Indrajit Singh [2019] 106 taxmann.com 109 (AAR-WEST BENGAL)

 1. Query

Whether supply of providing conservancy/solid waste management service to Conservancy Department of the Howrah Municipal Corporation is exempted in terms of Sl. No. 3 or 3A of Notification No. 12/2017 – Central Tax (Rate) dated 28-6-2017, as amended from time to time, and if so, whether the notifications regarding TDS are applicable in this case?

2. Facts

Applicant is providing conservancy/solid waste management service to Conservancy Department of Howrah Municipal Corporation. Howrah Municipal Corporation is however deducting TDS while paying consideration for the above supply in terms of Notification No. 50/2018 – Central Tax dated 13-9-2018.

3. Contention by Appellant

The Applicant submits that the recipient, being a municipal corporation, is a local authority. He submits copies of the work orders issued, specification and terms and conditions of the work etc. to establish that he supplies pure service and, therefore, the exemption under Sl. No. 3 of the Exemption Notification applies to his supplies.

 4. Observation by AAR

 Scope of Entry No. 3 and 3A of Notification No. 12/2017 – Central Tax (Rate) dated 28-6-2017

Sl. No. 3 of the Exemption Notification exempts from payment of GST any “pure service” (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution. Sl. No. 3A of the Exemption Notification extends it to a “composite supply of goods and services” in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply.

These functions are in the nature of public welfare service that the governments on their own, and sometimes through governmental authorities/entities, do provide to the citizens. When the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST under Sl. No. 3 or 3A of the Exemption Notification, provided it is either a pure service or a composite supply, where supply of goods does not constitute more than 25% of the value.

Applicant’s service to HMC, therefore, is exempt under Sl. No. 3 of the Exemption Notification.

Condition 1:-Recipient is Local Authority: The recipient is a municipal corporation, which is a local authority as defined under section 2(69) of the GST Act.

Condition 2:- Nature of Work is pure Service-In Work Orders issued to Applicant, recipient describes nature of work as lifting and removing of daily garbage etc. accumulated from the vats, dumping yards, containers and other places on the roads, lanes and bye-lanes of HMC area. In the Specification and Terms and Conditions of Work it is further specified that the Applicant must provide vehicles suitable for removal of garbage including payloaders with drivers, labours, unloading equipment, machinery, fuel/lubricants etc. and shall be responsible for repair and maintenance of the vehicles. There is, however, no reference to any supply of goods in the course of executing the work. The vehicles used and the fuel consumed and the machinery used do not result in any transfer of property in goods to HMC. The consideration to be paid measures the work only in terms of the quantity of the garbage lifted and removed. Based on the above documents, it may, therefore, be concluded that the Applicant’s supply to HMC is a pure service.

Condition 3:- Activity Falls under the Scope of Article 243W of Constitution- Article 243W of the Constitution that discusses the powers, authority and responsibilities of a Municipality, refers to the functions listed under the Twelfth Schedule as may be entrusted to the above authority. Sl. No. 6 of the Twelfth Schedule refers to public health, sanitation, conservancy and solid waste management. The Applicant’s supply to HMC is a function mentioned under Sl. No. 6 of the Twelfth Schedule.

Since Applicant Service is Exempt from GST, therefore no TDS is liable to be deducted under Section 51 of CGST Act, 2017

Section 51(1) of the Act provides that the Government may mandate inter alia a local authority to deduct TDS while making payment to a supplier of taxable goods or services or both. As the Applicant is making an exempt supply to HMC the provisions of section 51 and, for that matter, the TDS Notifications do not apply to his supply.

5. Held

Applicant’s supply to Howrah Municipal Corporation, is exempt from the payment of GST under Sl. No. 3 of Notification No. 12/2017 – Central Tax (Rate) dated 28-6-2017 as amended from time to time.

As Applicant is making an exempt supply, the provisions of section 51 and, for that matter, Notification No. 50/2018 – Central Tax dated 13-9-2018, to the extent they mandate and deal with the mechanism of TDS, do not apply to his supply.

 6. Comment

The Judgement lays down the fact clearly that no TDS is liable to be deducted on exempt supply. TDS is required to be deducted only on supply of taxable goods or services or both.

Mohana Ghosh [2019] 106 taxmann.com 108 (AAR-WEST BENGAL)

1. Query

Whether credit is admissible of the input tax paid on the purchase of motor vehicles for the supply of cabs on rental basis.

 2. Facts

Applicant supplies rent-a-cab service. Applicant submits that people take the car on rent for the transportation of passengers.

3. Contention of the Appellant

Applicant refers to section 17(5)(a)(B) of the GST Act that allows credit of input tax paid on the purchase of motor vehicles when used for supplying passenger transportation service. Rent-a-Cab is, therefore, essentially associated with the transportation of passengers. GST paid on the purchase of motor vehicles for supplying rent-a-cab service should, therefore, be admissible in terms of section 17(5)(a)(B) of the GST Act.

Invoices have been raised for duration of renting, which is a fixed number of hours in a calendar month. If cab is requisitioned on holidays or for extra hours on a working day, an additional amount is charged irrespective of the distance traveled. Recipient has to pay a fixed amount whether or not the cab is moved. If, however, the cab travels beyond a threshold, the rent is calculated as a cost-plus, taking the distance traveled into account.

4. Observation by AAR

Applicable Provisions of CGST Act, 2017 as amended vide CGST Amendment Act, 2018 is Section 17(5)(a)(B) and Section 17(5)(b)(i). AAR distinguished between Passenger Transportation Service and Renting of Vehicle as follows:

●                      Passenger Transportation Service: Passenger transportation service is classified under SAC 9964. The recipient of the service is a passenger travelling from one place to another. He may have varying degrees of control over the carriage, providing him with a certain measure of independence in choosing the destination and travel time, depending upon the nature of the contract, explicit or implied. But the supply remains that of transportation of the recipient as a passenger, and the consideration is paid for the distance traveled.

 

●                      Renting of Motor Vehicle: Renting of any motor vehicle is classified under SAC 9966. The recipient of this service is not a passenger. He is enjoying the service of having provided a motor vehicle, with or without a driver, for use in whatever way he likes for the duration of the renting period. It may remain parked for the entire duration of renting without actual transportation of any person. Even when any person – the recipient of the service or someone of his choice – is being actually transported, the consideration is paid not for the distance traveled, but for renting the cab.

 

Thus, in passenger transportation service (SAC 9964) recipient of service is a passenger and he pays consideration for distance traveled, whatever be the degree of control he enjoys over the vehicle. In renting or hiring of a motor vehicle (SAC 9966) the recipient is provided the right to use the vehicle over a specified duration, whether he is a passenger or not. Distance traveled is taken into consideration to recover the cost of fuel. But travelling a certain distance is not the essence of the service.

Rent-a-cab is not defined in the GST Act. The Applicant provides cab rental service inter alia to institutions like West Bengal Postal Service. The recipient has to pay the Applicant a certain amount per month as consideration irrespective of what distance the cab travels in a particular month. Additional amount has to be paid if the cab is retained for extra hours or requisitioned on holidays. For the purpose of covering the cost of fuel, the distance traveled needs to be brought into play, but only if it crosses a certain threshold.

It is, therefore, clear from the above discussion that the nature of the service the Applicant provides is classifiable under SAC 9966 as renting of a motor vehicle. Credit of GST paid on purchase of motor vehicles or other inputs for the supply of the Applicant’s service is not, therefore, admissible in terms of section 17(5)(b)(i) of the GST Act.

5. Held

GST paid on the purchase of motor vehicles for supplying rent-a-cab service is not admissible for credit in terms of section 17(5)(b)(i) of the GST Act.

6. Comment

AAR has distinguished between Passenger Transportation Service and Renting of Vehicle. On that basis AAR has held that Provisions of Section 17(5)(a)(B) are not applicable on the applicant since the activity of the applicant is Renting of Motor Vehicle and said section allows Input Tax Credit on Passenger Transportation Service. Further they have held that Section 17(5)(b)(i) restrict the credit in case of renting of motor vehicle except when used for the purposes specified in clause 17(5)(a) and (aa).

Section 17(5)(a)(A) allows Input Tax Credit when vehicles are used for further supply of such motor vehicle. Neither the question was raised by the applicant and nor was considered by AAR that why renting of vehicle would not fall into further supply of such motor vehicle. Motor Vehicles or conveyance used for making taxable supply i.e. further supply of such vehicle or conveyance would not only include circumstances wherein they are being sold to other person but would also include motor vehicles or conveyance which are being supplied on rent. The words used are supplied, whether motor vehicle is supplied as a sale or on rent is immaterial. Provision of section has not linked the supply with transfer of ownership. Providing motor vehicle on rent has been also been classified as supply under the law. Therefore, Input Tax Credit in respect of supplying motor vehicles on rent would also be covered under this provision along with the person selling the motor vehicles.

GST On Liquor Licence Fees has been a bone of contention for long and GST Council in its 26th meeting held on 10 March, 2018 approved that GST was not leviable on license fee and application fee by whatever name it is called, for alcoholic liquor for human consumption and that this would also apply mutatis mutandis to the demand raised by Service Tax/ Excise authorities on license fee for alcoholic liquor for human consumption in the pre-GST era. However, the issue was not clear since no exemption notification was issued. The agenda for issuing exemption notification was part of the GST Council Meeting held on 22^nd December 2018 but subsequently withdrawn. The entire proceedings of the agenda and withdrawal and discussion in the GST Council Meeting is as follows:

1. Agenda for “Exemption notification to be issued for exempting GST on license fee charged for liquor license w.e.f. 01.07.2017” was initially part of the meeting. The reason for the same was stated as below:

However, the expression “GST was not leviable on license fee and application fee by whatever name it is called, for alcoholic liquor for human consumption” in the decision of the 26th GST Council meeting can be implemented through issue of an exemption notification and it would not be possible to issue a circular in this regard as the Central Government’s position is that it is taxable and SCNs have been issued on the issue.

