was submitted that in the light of what has been unearthed during the course of investigation, the order of confiscation is justified. It was submitted that the petitioner has no other property except residential premises, the value whereof, is not commensurate with the amount involved in the entire fraud that has been committed by the petitioner in collusion with Jay Gujarat Goods Carrier. It was submitted that, therefore, the respondents are wholly justified in confiscating the conveyance with the goods contained therein and that, the petition being devoid of any merits, deserves to be dismissed.
Held:
1. No Discrepancy in the Documents carried along with the Vehicle-It was held by the Court that conveyance in question was transporting goods being brass electrical parts from Jamnagar to Delhi. The consignor, viz. the petitioner, and the consignee are duly registered under the relevant GST Acts. On 14.01.2019, when the conveyance came to be intercepted, the driver of the conveyance had duly produced the e-way bill as well as the invoice in connection with the goods that were transported. On behalf of the respondents, nothing has been pointed out to show that there was any discrepancy in the e-way bill or the tax invoice. Under the circumstances, in the light of the instructions issued by the Board in the Circular dated 13.04.2018, since, upon verification of the documents no discrepancies were found, the conveyance was required to be allowed to move further.
2. Even though No discrepancy found in Documents, but still officer can detain the vehicle for physical verification- If the officer desired to carry out physical verification of conveyance, goods and documents, it was still permissible for him to detain the conveyance, and accordingly, third respondent issued an order in Form GST MOV-02 for physical verification/inspection of the conveyance, goods and the documents. The said order passed on the ground that the genuineness of the goods in transit (its quantity etc.) and/or tendered documents requires further verification.
However, when conveyance was detained for the purpose of inspection, it was incumbent upon the officer to prepare a report in Form GST EWB-03 and upload the same on the common portal within twenty four hours from issuance of Form GST MOV-02 and upon completion of physical verification, he was further required to prepare a report in Form GST MOV-04 and serve a copy of the said report to the person in charge of the goods and conveyance and thereafter record the final report of the inspection in Part B of Form GST EWB-03 within three days of such physical verification.
3. No Compliance by Officer of procedure laid down for EWB-03, MOV-04, Part B of EWB-03- It was observed by the Court thatin facts of present case, no such reports in Part A of Form GST EWB-03, Form GST MOV-04 or Part B of Form EWB-03 have been prepared. Thus, court observed that though vehicle was detained for the purpose of carrying out inspection, no such inspection was carried out or that upon physical verification no discrepancy was found in the conveyance/goods or documents. In facts of case, despite the fact that no discrepancy appears to have been found after the inspection of the goods and conveyance, the proper officer has not issued a release order in Form GST MOV-05. Further, despite the fact that Form GST MOV-02 was issued, without verification/inspection of the goods and conveyance, State Tax Officer issued an order of detention in Form GST MOV-06 on the same day, that is, on 14.01.2019, on the ground that upon a perusal of the details in bilty No.15615, the same being disproportionate, the vehicle is required to be detained for verification of the same.
4. Affidavit submitted by Respondent does not in any way contain details about the discrepancy observed after verification-The Court observed that in affidavit-in-reply, there was not even a whisper regarding any discrepancy having been found in bilty No.15615 after verification, despite the fact that conveyance had been detained for that purpose.
Thus, Court held that there was no valid ground for detention of vehicle in question on the part of respondents. Under the circumstances, question of calling upon petitioner to pay tax, penalty and fine, as computed by the respondent in the order of demand of tax and penalty in Form GST MOV-09 dated 29.01.2019 does not arise.
5. Reason to Confiscate the Goods has nothing to do with the Transportation of Goods-It was observed by Court thatreason for passing order for confiscation has got nothing to do with reasons for which, goods and conveyance were initially detained. The reasons for issuance of the notice for confiscation under section 130 of the CGST Act in Form GST MOV-10 are that upon preliminary verification of the dealer online, 42 e-way bills have been generated in December 2018, wherein, IGST has been shown to Rs. 3,64,30,800/- and it appears that, dealers has not paid the same or that the purchases are not genuine. The Court observed that if that was the case, nothing prevented respondents from taking appropriate action against petitioner in accordance with law under the relevant provisions of the CGST Act. However, when conveyance in question was carrying goods which were duly accompanied by documents and no discrepancy was found in connection therewith, there was no reason for the officer to confiscate the same. The impugned order of confiscation passed by the third respondent under section 130 of the CGST Act, therefore, cannot be sustained.