2. Withdrawal of the Agenda: But was subsequently withdrawn stating as follows:

Withdrawal of agenda item regarding GST on license fee charged for liquor license listed at Sl. No.4, Annexure II of agenda item 6 ( Detailed Agenda Note-Volume 2)

Agenda item regarding GST on license fee charged for liquor license, listed at Sl. No.4 of Annexure II of agenda item 6 (Detailed Agenda Note-Volume 2) [Issues recommended by the Fitment Committee for the consideration of the GST Council ], is being withdrawn. It was decided in the Officers’ Meeting on 21st December, 2018 that on merit no new decision is needed and only implementation instrumentality needs to be worked out. This would be done at the officers’ level.

3. GST Council Still discussed the issue in its 31^st Council Meeting and the Minutes read as follows:

14.4. After this preliminary discussion, the Secretary introduced the Agenda Item 6. The Hon’ble Minister from Punjab stated that the Agenda Item listed at S.No.4 of Annexure II regarding GST on licence fee charged for liquor licences stood withdrawn but he recalled that the issue regarding tax on liquor was discussed and decided during the Meeting of the Council held in Jammu & Kashmir but the implementing circular or notification was yet to be issued to clarify the matter. Joint Secretary, TRU-ll stated that it was decided in the Officers’ meeting on 21 ‘ 1 December 2018 that on merit, no decision was needed and only implementation instrumentality needed to be worked out which would be done at the officers’ level that whether it should be done by way of a Circular or by way of an exemption notification. He stated that if liquor licence fee collected by the States was certified as the tax revenue of State excise by all the States, then it would be easy to issue the required circular. He added that issuing such a circular for the period relating to erstwhile service tax would tantamount to annulling judgements of some High Courts on this issue without any new evidence and, therefore, such a certification was needed from the States.

14.5. Advisor (Financial Resources), Punjab stated that the Hon’ble Supreme Court, in the case of M/s Har Shankar vs otrs, bad decided the issue whether licence fee was a tax .or excise revenue and it had held that it was excise revenue. The then Finance Secretary was convinced that this was not liable to GST. If instead of clarification, an exemption notification was to be issued at this stage, the levy would come into question whether it was a fee or a tax. He stated that since it was a one-time exception, a Circular could be issued. The Hon’ble Chief Minister of Puducherry stated that fee on liquor licence was not under GST and it need not come for discussion to the Council at all. He added that notices were still being issued on this issue for Service tax period and this should also be withdrawn. Joint Secretary, TRU-ll stated that wording of the Law was different in different States. Further, it was not mentioned in the 26111 GST Council decision as to howl the decision should be implemented. The Secretary stated that at this time, this Agenda item was being withdrawn.

                                                                                                                                                              Emphasis Supplied

4. Decision of Punjab and Haryana High Court that no GST is payable on fees paid for grant of license for sale of liquor for human consumption

Further it would be apt to highlight that Punjab and Haryana High Court citing the decision of GST Council also held that no GST is payable on fees paid for grant of license for sale of liquor for human consumption [2018] 97 taxmann.com 632 (Punjab & Haryana).

Section 9 of the Central Goods and Services Tax Act, 2017 – Levy and collection of tax (NR) – Petitioner filed a writ petition seeking quashing of notice dated 15-5-2017, whereby respondent asked petitioner to furnish certain information with reference to levy of service tax on fee paid for award of license for sale of liquor – Respondent submitted that he had received instructions from State that no GST/service tax was leviable on fee paid for grant of license for sale of liquor for human consumption – Whether in view of statement made by respondent, prayer made in petition had been rendered infructuous – Held, yes [In favour of petitioner].

Conclusion: The issue now seems to be settling down that no GST is payable on the liquor licence fees since it is in the nature of tax and agenda for issuing exemption notification was initially decided but subsequently withdrawn citing the fact that

“no new decision is needed and only implementation instrumentality needs to be worked out. This would be done at the officers’ level.”

This provides that at best what would be issued would be a circular clarifying the scenario that no GST is leviable on Liquor License fees since it is a tax.

Uniroyal Marine Exports Ltd. v. Commissioner of Central Excise-[2020] 122 taxmann.com 114 (Kerala)

Facts of the Case-

Appellant was a processor and exporter of seafood. The controversy was with respect to the refund of service tax paid by the appellant for services rendered prior to 18-4-2006 when service tax on foreign agency commission was not leviable. The appellant paid tax without demur. The High Court of Bombay held in Indian National Ship Owners Association v. Union of India [2009 (13) STR 235 (Bom)] that service recipient in India is liable to service tax for payments in lieu of service received from abroad only from 18-4-2006 after Section 66A was incorporated in the Finance Act, 1994. The Hon’ble Supreme Court upheld the judgment of the High Court of Bombay on 14-12-2009.

The assessee filed the refund application within eight months of Judgement of the Hon’ble Supreme Court. The review filed against the order was rejected, however in first appeal, the refund order was set aside, by which time the refund had been made. A further appeal before the CESTAT also ended in rejection.

Question of Law-

●                      Whether the Appellate Tribunal was right in setting aside the order passed by the Deputy Commissioner in refunding the amount collected illegally by the department?

●                      When service tax on foreign agency commission came into force only on 18-4-2006 by the introduction of Section 66A in the Finance Act, 1994, whether the Tribunal erred in setting aside the order of refund on the ground of limitation in submitting the application for refund?

●                      When the amount collected by the department does not have the colour of legality, whether Section 11B of the Central Excise Act, 1944 is attracted so as to refuse the claim of refund made by the assessee?

●                      Whether the impugned order is against the mandate of Article 265 of the Constitution of India?

Submission by the Appellant-

The appellant relied upon thedecision of Division Bench of Kerala High Court in C.E.Appeal No. 14 of 2018 decided on 3-9-2018 [V.P. Khader v. The Commissioner for Central Excise, Service Tax and Customs] wherein it was held that payments were made by a mistake in law and hence the same has to be refunded even if the application is not filed within the time provided.

Submission by Respondent–

The respondent department relied on the Constitution Bench decision of the Hon’ble Supreme Court reported in Mafatlal Industries Ltd. v. Union of India [(1997) 5 SCC 536] and a decision of this Kerala High Court in Southern Surface Finishers and Another v. Assistant Commissioner of Central Excise [2019 KHC 47].

Observation by the Hon’ble Court-

Part-1-Issure surrounding applicability of Limitation Period given in Statute for claim of refund of amount paid by Mistake-

The Court referred to its decision in Southern Surface Finishers wherein it considered the Constitution Bench decision and found that the mistake if committed by the assessee, whether it be on law or facts; the remedy would be only under the statute. Thus the court answered the questions of law in favour of the Revenue and against the assessee.

Part-2-In case wherein the amount paid under mistake of law has been refunded by department, can the same be recovered as Tax under Article 265 of Constitution of India

It was observed that the amounts were already refunded to the assessee as per the order of the original authority. In such circumstances, the Revenue would have to recover the amounts from the assessee, in which event the court observed that it would be directing recovery of an amount which cannot be treated as tax due under Article 265 of the Constitution of India.

The judgement of Hon’ble Supreme Court in CIT, Madras v. Mr. P Firm Muar [AIR 1965 SC 1216], wherein it was held as follows:

“If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income”.

Held-

The Hon’ble Court answered the question of law in favour of the Revenue however it found that Revenue would be incapable of recovery of the amounts refunded as tax due. The appeal was disposed of, answering the questions of law in favour of the Revenue; but restraining the respondent-Revenue from recovering the amounts refunded since as of now the levy of service tax on the payment in lieu of foreign agency commission will not be leviable as ‘Business Auxiliary service’ prior to 18-4-2006.

For detailed reference to the Judgement of Hon’ble Apex Court in the Mafatlal Industries Ltd. vs. Union of India, (1997) 5 SCC 536, Please click on the said link-

#GSTCase-210-Landmark Judgement of Mafatlal Industries Ltd. vs. Union of India, (1997) 5 SCC 536-Principle of unjust enrichment and Dealing the refund claims filed on account of levy being unconstitutional, levy based on misconstruction or wrong or erroneous interpretation of the relevant provisions of the Act, Rules or Notifications and Tax paid under mistake of law vis-à-vis Section 72 of the Contract Act-

Case-1- Mfar Hotels & Resorts (P.) Ltd.-[2020] 120 taxmann.com 442-AAR – TAMILNADU

Question1-What is the rate of tax applicable on the supply of Soft Beverages (Aerated Water) and Tobacco (Smokes) when these items are supplied independently and not as composite supply in the restaurant? In other words what is the rate of GST if these items alone are supplied and not along with food as Composite supply to the guest?

Part-1-Soft Beverages- The applicant runs a hotel offering various services such as accommodation, dining, etc. In the situation at hand, the question involves the supply of Soft beverages/aerated water as a separate supply by the restaurant to a casual guest who do not avail of any other services offered by the applicant other than buying Soft beverages/aerated water at the restaurant. The applicant in the menu for restaurant has ‘aerated water’ and ‘soft Beverages’ i.e., any guest who comes to the restaurant can have aerated/ soft beverages alone also as these are in the menu of the restaurant. When a guest (resident or nonresident) comes to the restaurant and orders from the menu either soft beverages or aerated water, it involves supply of goods (soft beverages/aerated waters) and supply of services by the restaurant. In this case both the supplies are taxable. The serving of any items on the menu involves the supply of the items along with the use of the facilities/ staff of the restaurant. These two are naturally bundled and supplied in conjunction each other and hence is a composite supply as per Section 2(30) of the Act. Supply of soft beverage/ aerated waters by the restaurant whether to resident or nonresident guests, whether in person or room services, is a composite supply of service classifiable under SAC 996331.

In the instant case, the hotel being a 5 star hotel has a declared tariff of above seven thousand and the restaurant in question has license to serve alcohol (relevant for the notification before amendment. From the above notification and amendments, it is seen that supply of soft beverages/aerated water, whether in person or room service, by the restaurant located in the premises of the hotel is taxable to CGST at the rate of 9% as per sl.No. 7 of  Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 and SGST @ 9% as per Notification No. as per SI.No. 7 of Notification No. II (2)/ CTR/ 532(d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended.

Part-2-Tobacco-The applicant also supplies of cigarettes as a separate supply in the restaurant to a casual guest who do not avail of any other services offered by the applicant other than buying cigarettes at the restaurant. The applicant in the menu for restaurant has various cigarette products i.e., any guest who comes to the restaurant can have cigarettes alone also as these are in the menu of the restaurant. When a guest (resident or nonresident) comes to the restaurant and orders from the menu tobacco products, it involves supply of goods (cigarettes) and supply of services by the restaurant. In this case both the supplies are taxable. The serving of any items by a restaurant involves the supply of the items along with the use of the facilities/ staff of the restaurant. However, in this case the sale of cigarettes products are not naturally bundled together with the restaurant services as the services of the restaurant involves serving of food and beverages alone in the normal course. Hence is not a composite supply as per Section 2(30) of the Act. However, when such cigarettes products are supplied by the restaurant, a single price is charged as seen in the invoices submitted by the applicant.

In the instant case, supply of tobacco products by the restaurant is not a composite supply but involves supply of two individual supplies of goods (tobacco products) and supply of services of serving by the restaurant. Such a supply is a mixed supply.

 6.5.2 As per Section 8(b) of the Act, the tax liability on a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. In the instant case, the applicable rate of tax for cigarettes classifiable as CTH 2402 is 14% CGST and 14% SGST as per Sl.no 14 of Schedule IV of Notification No. 1/2017-C.T. (Rate) dated 28.06.2017 and Notification No. II (2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017 as amended. Apart from this GST Compensation Cess is applicable at specified rates for different kinds of cigarette product as per Notification No.1/2017-Compensation Cess (Rate) DT 28.6.2017 as amended. Hence, in the case of the mixed supply of cigarettes by the restaurant, in person or room service, the applicable rate is the rate applicable to supply of cigarettes which 14% CGST and 14% SGST as per Sl.no 14 of Schedule IV of Notification No. 1/2017-C.T. (Rate) dated 28.06.2017 and Notification No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017 as amended and the applicable GST Compensation Cess is applicable at specified rates for different kinds of cigarette product as per Notification No.1/2017-Compensation Cess (Rate) dt 28.6.2017 as amended.

Question-2-Clarification on the taxability of alcoholic liquor for human consumption under GST when supplied in the restaurant.

As per Section 9(1) of CGST/TNGST Act, the supply of alcoholic liquor for human consumption, is a non-taxable supply. Hence, supply of alcoholic liquor for human consumption by a restaurant will not be taxable under CGST/TNGST Act.

Question-3-It is obligatory on the part of employer to supply free food to the employees. Whether such free supply of food is liable to reverse ITC on inputs as per Rule 42 of CGST Rules 2017?

It is stated that in respect of employees, there is a separate canteen Café 0154 and supply of free food to employees is as per the contract with the employees. The applicant has furnished a copy of appointment letter issued to Ms. Namitha T Ajai dated 21st January 2019. On perusal, it is seen that as per S1.No. 17 of the Annexure-II to the said letter, it is stated that

`Duty Meals will be provided in Café 0154-Associate Dining Room….”

From the said document, it is evident that as part of Terms 86 Conditions to the appointment, the applicant extends food to their employees for which no separate consideration is charged from the employees.

In the case at hand, the applicant provides food through a separate canteen to their employees, who are related persons as a part of the employment contract, i.e., in the course or furtherance of business. Therefore, as per Para 2 to Schedule I of the CGST/TNGST Act, supply of free food to the employees is a supply of service under the Act. Supply of food in a specified place, such as canteen as in the present case is a supply of service with SAC 996333 as given in the Annexure to  Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 which provides the Scheme of Classification of services.

Therefore, supply of food in the specified canteen by the applicant to their employees without consideration is ‘supply’ under GST and taxable on the value of such supply as determined by Rule 28 of CGST Rules, 2017. The rate applicable is CGST @ of 9% as per sl.No. 7 of  Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 and SGST @ 9% as per Notification No. as per Sl.No. 7 of Notification No. II (2)/ CTR/ 532(d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended.

Case-2- Taghar Vasudeva Ambrish-[2020] 120 taxmann.com 104-AAAR-KARNATAKA

Question-1-Whether exemption prescribed under entry number 13 of notification no. 9/2017- integrated tax (rate) dated. 28th June, 2017 can be sought and the lessors (here Ambrish Vasudeva and 4 others) need not charge GST while issuing the invoice for the lease service to m/s. Dtwelve Spaces Pvt. ltd.

Question-2-Whether the lease service falls under the Exemption prescribed and can be described as “Services by way of renting of residential swelling for use as residence”? as listed in the aforesaid Notification.

12. In the instant case, the Lease Deed dated 21st June 2019 evidences that a property has been rented/leased to M/s DTwelve Spaces Pvt Lt by the Lessors (the Appellant being one of the lessors) who are also the owners of the said property. The Appellant claims that the property which has been leased to the lessee is a residential property and has put forth evidences in the nature of sanctioned building plan and Katha extract to substantiate the same. They have also relied on several judicial pronouncements to emphasise that a “residential dwelling” is a place where people live or stay for a considerable period of time. We take note of the fact that the notification no. 9/2017-integrated tax (rate) dated. 28th June, 2017 as well as the GST law does not define the term “residential dwelling”. However, we refer to the CBIC Education Guide dated 20 June 2012 which gives clarifications in the context of Service Tax laws wherein it is mentioned that in the absence of a definition of the term “residential dwelling”, one has to interpret the same in terms of normal trade parlances as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, house boat or like places meant for temporary stay. In the case before us, we find from the records submitted by the Appellant that, the impugned property was constructed as Hostel building. The project description in the sanctioned plan submitted to us indicates that the plan is for the construction of a hostel building.Can a hostel building be called as a residential dwelling? A common understanding of a hostel is that of an establishment which provides inexpensive accommodation to specific categories of persons such as students, workers, travellers. On the other hand, a common understanding of the term “residential dwelling” is one where people reside treating it as a home. We find that the Appellant has constructed the building with the intention of providing hostel accommodation which is more akin to sociable accommodation rather than what is commonly understood as residential accommodation. Therefore, we conclude that the impugned property cannot be termed as “residential dwelling”. Once the impugned property is not a residential dwelling, the exemption under Sl.No 13 of notification no. 9/2017-integrated tax (rate) dated. 28th June, 2017 will not apply to the renting/leasing of such property.

13. The Appellant has argued at great length that the lessee has taken the impugned property on lease for purpose of running a paying guest accommodation for students. They have submitted documents to evidence that the students reside in the accommodation for durations between 3 months and 12 months. They argued that since there is a certain degree of permanency in the students stay at the property, it can be said that the property is used for purposes of residence. The exemption given vide entry Sl.No 13 of Notf No notification no. 9/2017-integrated tax (rate) dated. 28th June, 2017 is to residential dwellings which are rented out for use as residence. Assuming but not admitting that the impugned property is a “residential dwelling”, the same has to be used as a residence by the lessee. In this case we find that the lessee (M/s DTwelve Spaces Pvt Ltd) is using the impugned property for conducting his business of running a paying guest accommodation. The exemption is available only if the residential dwelling is used as a residence by the person who has taken the same on rent/lease.The term “for use as residence” as appearing in Sl.No 13 of notification no. 9/2017-integrated tax (rate) dated. 28th June, 2017 implies that the recipient of service should use the dwelling as residence. In other words, the service of renting of residential dwelling to a recipient who uses the same as residence, is exempted from GST. In the instant case, we find that the lessee M/s DTwelve Spaces Pvt Ltd, who is the recipient of the service of renting provided by the Appellant, is not using the leased property for use as residence but is using the same for operating his business of providing paying guest accommodation to students. On this ground too we find that the Appellant is not eligible for the benefit of exemption as per Sl.No 13 of notification no. 9/2017-integrated tax (rate) dated. 28th June, 2017

Case-3- Acharya Shree Mahashraman Chaturmas Pravas Vyavastha Samiti Trust-[2020] 120 taxmann.com 342 –AAAR Karnataka

Subject-Classification of Supply of Renting of 2BHK unit and Dormitory Units

The Appellant had erected temporary accommodations at Kumbalagodu Village, Mysore Road, KengeriHobli, Bangalore North Taluk where the religious event was conducted. We find that the Appellant is not renting out ‘rooms’ but rather is renting out units of accommodation comprising of 2 bedrooms, hall, kitchen, restroom, toilet. The entire unit with facilities like water, electricity, cot, bed, pillow, bedspread and air-conditioner is given out on rent. The devotee is also given cooking facility in this unit. Therefore, a unit of accommodation of this kind which is termed by the Appellant as a 2BHK Category I type of accommodation cannot be considered as renting of rooms and will not be covered in the entry Sl.No 13 of Notification No 12/2017 CT (R) dated 28-06-2017.