For the forgoing reasons, the petition was held to be succeeded and therefore allowed.
5. Livguard Energy Technologies (P.) Ltd. v. State of Uttarakhand [2019] 112 taxmann.com 176 (Uttarakhand)
When provisions of CGST 2017 provide for release of goods only on furnishing a bank guarantee, it would be wholly inappropriate to issue any direction contrary thereto
Facts: The appeal under Chapter VIII Rule 5 of Allahabad High Court Rules, was preferred against order passed by Single Judge in Livguard Energy Technologies (P.) Ltd. v. State of Uttarakhand [Writ Petition (MS) No.3178 of 2019, dated 15-10-2019] whereby it was held that invoking jurisdiction of Writ Petition by the appellant-writ petitioner against show-cause notice was premature and appellant should give a reply to show-cause notice to concerned authorities furnishing valid reasons as to why delay had been caused.
Held: The respondents were directed to consider the original reply, and additional reply submitted by the petitioner, and pass a reasoned order. Further, when the court asked whether the writ petitioner is willing to deposit an unconditional bank guarantee, from a nationalized Bank, for the said amount; it was submitted that such a condition is stipulated in the provisions of the 2017 Act itself, and it is only because the appellant-writ petitioner is not in a position to do so, has he invoked the jurisdiction of this Court seeking its indulgence to direct release of the detained vehicle and stock on the appellant-writ petitioner furnishing an indemnity bond.
It was further held by the Court that since it is admitted that GST 2017 provides for release of goods only on furnishing a bank guarantee, it would be wholly inappropriate for them to issue any direction contrary thereto. Therefore, appellant-writ petitioner’s request for release of the vehicle and the goods on merely furnishing an indemnity bond was not acceded by the Court. It was further observed that interference in an intra-court appeal would be justified only if order under appeal suffers from a patent illegality and there was no such infirmity in order under appeal.
Case-IZ-Kartex named after P G Korobkov Ltd (GST AAR West Bengal)
1. Facts:The applicant is a local branch of a Russian business entity by the same name hereinafter “Foreign Company‟), which entered into a Maintenance and Repair Contract (hereinafter called “MARC”) with Bharat Coking Coal Ltd (hereinafter “BCCL”) with respect to the machinery and equipment it had supplied.
2. Query: The applicant wants to know whether the MARC makes the supplier liable to pay GST (which, for the purpose of this order, includes IGST). More specifically, the applicant wants to know whether the recipient is not liable to pay tax on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017.
3. Observation by AAR
Responsibility of the Maintenance and Repair Contract Holder:- The contract was a longtermcontract spanning over seventeen years from date of commissioning of equipment. The Maintenance and Repair Contract Holder was responsible for supply of spares, components, and consumables over the entire period. It was required to depute officers, support staff and system expert at the site for maintenance and repair of equipment and train the BCCL personnel. BCCL was to provide the Maintenance and Repair Contract Holder access to the machines and repair facilities at all reasonable time. BCCL and the Maintenance and Repair Contract Holder shall jointly sign Equipment Logbook on daily basis recording actual working hours per shift, breakdown hours and other details. The Maintenance and Repair Contract Holder is to be paid at an agreed rate for supervision, supply of spares and consumables, and for overheads per working hour of the equipment for 5000 expected annual working hours.
AAR Observed that It was evident from the discussion that Maintenance and Repair Contract Holder had to maintain suitable structures in terms of human and technical resources at the sites of BCCL. It ensured supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicating sufficient degree of permanence to the human and technical resources employed at the sites. The Maintenance and Repair Contract Holder, therefore, supplied service at the sites from fixed establishments as defined under section 2 (7) of the IGST Act. The location of the supplier should, therefore, be in India in terms of section 2 (15) of the IGST Act.
Supply of the MARC Holder to BCCL was not, therefore import of service within the meaning of section 2 (11) of the IGST Act. The MARC Holder was held as a supplier located in India triggering clause 9.2.2 of Maintenance and Repair Contract, and made liable to pay GST, the place of supply being determined in terms of section 12 (2) (a) of the IGST Act. The applicant, therefore being registered branch of Foreign Company, was held to be treated as the domestic Maintenance and Repair Contract Holder in terms of clause 9.2.2 of the MARC and be liable to pay tax accordingly.
4. Held
Supply of service to BCCL in terms of the MARC is not import of service. The recipient is not, therefore, liable to pay GST on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017. The applicant, being the domestic MARC Holder, is liable to pay tax as applicable in terms of clause 9.2.2 of the Maintenance and Repair Contract.
5. Comment
The issue regarding Location of Supplier is far from over. Initially there was a ruling form Rajasthan AAR in the matter of Jaimin Engineering Private Limited [2018] 97 taxmann.com 195 (AAR- RAJASTHAN) wherein it was held that while supplying services if the supplier of services (i.e. applicant who in the given case is a Works Contractor and is registered in State of Gujarat) has any place of business/office in the State of Rajasthan i.e. has a fixed establishment for operation in State of Rajasthan (place where the services are to be provided) then he is required to get himself registered in State of Rajasthan. However, the ruling did not categorically held whether or not applicant was required to get registered in the State of Rajasthan and laid out general principle.
In case of T & D Electricals, [2020] 116 taxmann.com 390 (AAR – KARNATAKA) although it washeld that the there was no requirement for a separate registration in other state wherein contract was being executed but the ruling was given on the basic premise that applicant intended to supply goods or services or both from their principle place of business, which is located in Rajasthan and does not have any other fixed establishment other than the principle place of business, as admitted by the applicant. Therefore, this ruling again did not go into the fact of the case whether presence of staff or otherwise at Karnataka was to be treated as “Fixed Establishment” or not but straightaway assumed that there was no fixed establishment.
This decision in the case IZ-Kartex named after P G Korobkov Ltd (GST AAR West Bengal) clearly provides that responsibility of applicant to ensure supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicated sufficient degree of permanence to the human and technical resources employed at the sites. Therefore, Maintenance and Repair Contract Holder, supplied service at sites from fixed establishments as defined under section 2 (7) of the IGST Act. The given case is specific to holding of fixed establishment or otherwise.
Interpretation of Bracketed Portion in Statue-Nahalchand Laloochand P.Ltd vs Panchali Co-Op.Hng.Sty.Ltd on 31 August, 2010
The scope of the bracketed phrase has to be seen in the context of the definition given to the word `flat’ which is true indication of intent of the legislature. It was suggested by learned senior counsel and counsel for the promoters that the phrase `and includes a garage’ must be read with the `set of premises’ and not with the user. This does not appear to be a correct reading of the expression. We are not persuaded to accept such construction. We think that statutory definition of `flat’ must be construed keeping in view the intent of the legislature and the context of the statute and, seen thus, the phrase, `and includes a garage’ in the bracket does not bring in `garage’ by itself within the meaning of word `flat’. If stand alone `garage’ (or a garage by itself) were intended by the legislature to be a `flat’ within the meaning of Section 2(a-1), that could have been conveniently conveyed by use of the expression `or garage’ after the word `business’ in the same breath as preceding uses. The bracketed phrase is rather indicative of the legislative intention to include a `garage’ as appurtenant or attachment to a flat which satisfies the ingredients of Section 2(a-1).