Similarly, the renting out of beds in a dormitory is also not akin to renting of rooms and hence it will not qualify for exemption under clause 13(b) of the said Notification. We agree with the ruling of the lower Authority and hold that the renting of the 2 BHK unit and the dormitory will be chargeable to GST as a single unit where the value of supply will be the charges for the full 2BHK unit / dormitory and not the charges for each room / bed and is liable to tax.in terms of entry Sl.No 7 of Notification No 11/2017 CT(R) dated 28-06-2017 as amended by Notification No 20/2019 CT (R) dated 30-09-2019.

Case-4- Navneeth kumar Talla-[2020] 120 taxmann.com 453-AAR- TELANGANA

Q1. Whether the food supplied to hospital i.e. Government Hospitals, Private Hospitals and Autonomous Bodies on outsourcing basis the GST is chargeable? If GST is chargeable what is the tax rate?

Ans-Yes

Q2. If no GST is chargeable on the supply of food the GST already paid by the Hospitals and remitted to Government is recoverable from my future Bills.

For the period from 1-7-2017 to 26-07-2018 – 18% (CGST 9% + SGST 9%) and for period from 27-7-2018 onwards – 5% (CGST 2.5% + SGST 5%). Provided that credit of input tax charged on goods and services used in supplying the service has not been taken.

Case-1-Agarwal Foundries (P.) Ltd. v. Union of India-[2020] 121  taxmann.com 134-HIGH COURT OF TELANGANA

Subject-Search, seizure, Summon at Odd Hours

Held-

a) No Use of Violence-In view of this statutory regime already in place, it would be futile for the respondents to claim any liberty to torture or use physical violence during the course of search, investigation or interrogation under the CGST Act, 2017 against persons suspected of tax evasion like the petitioners or their employees.

b) Service of Summon at 00:30 Hours-It bears a date 12-12-2019 and asks the 2nd petitioner to appear before 4th respondent at 00:30 hrs on 12-12-2019.

84. This prima-facie indicates that it was issued after midnight on the intervening night of 11-12-2019 and 12-12-2019 asking the 2nd petitioner to appear at the ungodly hour of 00:30 hrs on that day.

85. What was so important to be recorded at such a time, which cannot wait till the morning of 12-12-2019, is not disclosed by the respondents.

86. We shall here refer to the plea in para 35 of the counter filed by the respondents 1 to 4 and 10 in this regard. They state as follows:

” …it was imperative to record statement of Shri Pramod Agarwal ( in pursuance of summons issued under sec.70 of the CGST Act, 2017) on the spot as preliminary investigation clearly suggested his role in the tax evasion by petitioner no. 1. The petitioner no. 2 was available at the spot i.e the Corporate Office of petitioner no. 1. He was served the summons in his office. There is no bar to making enquiries under sec.70 of the GST Act, 2017 in the night itself…”

87. We are unable to accept this explanation offered by the respondents to justify the issuance of summons to the 2nd petitioner after the midnight of 11-12-2019 i.e., after 00:00 hrs on 12-12-2019 and asking him to appear before the 4th respondent at 00:30 hrs on 12-12-2019.

In our opinion, the respondents cannot contend that they will interrogate the persons suspected of committing any tax evasion as per their sweet will forceably keeping them in their custody for indefinite period. If it is done, it has to be construed as informal custody and the law relating to an accused in custody has to be expressly or impliedly applied. If accused can get all the benefits under Art.22 of the Constitution, a person in such informal custody can say that he is also entitled to get relief under Art.21 of the Constitution of India. This view has been taken by the Gujarat High Court in Jignesh Kishorbhai Bhajiawala v. State of Gujarat 2017 Crl.L.J.1760 para 19 at pg.1777 while dealing with similar actions of authorities under the Prevention of Money Laundering Act, 2002. In view of the admitted fact that the search operations were continued well past midnight and summons were issued to 2nd petitioner to appear at 00:30 hrs on 12-12-2019, we do not accept the plea of the respondents that they did not act contrary to established procedure, that the search proceedings were carried out under proper and applicable law and procedure, and no harm or damage were made to any human/person or property and no sentiments were hurt.

c) Presence of Advocate during the Summon although at a distance-In Birendra Kumar Pandey (9 supra), referred to in Jignesh Kishorbhai (6 supra), even though the decision in Poolpandi (4 supra) was also cited, the Supreme Court referred to its own decision in Senior Intelligence Officer, Directorate of Revenue Intelligence v. Jugal Kishore Samra [2011] 12 SC.C. 362 and held :

“Taking a cue, therefore, from the direction made in D.K. Basu and having regard to the special facts and circumstances of the case, we deem it appropriate to direct that the interrogation of the respondent may be held within the sight of his advocate or any other person duly authorized by him. The advocate or the person authorized by the respondent may watch the proceedings from a distance or from behind a glass partition but he will not be within the hearing distance and it will not be open to the respondent to have consultations with him in the course of the interrogations.” (emphasis supplied)

We hold that in the special facts and circumstances of the case, the petitioner nos.2 to 4 or their employees shall be examined in the visible range of their counsel, though not in hearing range.

Case-2-Suresh Kumar P.P. v. Deputy Director, Directorate General of GST Intelligence (DGGI)-[2020] 120 taxmann.com 173 –High Court of Kerala

Subject-Whether audit and investigation can continue simultaneously and whether amount can be collected in adhoc at the time of inspection

a) Audit and Investigation being continued simultaneously-We do not find any infirmity in the audit and investigation proceeding being continued simultaneously. But the learned Standing Counsel informs us that in the wake of the investigation commenced, the audit would not be proceeded with.

b) Collection of Amount Adhoc-When an investigation is in progress and the premises of any person is being searched and seizure effected; again at any time, in the course of the proceedings, the person is enabled payment of tax, interest and penalty at the reduced rate of penalty so as to save himself from a higher penalty. In the course of inspection, often a generation of the prescribed form and deposit in accordance with the Rules may not be possible. This is why section (sic rule) 87(3) proviso speaks of the restriction for deposit upto ten thousand rupees per challan, in case of over the counter payments being exempted in situations under clauses (a), (b) and (c) of that proviso. Sub-clause (c) of the proviso to section 87(3) reads as under:

“(c) Proper officer or any other officer authorised for the amounts collected by way of cash, cheque or demand draft during any investigation or enforcement activity or any ad hoc deposit”.

An officer above the rank of a Joint Commissioner or one authorized by such officer carrying out the investigation or enforcement activity is so exempted and can deposit any amounts collected, by way of cash, cheque or demand draft, during the investigation or enforcement activity. This does not require generation of the Forms prescribed. The proper officer or the one authorized, hence is enabled to receive cash, cheque or demand draft in the course of an investigation or enforcement activity from the tax payer. We do not find any extortion having been effected against the statute and Exhibit P3 specifically indicates that it is a voluntary payment, although it is made under protest.

Case-3-Smt. Kanishka Matta v. Union of India-[2020] 120 taxmann.com 174 –High Court of Madhya Pradesh

Subject-Whether “cash” is covered within the ambit of “things” and Retraction of Confessional Statement

a) Meaning of Things – The core issue before this Court is that whether expression “things” covers within its meaning the cash or not. In the considered opinion of this Court, the CGST Act, 2017 has to be seen as a whole and the definition clauses are the keys to unlock the intent and purpose of the various sections and expressions used therein, where the said provisions are put to implementation. Section 2(17) defines “business” and section 2(31) defines “consideration”. In the considered opinion of this Court a conjoint reading of section 2(17), 2(31), 2(75) and 67(2) makes it clear that money can also be seized by authorized officer.

19. The word “things” appears in section 67(2) of the CGST Act, 2017 is to be given wide meaning and as per Black’s Law Dictionary, 10th Edition, any subject matter of ownership within the spear of proprietary or valuable right, would come under the definition of “thing” (page No. 1707). Similarly, Wharton’s Law Lexicon at page No. 1869 and 1870, the word “thing” has been defined and it includes “money”. It is a cardinal principle of interpretation of statute that unreasonable and inconvenient results are to be avoided, artificially and anomaly to be avoided and most importantly a statute is to be given interpretation which suppresses the mischief and advances the remedy (Interpretation of statute by Maxwel, 12th Edition, page No. 199 to 205). The same preposition of law is propounded in Craies on Statute Law, 7th Edition, page No. 94).

b) Retraction of Confessional Statement- Much has been argued by learned counsel for the petitioner in respect of “confessional statements” and the fact that the husband of the petitioner has retracted at a later stage. In the case of Surjeet Singh Chhabra v. Union of India 1996 taxmann.com 71 (SC), the Hon’ble Supreme Court has held that “confessional statements” made before Customs Officer though retracted within six days is an admission and binding since Custom Officers are not Police Officers. In the present case also the statements were made confessing the guilt by the husband of the petitioner and later on he has retracted from that statement as stated in the writ petition and therefore, in light of the Hon’ble Supreme Court’s judgment no relief can be granted in the present writ petition on the basis of aforesaid ground keeping in view the judgment of Hon’ble Supreme Court.

23. A Division Bench of this Court in the case of R.S. Company v. CCE 2017 (351) ELT 264 (MP) has dealt with “confessional statements” and decided the matter in favour of the revenue and therefore, the ground raised in the present petition that the husband of the petitioner retracted the confessional statement does not help the petitioner nor her husband in any manner.

24. Learned counsel for the petitioner has placed reliance upon a judgment delivered in the case of Vinod Solanki v. Union of India [2009] 92 SCL 157 (SC). Heavy reliance has been placed in paragraph No. 23 and the same reads as under:—

“22. It is a trite law that evidences brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon. We are not oblivious of some decisions of this Court wherein reliance has been placed for supporting such contention but we must also notice that in some of the cases retracted confession has been used as a piece of corroborative evidence and not as the evidence on the basis whereof alone a judgment of conviction and sentence has been recorded. {See Pon Adithan v. Deputy Director, Narcotics Control Bureau, [1999] 6 SCC 1 : 1999 SCC (Cri.) 1051}”

The aforesaid case was a case under the Foreign Exchange Regulation Act, 1973 and the Hon’ble Apex Court has held that evidence brought on record by way of confession, which stood retracted must be substantially corroborated by other independent and cogent evidence, which would lend adequate assurance to the Court that it may seek to rely thereupon. In the present case, the authorities are at the stage of investigation. The evidence is being collected and therefore, at this stage, the judgment relied upon by learned counsel for the petitioner is of no help.

Case-1-Thoppil Agencies v. Assistant Commissioner of Commercial Taxes-[2020] 120 taxmann.com 18-HIGH COURT OF KARNATAKA

Subject-Issue of Show Cause Notice without on the basis of documents which were never provided to the petitioner and nor opportunity of cross examination given

Held-Having heard both sides and perused the material on record, I am of the considered opinion that without going into the legal and factual aspects of the matter, it can be seen from the impugned order at Annexure-E that several documents and circumstances which were neither referred to nor enumerated in the show cause notice at Annexure-B4 have been relied upon by the respondent No. 1 in the impugned order. It is not in dispute that no opportunity of personal hearing was given to the petitioner before passing the impugned order. The material on record also indicates that several documents relied upon by the respondent No. 1 in the impugned order at Annexure-E were neither brought to the notice of the petitioner nor was he permitted to cross-examine the witnesses with reference to the said documents. Further, no opportunity to produce additional documents was given to the petitioner.

6. The aforesaid facts and circumstances will indicate that in the absence of sufficient and reasonable opportunity being granted in favour of the petitioner, the impugned order is clearly in contravention of principles of natural justice and that the same deserves to be set aside on this ground alone and the matter deserves to be remitted back to the respondent No. 1 to consider and dispose off the same afresh in accordance with law after providing sufficient and reasonable opportunity to the petitioner to put forth his contentions and documents and to hear the petitioner before passing suitable orders.

Emphasis Supplied

Case-2-ABCO Trades (P.) Ltd. v. Assistant State Tax Officer-[2020] 120 taxmann.com 180-High Court of Kerala

Subject-Error in mentioning the registration status of the Recipient and mistake in mentioning the tax applicable on challan as goods were meant for stock transfer

Held-Learned counsel for the petitioner would submit that although the e-way bill showed the consignee as an unregistered person, the invoice that accompanied the transportation clearly referred to the GSTIN of the consignee and hence, the mere mention of the consignee as an unregistered person in the e-way bill cannot be of any significance. Secondly, it is stated that the mention of the tax applicable in the delivery challan was by mistake for it is evident that when the goods are stock transferred and not sold, there need not be a payment of tax at all.

Taking note of the said submission, I find that the reasons shown in Ext.P5(c) for detaining the consignment are not sufficient to attract the provisions of section 129 of the GST Act. The detention in the instant case cannot, therefore, be seen as justified. I therefore allow the writ petition by directing the 1st respondent to immediately release the goods and the vehicle covered by Ext.P5(c) detention notice, on the petitioner producing a copy of this judgment before the 1st respondent. The Government Pleader shall also communicate the gist of this judgment to the 1st respondent so as to enable the petitioner to effect an immediate clearance of the goods and the vehicle. The petitioner shall produce a copy of this judgment together with a copy of the writ petition before the 1st respondent for further action.

Emphasis Supplied

Case-3-Ahnas Mohammed v. Assistant State Tax Officer-[2020] 119 taxmann.com 115-High Court of Kerala

Subject-Order passed before the date of hearing

4. Today when the matter was taken up for consideration, Dr.Thushara James, the learned Government Pleader appearing for the respondents would submit that she has not been specifically furnished instructions as to whether or not the petitioner had been personally heard by the 1st respondent before the issuance of the impugned Ext.P-7 order dated 13-1-2020, but that the impugned proceedings at Ext.P-7 would broadly indicate that the petitioner was not heard, as in cases of this nature, where the party is heard, the said factum would find a place in the impugned proceedings.In this case, it is to be noted that none other than the 1st respondent has issued Ext.P-5(b) notice dated 6-1-2020 directing that the petitioner should appear for personal hearing on 14-1-2020. For reasons only known to the 1st respondent, he has chosen to pass orders as per Ext.P-7 on 13-1-2020, without affording any opportunity of being heard to the petitioner and even before the date fixed by him for the petitioner’s personal hearing. It is indeed very startling that in a case of this nature, a responsible taxation officer like the 1st respondent violates the elementary cannons of fairness and natural justice by not even affording a reasonable opportunity of being heard to the affected party. It is all the more surprising as none other than the 1st respondent has issued Ext.P-5(b) notice dated 6-1-20020 directing the petitioner to attend for a personally hearing in the matter on 14-1-2020. Even now, the 1st respondent has not chosen to give specific factual instructions to the learned Government Pleader as to whether he had afforded reasonable opportunity of being heard to the petitioner. The abovesaid facts asserted by the petitioner have not been controverted by the respondents. Therefore, it is only to be held that the 1st respondent has not granted personal hearing to the petitioner before taking a decision as per Ext.P-7 order dated 13-1-2020, even though he had invited the petitioner for a personal hearing to be conducted on 14-1-2020 as per Ext.P-5(d) notice dated 6-1-2020.Hence it is only to be held that the impugned order at Ext.P-7 is illegal and ultra vires and the same has been issued in patent violation of the elementary cannons of natural justice and fairness and the said order is liable to be quashed. It is all the more so, Ext.P-7 order has been rendered on 13-1-2020 by the 1st respondent at a point of time, the previous writ proceedings as per W.P.(C).No. 674/2020 was pending on the file of this Court, which fact was also very much known to the 1st respondent. Accordingly, it is so ordered and declared. Consequently, it is ordered that Ext.P-7 order will stand set aside and the matter in relation to the proposed penalty thereto shall stand remitted to the 1st respondent to take a decision afresh.

The petitioner will immediately furnish his written submission in the matter before the 1st respondent along with a certified copy of this judgment and this may be done within a period of 10 days from the date of receipt of a certified copy of this judgment. Thereafter the 1st respondent shall issue notice of hearing to the petitioner by registered post with acknowledgement due and thereafter the 1st respondent will grant reasonable opportunity of personal hearing to the petitioner through his authorised representative/counsel, if any and then will take a considered decision thereon in accordance with law.

5. Before parting with this case, this Court would only venture to observe that in cases of this nature, elementary Cannons of natural justice and fairness would require that the party should be personally heard by the decision maker either in person or through authorised representative/counsel, if any, and thereafter a considered decision is taken thereon, instead of driving the affected party like the present petitioner having to approach this Court and then litigate the matter on account of violation of natural justice. It is trite and it is too elementary to require the citation of any judicial authority that where the decision taken by the decision maker would inflict adverse civil consequence on the affected party, then the elementary principles of reasonableness, fairness and natural justice would require that the affected party is heard by the decision maker before the latter renders decision thereon. The 2nd respondent Commissioner or the Head of the Department concerned may ensure that necessary instructions are given to the officials concerned in the Department so that unnecessary litigations of this nature could be easily avoided. The affected party cannot be blamed for approaching the Court for ventilating his grievances and if elementary principles of natural justice and fairness are adhered to by the decision manner, the litigations of this nature could be substantially reduced.

Emphasis Supplied

Case-4-Same Deutzfahr India (P) Ltd. v. St of Telangana

Subject-Levy of Penalty Under Section 129 not tenable if the movement of goods is for transaction other Supply of Goods

Observation-According to the petitioner, there was only a stock transfer from it’s factory in Ranipet in the the State of Tamil Nadu to its Depot at Bongulur village, Ibrahimpatnam Mandal in the State of Telangana, that there is no element of sale of goods or services in it, and mere transfer of goods inter-State would not attract the provisions of the Act because there is no taxable event in it.

Held-We do not accept the plea of the respondents that at the time of detention of the goods, the transporter/driver of vehicle did not tell them that at Bongulur village, Ibrahimpatnam Mandal, the petitioner has an additional place of business. No reasonable person when asked to pay GST and penalty of more than Rs.6 lakhs, would keep quiet and meekly pay up without bringing the said facts to the notice of the detaining authority.