Wide Meaning of Definition may be restricted to bring it inline with the context of the Statute-State 0F Bombay & Others vs The Hospital Mazdoor Sabha & … on 29 January, 1960
It is clear, however, that though s. 2(j) uses words of very wide denotation, a line would have to be drawn in a fair and just manner so as to exclude some callings, services or undertakings. If all the words used are given their widest meaning, all services and all callings would come within the purview of the definition; even service rendered by a servant purely in a personal or domestic matter or even in a casual way would fall within the definition. It is not and cannot be suggested that in its wide sweep the word “service” is intended to include service howsoever rendered in whatsoever capacity and for whatsoever reason.
All definitions in statutes generally begin with qualifying words, “unless there is anything repugnant in the subject or context”–The Vanguard Fire And … vs M/S. Fraser And Ross And Another on 4 May, 1960 Equivalent citations: 1960 AIR 971
But s. 2 begins with the words ” in this Act, unless there is anything repugnant in the subject or context ” and then come the various definition clauses of which (9) is one. It is well settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all definitions in statutes generally begin with the qualifying words similar to the words used in the present case, namely, unless there is anything repugnant in the subject or context. Therefore in finding out the meaning of the word ” insurer ” in various sections of the Act, the meaning to be ordinarily given to it is that given in the definition clause. But this is not inflexible and there may be sections in the Act where the meaning may have to be departed from on account of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, unless there is anything repugnant in the subject or context. In view of this qualification, the court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances. Therefore, though ordinarily the word ” insurer ” as used in the Act would mean a person or body corporate actually carrying on the business of insurance it may be that in certain sections the word may have a somewhat different meaning.
A perusal of a few sections of the Act will illustrate this and immediately show that the word ” insurer ” has been used in some sections to mean not merely a person actually carrying on the business of insurance but also a person who intends to carry on the business of insurance but has not actually started it and also a person who was carrying on the business of insurance but has ceased to do so.
Even the Word “means” in Definition Clause would be subject to unless there is anything repugnant in the subject or context-National Insurance Co.Ltd. & Anr vs Kirpal Singh (SC)
We are mindful of the fact that the word ‘means’ used in statutory definitions generally implies that the definition is exhaustive. But that general rule of interpretation is not without an exception. An equally well-settled principle of interpretation is that the use of the word ‘means’ in a statutory definition notwithstanding the context in which the expression is defined cannot be ignored in any forensic exercise meant to discover the real purport of an expression.
Referred Judgements
Lord Denning’s observations in Hotel and Catering Industry Training Board v. Automobile Proprietary Ltd. (1968) 1 W.L.R. 1526 are, in this regard, apposite when he said:
“It is true that ‘the industry’ is defined; but a definition is not to be read in isolation. It must be read in the context of the phrase which it defines, realising that the function of a definition is to give precision and certainty to a word or phrase which would otherwise be vague and uncertain-but not to contradict it or supplant it altogether”
The Vanguard Fire & General Insurance Co. Ltd. Madras v. Fraser & Ross & Anr. AIR 1960 SC 971-Statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all definitions in statutes generally begin with the qualifying words “unless there is anything repugnant in the subject or context”.
Paul Enterprises & Ors. v. Rajib Chatterjee and Co. & Ors. (2009) 3 SCC 709-Interpretation clause should be given a contextual meaning and that all statutory definitions must be read subject to the qualification variously expressed in the interpretation clause, which created them.
State of Maharashtra & Anr. v. B.E. Billimoria & Ors. (2003) 7 SCC 336-Meaning of an expression must be determined in the context in which the same has been used.K.V. Muthu v. Angamuthu Ammal (1997) 2 SCC 53-Apparently, it appears that the definition is conclusive as the word “means” has been used to specify the members, namely, spouse, son, daughter, grand-child or dependent parent, who would constitute the family. Section 2 of the Act in which various terms have been defined, open with the words “in this Act, unless the context otherwise requires” which indicates that the definitions, as for example, that of “Family”, which are indicated to be conclusive may not be treated to be conclusive if it was otherwise required by the context. This implies that a definition, like any other word in a statute, has to be read in the light of the context and scheme of the Act as also the object for which the Act was made by the Legislature.