14. Once it is clear that petitioner has additional place of business in the State of Telangana in Bongulur village, Ibrahimpatnam Mandal and the goods were being transported to that address from its Corporate office at Ranipet, Tamil Nadu State, it cannot be said that the petitioner was indulging in any illegal activity when the tax invoice shows that the supplier is the petitioner’s Corporate office in Ranipet, Tamil Nadu State and that it was shipped to its Depot in Bongulur village in Ibrahimpatnam Mandal.

15. There was no occasion for the 3rd respondent to collect tax and penalty from the petitioner on the pretext that there is illegality in the transport of goods as it would merely amount to stock transfer and there is no element of sale of goods or services in it.

17. Accordingly, the Writ Petition is allowed; and respondents are directed to refund within four (04) weeks the sum of Rs.6,70,448/- collected towards CGST and State GST and penalty from the petitioner with interest @ 9% p.a. from 05-03-2020 till date of payment to petitioner by the respondents. The 3rd respondent shall also pay costs of Rs.1,500/- (Rupees One Thousand and Five Hundred only) to the petitioner.

Emphasis Supplied

Case-1-Kumaran Oil Mill-[2020] 120 taxmann.com 386-AAR – TAMILNADU

Question-Whether proportionate claim of input tax credit for procurement of capital goods can be made for power generation business?

Held-The RE power generator is used in the business by the applicant and the output of such RE Power Generator is Electricity and Renewable Energy Certificate. Thus to answer the question raised, we hold that the proportionate claim of Input Tax Credit is available for the applicant and the provisions of Section 17(2) applies to the case at hand.

The applicant has further sought to clarify as to whether they could apportion the common credit using total turnover of the registered person for the tax period, i.e., Turnover of the tax period of existing business + Turnover of the tax period of the new Power Generation business. We find that both under Rule 42 and Rule 43, the ‘F’ in the Formula denotes the Total Turnover[in the State] of the registered person during the tax period’. It is clear that the rule wants the ‘total turnover’ to be considered against ‘F’ in the formulae under Rule 42 & Rule 43 of the GST Rules. In the applicant’s case at hand, therefore, we clarify that the Total Turnover of the Registered Person’ should include the Turnover of Edible Oil Business’ and Total Turnover of Power Generation Business’.

Case-2-Assistant Commissioner of CGST and Central Excise v. Sutherland Global Services (P.) Ltd.-[2020] 120 taxmann.com 295

Subject-Availability of Transitional Credit of Cess

Held-The learned Single Judge, with great respects, erred in allowing the claim of the Assessee under section 140 of the CGST Act. The main pitfalls in the reasoning given by the learned Single Judge are

●                      the character of levy in the form of Cess like Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess was distinct and stand alone levies and their input credit even under the Cenvat Rules which were applicable mutatis mutandis did not permit any such cross Input Tax Credit, much less conferred a vested right, especially after the levy of these Cesses itself was dropped;

●                      Explanation 3 to Section 140 could not be applied in a restricted manner only to the specified Sub-sections of Section 140 of the Act mentioned in the Explanations 1 and 2 and as a tool of interpretation, Explanation 3 would apply to the entire Section 140 of the Act and since it excluded the Cess of any kind for the purpose of Section 140 of the Act, which is not specified therein, the transition, carry forward or adjustment of unutilised Cess of any kind other than specified Cess, viz. National Calamity Contingent Duty (NCCD), against Output GST liability could not arise.

62. For the aforesaid reasons, we are inclined to allow the appeal of the Revenue and with all due respect for the learned Single Judge, set aside the judgment of the learned Single Judge dated 5-9-2019 and we hold that the Assessee was not entitled to carry forward and set off of unutilised Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess against the GST Output Liability with reference to Section 140 of the CGST Act, 2017. The appeal of the Revenue is allowed. CMP No. 690 of 2020 is closed.

Observation-Relevant Provision

Explanation 3.—For removal of doubts, it is hereby clarified that the expression ―eligible duties and taxes‖ excludes any cess which has not been specified in Explanation 1 or Explanation 2 and any cess which is collected as additional duty of customs under sub-section (1) of section 3 of the Customs TariffAct,1975.

Case-3-Kandla Port Trust-[2020] 120 taxmann.com 185-AAR Gujarat

Subject-Availability of Input Tax Credit on expenditure incurred for providing common facilities to their employees within the residential colony

4.2 As per clear reading of Sub Section (1) of Section 16 and sub section (1) of Section 17 of the CGST Act, 2017, it is clear that a registered person is entitled to take credit of input tax charged on supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business only.

4.3 In that case, the applicant is incurring expenses for providing common facilities to their employees within the residential colony where the quarter has been given on nominal fees i.e. Hospitals, Sports Complex, garden, Guest House for official visitors and school for employee’s children and the same is not related to furtherance of their business/output service i.e. port service.

4.4 In view of the above, the Jurisdictional Commissionerate has opinioned that as per Sub Section (1) of Section 17 of the CGST Act, 2017, the applicant is not entitled to take credit of input tax charged in respect of above mentioned expenses as the same is not used in furtherance of their business.

5. We also find that the applicant is engaged in supply of port services to various clients. Said expenses are for providing common facilities to their employees within the residential colony and the same are not relates to furtherance of their business/output service i.e. “Port Service”.It is very clear from the provisions of Sub Section (1) of Section 16 and Sub section (1) of Section 17 of the CGST Act, 2017, that a registered person is entitled to take credit of input tax charged on supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business only. In view of the above, the applicant is not entitled to take credit of input tax charged in respect of above-mentioned expenses as the same is not used in furtherance of their business.

Case-4-Tata Motors Ltd.-[2020] 119 taxmann.com 106-AAR Maharashtra

Subject-Availability of Input Tax Credit on Transportation Facilities provided to Staff and Taxability of Amount recovered from them

5.3.1 Applicant has submitted that they issue pass only to their employees, so that the transportation facility can be used by such employees, for which nominal amount is recovered on monthly basis. They have also submitted that once, employee ceases to be in employment with Applicant, he/she is not authorized to use the transportation facility. In other words, employer-employee relationship is must to avail this facility.

5.3.2 In the subject case we find that the applicant is not providing transportation facility to its employees, in fact the applicant is a receiver of such services in the instant case. The applicant’s contentions that they are eligible for exemption from GST under Sl. No. 15(b) of Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 in respect of nominal amounts of recoveries made from their employees towards bus transportation service, is not correct. The exemption under the said notification is available only when the supply is taxable in the first place. In the subject case, the transaction between the applicant & their employees, due to “Employer-Employee” relation as stated by the applicant in their submissions, is not a supply under GST Act.

5.3.3 To answer the second question we now refer to Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services. As per clause 1 of the said Schedule-III. Services by an employee to the employer in the course of or in relation to his employment shall be treated neither as a supply of goods nor a supply of services.

5.3.4 Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we are of the opinion GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.

5.4 The last question raised by the applicant is if ITC is available to them, whether it will be restricted to the extent of cost borne by the Applicant.

5.4.1 The applicant, citing the decision of the Hon’ble High court of Bombay in the case of Ultratech Cements Ltd. (supra) has submitted that ITC is not admissible to Applicant on part of cost borne by employee and thus ITC will be restricted to the extent of cost borne by the Applicant.

5.4.2 The jurisdictional officer has also endorsed the view of the applicant and we have no reason to deviate from the view expressed by both, the applicant as well as the jurisdictional officer.

Case-5-P.K. Mahapatra-[2020] 121 taxmann.com 186-AAR – CHHATTISGARH

Subject-Availability of Input Tax Credit on Inputs and Input Services Lighting of Plant Road, Boundary & Watchtower

Fact-It is observed that the Appellant M/s. NMDC had entered into a contract agreement with M/s. Bajaj Electricals Ltd. for Lighting of Plant Road, Boundary & Watchtower. It includes various Inputs and Input services like design and engineering, supply of plant and equipment and erection of such plant and equipment including street lighting tubular poles, fittings, aviation lamps, switch box, pipes for laying the cables. The issue in hand is whether the tax paid on such inputs and input services used for lighting of plant road, boundary wall and watchtower is eligible for Input Tax Credit under CGST Act, 2017. It has further been their contention that to serve the said plant and enable NMDC for round clock manufacturing operations, lighting is indispensable and in this regard NMDC has awarded the project of Lighting of Plant Road, Boundary & Watchtower (Package 33) to M/s. Bajaj Electricals Limited. The lighting system works are used for illuminating the plant area, lighting arterial roads, boundary wall and watch tower which are essential to carry the manufacturing operations as the steel plant it is a continuous process plant which will run round the clock. We also find that the scope of impugned work can be summarized as comprising of three major parts viz. Design & Engineering, Supply of Plant & Equipment and Erection of such Plant & Equipment. The Appellant has further contended that the lighting installed at their Plant Road, Boundary Wall and Watchtower can be dismantled without substantial damage and can be reassembled at another place without substantially damaging it and therefore may be considered as movable property and accordingly they are eligible for credits of tax paid on inputs and input services used for Lighting of Plant Road, Boundary & Watchtower should be eligible. Without prejudice to above it was also M/s. NMDC’s contention that if such lighting is treated as an immovable property, then credit of the taxes paid on various inputs will be eligible if the said lighting satisfies the definition of the “plant and machinery” and that Lighting of plant road comprises of equipment like street poles, fittings, aviation lamps, switch box, pipes for laying the cables and therefore lighting of plant road, boundary & watchtower will qualify as an apparatus or an equipment.

Held-

Whether the claim for Input Tax Credit is in relation to Immovable Property- Thus from above discussion it gets crystal clear that the instant contract consists of transfer of property in goods, coupled with supply of services which leads to the inevitable conclusion that this is a case of Works contract, covered under the definition of “Works contract” defined under section 2(119) of the CGST Act, 2017 supra. Works contract, covers in its ambit only certain works performed on immovable property. The details of works as enumerated above and as forthcoming from the contract, goes to show that the said project of lighting of Plant Road, Boundary and Watchtower awarded to the Contractor by the Appellant is not as simple or movable. The work consists of an entire system comprising a variety of different structures which are installed after a lot of prior work which involves detailed Designing, Engineering, Supply, Civil work, Civil engineering, Ground work, Foundation work, Fabrication, Erection of Building Steel Structures & Sheeting and Erection of Electrical items etc. The magnitude of work done is enormous and these are tailored specifically to fit the dimensions and orientation of the needs of the project. It does not appear prudent or for that matter viable to move these items from one place to the other. Thus, the project fulfills the conditions of it being an immovable property.

Decision Referred-T.T.G. Industries Ltd. V. Collector of Central Excise, [decided] on 7 May, 2004 in Appeal (Civil) 10911 of 1996 [2004 (167) ELT 501 (SC)], Quality Steel Tubes (P.) Ltd. 1995 (75) ELT 17 (SC) and Mittal Engineering Works (P.) Ltd. 1996 (88) ELT 622 (SC). Duncans Industries Ltd. V. State of U.P. & Ors. On 3 December, 1999

In view of the discussions supra and as works contract, covers in its ambit only certain works performed on immovable property we in affirmation with the findings of the AAR and more so with no visible intention to dismantle the said project for lighting and these being intended to be used for a fairly long period of time and on the basis of the scope of work itself as forthcoming from the contract agreement supra between the Appellant M/s. NMDC and M/s. Bajaj Electricals, come to the considered conclusion that the resultant structures are civil structures with foundations and are immovable in nature.

Meaning of Plant and Machinery-The said project for lighting consisting of civil structures as discussed above cannot be said to be used by the Appellant for making outward supply of goods or services or both, which is the utmost essential ingredient for being termed as “Plant and Machinery”. In the instant case, Structures/towers meant for Lighting for Plant Road, Boundary Wall and Watchtower can in no way be related to the outward supply of goods. As per Section 2(83) of CGST Act, 2017 “outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed, to be made by such person in the course or furtherance of business. Not acceding, but if assuming for the sake of discussion that these are apparatus/equipment as contended by the Appellant then too it is implausible and farfetched to imagine that these items which eventually are used for lighting of Plant Road, Boundary wall and watchtower, are used for making any “outward supply”. To apply the term “used for” in the definition for plant and machinery, there should be a nexus between the impugned items on which ITC is being claimed and “outward supply”. In the present case the project of lighting of plant Road, Boundary wall and watchtower will render such nexus tenuous.

7.7 We affirm with the findings by the AAR that “the provisions facilitating availment of Input Tax credit does not extend any blanket or unconditional permission for availment of credit on all items irrespective of its use, place of use and its role in making outward supply of goods or services or both, as appears to have been misconstrued by the applicant. These towers, boundary and watch tower by their very nature appears to be nothing but independent civil structures, having no relationship whatsoever with outward supply”.

8.3 Citing reference of the case of Vodafone Mobile Services Ltd. V. Commissioner of Service Tax (Delhi High Court) dated 31-10-2018 the Appellant’s contention was that Credit of taxes paid on telecom towers have been allowed. In this context, it is seen that the case of M/s. Vodafone Mobile’ Services Ltd. And Other such providers of Telecommunication service providers are distinct and distinguishable from the facts and circumstances of the case in hand, inasmuch as in the cited case such towers are being used for providing the “output service”, viz. Telecommunication service, whereas in the instant case there is no nexus between the impugned items required for the said project of lighting of plant Road, Boundary wall and watchtower on which ITC is being claimed and the “outward supply” of the Appellant. In the cited Vodafone case, ‘Capital goods’ are the items under specified Tariff headings or parts, components, spares or accessories thereof and these are ‘Base Transmission System’ (BTS), which enables the telecom company to transmit mobile signals and thereby render telecom services. Appellant have also given reference to other case laws as well all of which in view of the above stated reasons are distinct and distinguishable from the issue in hand. As already discussed it is of utmost importance for availing credit, that the nexus test gets established. Thus, the cited case laws are not applicable to the instant case.

In view of the above, there is no merit in the appeal filed by the Appellant M/s. NMDC having GSTIN 22AAACN7325A3Z3, against the Advance Ruling Order No. STC/AAR/02/2019, dated 24^th April, 2019 passed by the AAR, Chhattisgarh and accordingly the said order is upheld.

Observation-Relevant Provision-Explanation below Section 17(5)

Explanation.––For the purposes of this Chapter and Chapter VI, the expression ―plant and machinery‖ means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

In this part of article, we would be discussing about various decisions in Pre and Post GST Regime on the subject of Nature and Taxation of Mobilisation Advance.

Judgements from Pre-GST Regime

Case-1-Thermax Instrumentation Ltd. Versus Commissioner of Central Excise, Pune-I, 2015 (12) TMI 1222 – CESTAT MUMBAI

The CESTAT Mumbai Bench in this given case held that

The advance is only an amount given as kind of earnest money and for which the appellant gives a bank guarantee to the customers of equal amount. It is more in the nature of a deposit. As defined in Borrows, in Words & Phrases, Vol II

“An earnest must be a tangible thing… That thing must be given at the moment at which the contract is concluded, because it is something given to bind the contract, and, therefore, it must come into existence at the making or conclusion of the contract. The thing given in that way must be given by the contracting party who gives it, as an earnest or token of goods faith, and as a guarantee that he will fulfill his contract, and subject to the terms that if, owing to his default, the contract goes off, it will be forfeited. K, on the other hand, the contract is fulfilled, an earnest may still serve a further purpose and operate by way of party payment”.

In the present case the advance is like earnest money for which a Bank Guarantee is given by the appellant. It is a fact that the customer can invoke the Bank Guarantee at any time and take back the advance. Hence the appellant does not show the advance as an income, not having complete dominion over the amount and therefore the same cannot be treated as a consideration for any service provided. Therefore, the findings lack appreciation of the complete facts and evidences.

                                                                                                                                             Emphasis Supplied

The decision lays down that amount received by the contractor from the awarder is more like an earnest money rather than being an advance. The person receiving the same does not have complete dominion over the amount being received. The party who has given the mobilisation advance has bank guarantee against the same and can be invoked at any time in case of non-repayment of the same as per the term and conditions of the contract.

Case-2-:Gammon India Ltd Vs CST (CESTAT Mumbai) Appeal Number : Service Tax Appeal No. 87483 of 2016

The CESTAT Mumbai Bench held that

9. The several contracts provide for the payment to be made at different, predetermined stages of performance and are, generally, subject to evaluation of the work undertaken. It is also seen that such appraisal, as a prelude to making payments, is not undertaken until after the execution of the work in relation to the taxable service has 4/5 commenced and that all the contracts, while linking such measurable stages, provide for payment of only 90% of contracted amount for the entirety of the work. The ‘mobilization advance’ is adjusted against the final payment due and is not linked to the work but as a pledge of the contract between the appellant and principal. It is also subject to furnishing of prescribed ‘bank guarantee’; there is no connection with the performance of the contract. It is not in dispute that the ‘mobilization advance’, carrying interest, is granted to enable the contractor to prepare for undertaking the contracted work. The subsequent adjustment with the final payment due does not suffice to construe this as an advance payment for the work to be done merely because the recipient and payee happened to be the provider of service. The payment of ‘mobilization advance’ is but a separate financial transaction within the contract for providing of service..

Emphasis Supplied

The judgement details out some very important reasons about why mobilisation advance is not an advance. The key reasons why this judgement held that mobilisation advance is not in the nature of advance are as under-

a) Adjustment of amount against the bill amount is not because of linkage with contract amount but as a pledge of contract-It emphasises the fact that ‘mobilization advance’ is adjusted against the final payment due and is not linked to the work but as a pledge of the contract between the appellant and principal.

b) Mobilisation advance has not connection with the performance of the contract and is subject to furnishing of bank guarantee by the contractor to the awarder-It is also subject to furnishing of prescribed ‘bank guarantee’; there is no connection with the performance of the contract.

c) Subsequent adjustment of the mobilisation advance is not suffice to hold it as ana advance payment-It is not in dispute that the ‘mobilization advance’, carrying interest, is granted to enable the contractor to prepare for undertaking the contracted work. The subsequent adjustment with the final payment due does not suffice to construe this as an advance payment for the work to be done merely because the recipient and payee happened to be the provider of service.

d) Payment of Mobilisation advance is separate financial transaction-The payment of ‘mobilization advance’ is but a separate financial transaction within the contract for providing of service.

Judgements in Post GST Regime

Case-1- Shapoorji Pallonji & Company (P.) Ltd. [2020] 115 taxmann.com 113 (AAR – TAMILNADU)

7.4 Further ‘Supply of Works Contract’ is deemed to be a service under GST. Under the pre-GST regime, service tax was leviable on the service portion of the Works Contract, which in the case at hand being original work, was levied on 40% of the value. The applicant on receipt of advance has paid the service tax on the 40% of the value as required under the provisions of Service Tax. The like situations are more aptly covered under the transition provision at section 142(11)(b) wherein it is stated that no tax is payable on services under the GST Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act. Therefore, we conclude that GST is not payable on the Mobilisation advance which has been received prior to GST implementation as per section 142(11)(b) of the Act.

The issue in this matter was regarding the taxability of mobilisation advance received prior to GST Regime but outstanding as on 1st July 2017. The AAR did not discuss about the nature of the amount and its taxability since the appellant had already paid the tax on mobilisation advance in GST Regime. Thus, this decision has only a limited applicability on the issue whether mobilisation advance is an advance for the purpose of taxability.

Case-2- Siemens Ltd.- [2019] 108 taxmann.com 460 (AAR-WEST BENGAL)

AAR West Bengal discussed about the nature of Mobilisation Advance as given below-

3.4 The Applicant has received interest-free ‘mobilisation advance’ against bank guarantee. The primary purpose of such advances is to extend financial assistance within the terms of the contract to enable the contractor to mobilise resources for a smooth take-off of the project. Such advances are invariably ring-fenced with securities like bank guarantees to prevent misuse and misappropriation. The advance shall be recovered as adjustment towards payment due for the tax invoices that the Applicant shall issue after achieving successive contract milestones. In case of delay in recovery for the slow progress of work, the contract provides KMRCL with the option to charge penal interest. If the advance is misused or diverted, KMRCL, if required, can recover the unadjusted advance with penal interest by means of invoking the bank guarantee.

AAR West BENGAL then reasoned that why the decision given in Thermax Instrumentation Ltd. (supra) and GB Engineering Enterprises (P.) Ltd. (supra) are not applicable in GST Regime.

3.5 In the pre-GST regime, the Contract was divisible for the purpose of taxation as a contract for the sale of goods and a service contract. It appears from the invoices raised in the pre-GST period that some amount of the mobilisation advance was adjusted towards payment of the RA bills raised on the milestones reached. The relevant tax invoices clearly show that the Applicant treated the entire amount as the sale of goods in the course of import in terms of section 5(2) of the Central Sales Tax Act, 1956. As no tax is leviable on the advance payment under either the West Bengal Value Added Tax Act, 2003 or the Central Sales Tax Act, 1956, the unadjusted portion of the advance as on 01-07-2019 has not suffered tax under the pre-GST regime under either of the above Acts.

3.6 The Finance Act, 1994 allowed the contractor to pay service tax on that portion of the works contract, which was attributable to the actual provisioning of service, arrived at applying Rule 2A(i) of the Service Tax (Determination of Value) Rules, 2006. Under this method, the value of the taxable service was the residual amount that remained after deducting from the gross amount charged for the works contract the actual value of the property in goods transferred in the course of executing the contract. The value of the taxable service was, therefore, not ascertainable before the contractor raised the invoice. As the value of the taxable service was not ascertainable before the invoice was raised, no payment received in advance could be included in the gross amount charged for such taxable service except the portion adjusted in the service bills. In Thermax Instrumentation Ltd. (supra) and GB Engineering Enterprises (P.) Ltd. (supra), the Tribunal has followed this principle.

AAR West Bengal then reasoned that the Mobilisation advance is taxable in GST Regime as follows:

3.8 After the GST comes into force, the works contract is no longer divisible into a contract for the supply of goods and a service contract. It is a service contract and the entire unadjusted mobilisation advance as on 01-07-2017, according to the Contract, applies towards payment of consideration for the works contract service. As discussed in para 3.3 above, ‘consideration’ includes any payment for the inducement of a supply. Mobilisation advance is meant specifically for inducing the contractor to spend for provisioning the works contract service. The contract provides a mechanism in the form of a bank guarantee that ensures that the advance is not diverted or misappropriated. Its application as payment for inducing the supply is, therefore, direct and unambiguous. It is, therefore, ‘consideration,’ whether or not in the form of a deposit, for the supply of the works contract service. The Contract makes it amply clear that the entire amount is applied as consideration for provisioning works contract service.

3.9 The Applicant’s reference to the decisions of the Tribunal in Thermax Instrumentation Ltd. (supra) and GB Engineering Enterprises (P.) Ltd. (supra) is misplaced in this context. The relevance of these decisions in the legal framework of the Finance Act, 1994 is discussed in para 3.6 and need not be repeated. They are not relevant under the GST regime, as the valuation of works contract no longer requires a rule separate from other services. The Contract, therefore, is to be valued as provided under section 15(1) of the GST Act, which does not restrict in any way the scope of time of supply, as provided under section 13(2) of the GST Act. Moreover, ‘consideration’ under the GST Act has a wider scope and includes deposits if applied as consideration. In that context, whether the mobilisation advance is earnest money or not is of little relevance.

Emphasis Supplied

In the given case the AAR West Bengal discussed about the nature of the mobilisation advance received and held that since mobilisation advance is specifically related to inducement to the contractor and the security given is only for the purpose of ensuring that the advance is not misappropriated, therefore mobilisation advance is advance and is consideration for the work being executed. However, it seems that the AAR West Bengal did not consider that amount received by the applicant came with an obligation of repayment. The advance which comes with an obligation of repayment is not an advance but in the nature of loan. Linkage of the mobilisation advance is only as a pledge towards the amount to be recovered and it is completely altogether separate transaction from the work being executed.

The above judgement of AAR West Bengal has been upheld by AAAR West Bengal by observing that in the instant matter the only applicable law is the GST Act, 2017. Accordingly, the time of supply of services is to be guided by section 13(2) of the GST Act. Hence, the remaining unadjusted amount of Rs.13.80.74,549/- as on 01.07.2017 has to be construed as if it was credited into the account of the appellant on the date of 01.07.2017 only, which will attract GST on such amount on that date itself. Hence, we find no force in the argument of the appellant that section 13(2) of the GST Act, 2017 will not be applicable in the instant case.

Relevant Decision in Income Tax about the nature of advance received i.e. whether it an advance or a loan

Although the taxable event under Income Tax is Income and taxable event in GST is supply but still decisions under the Income Tax are relevant limited to the context it requires tax to be deducted at the time of payment or credit whichever is earlier. Therefore, if the amount is in the nature of advance relating to the contract, then Income Tax is required to be deducted and if it is not so, then TDS is not required to be deducted.

Case-1- Bikramjit Ahluwalia, New Delhi vs Jcit, New Delhi on 11 May, 2017 (Income Tax Appellate Tribunal – Delhi)

6. We have heard the rival submissions and have also gone through the relevant records. We agree with the contentions of the ld. AR that the assessee’s case is covered in favour of the assessee by the order of the ITAT, Visakhapatnam in the case of ACIT vs Peddu Srinivasa Rao (supra). ITAT Visakhapatnam Bench has discussed the issues at length in paragraphs 3, 4, 6, 8 and 10 of the impugned order. The relevant portions of these paragraphs are being reproduced for a ready reference:-

“3. …….this mobilization advance is in the nature of loan, on which interest @8% is chargeable as per the terms of sub-contract agreement. The mobilization advance is a capital receipt being in the nature of a loan and therefore, there was no legal obligation to deduct tax at source. However, M/s Gammon India Limited deducted tax at source in respect of such mobilization advance also…..

Emphasis Supplied

In the given case, the Tribunal clearly held that TDS was not required to be deducted since the amount was in the nature of Loan. Therefore, the nature of the amount being received has been held to be loan rather than advance in Income Tax as well.

Case-2- ACIT Vs. M/s. Patel Engineering Ltd. (ITA No. 6605/Mum/2013 vide order dated 18.11.2015) (ITAT Mumbai)

32. We have considered rival contentions and found that in terms of the contract agreement, the assessee receives advances/loans on which the payer deducts tax at source. Such loans and advances can broadly be classified as (i) Site Mobilisation loan granted to enable the assessee to mobilise the work site i.e. create access roads, mobilise men, equipments, establish and set up site office, etc., (ii) Machinery Mobilisation loan granted to enable the assessee to purchase machineries and equipments needed to carry out the subsequent work on the site and (iii) Advance against work and material given to the assessee to help it in procuring material and against the work in progress on the site. Whereas in the first two cases, it is a capital receipt in the nature of loan not connected to any work carried out by the contractor, the third one is an advance in the revenue field.

Emphasis Supplied

It can be clearly observed form the above that the ITAT in the above case clearly held that mobilisation advance is in the nature of loan rather than advance.

Case-3- Transtonnelstroy Afcons Joint … vs Asst Cit Cir 20(3), Mumbai on 16 May, 2019 (ITAT Mumbai)

As per terms of various contract agreements under which Site Mobilisation Loan and the Machinery Mobilisation Loan I advances, mostly on interest ranging from @ 12% to 18% pa., have been granted against bank guarantee, In the balance sheet, such contractee advance mobilisation loan is reflected as loan funds under the head Contractee advances as a liability. Such loan can never be the income of the assessee, neither in present or in future; deduction of such loan advance from running bills is only a practical and convenient way to recover the loan. Such mobilisation loan being a capital receipt, there was no legal obligation on the part of the contractee to deduct tax at source u/s 1940

Emphasis Supplied

This case again spelts out very clearly that mobilisation advance is a capital receipt in the nature of loan and not an advance and further deduction of such loan advance from running bills is only a practical and convenient way to recover the loan.

In the next part, we would discuss the definition of consideration in GST Regime and also how these decisions can be interpreted in a holistic manner to arrive at the part of taxability of mobilisation advance.