2012 (8) TMI 753 - HC - Service Tax

High Court quashes AAR's order, deems subsidiaries of Government Companies eligible. AAR's discretion must be judicious.

M/s GSPL INDIA TRANSCO LIMITED Versus UNION OF INDIA

The High Court allowed both writ petitions, quashing the AAR's order rejecting the applications. The court held that the petitions challenging the AAR's ... Claim of Cenvat Credit on the pipes and valves - assessee sought to obtain advance ruling from AAR on eligibility to avail CENVAT Credit of excise duty paid by it on pipes and valves to the manufacturer, against the Petitioner's output service tax liability under the taxable service category of 'transport of goods through pipeline or conduit? AAR rejected the application - Held that:- As the petitioners are Government Companies being subsidiaries of Gujarat State Petronet Ltd. The holding company and each subsidiary company are separate and distinct legal entities and every company has an independent right to file an application before the AAR for pronouncement of an advance ruling on the questions raised in the applications. Section 96A(b)(ii) and (iii) support the case of the petitioners that a joint venture company could be an applicant. Further a resident falling within the class of mentioned in sub-clause (iii) could also maintain an application. The petitioners fall within the ambit of section 96A(b)(iii), therefore, we hold that the petitioners being a step-down subsidiary company of a Government Company are covered within the definition of the 'applicant' in terms of section 96A(b) of the Finance Act. The applications filed by the petitioners before the AAR under section 96C were maintainable. As the petitioners and the holding company were separate and distinct legal entities and had independent rights and the AAR does not possess absolute discretionary power. Under section 96D(2) proviso (a) the important words used are, “in the applicant’s case”, which clearly explains that if in the applicants own case any matter is pending or had been decided then the AAR could dismiss the application - The AAR could not reject the applications of the petitioners under its discretionary power as there were no exceptional circumstances, or abuse of the legal process or rendering incompatible decisions concerning the same parties or any anomalous situations would have arisen if the AAR would have pronounced advance ruling. The petitioners had not yet entered into any transaction and the advance ruling had been sought on the proposed activity or service, therefore, the petitioners’ applications were maintainable and the AAR was required to pronounce advance ruling under section 96D of the Finance Act. Even assuming that the question pending before the CESTAT in the matter of holding company and the question raised before AAR by the petitioners were similar, if the AAR pronounces advance ruling on the question raised by the petitioners, then, in our opinion, it will not result in conflicting or incompatible decision between the same parties, as the order of the AAR would be binding only on the petitioners and the tax authorities in view of section 96E of the Finance Act - in favour of assessee. Issues Involved:1. Preliminary Objection on maintainability of writ petitions.2. Whether a subsidiary to subsidiary company of a Government Company qualifies as a Government Company.3. Discretionary power of the AAR to reject applications under Section 96D(2) of the Finance Act.4. Consideration of facts on record regarding the proposed business activity and pending issues.Detailed Analysis:Preliminary Objection:The respondent argued that the writ petitions challenging the AAR's order should be dismissed for lack of jurisdiction as such orders can only be challenged before the Supreme Court via a Special Leave Petition. The court rejected this argument, citing the Supreme Court's decision in Columbia Sportswear Company v. Director of Income Tax, Bangalore, which held that advance rulings by the Authority for Advance Rulings (Income Tax) could be challenged under Articles 226/227 of the Constitution before the High Court. Thus, the writ petitions were deemed maintainable.Whether a Subsidiary to Subsidiary Company of a Government Company Qualifies as a Government Company:The petitioners, subsidiaries of Gujarat State Petronet Ltd., which in turn is a subsidiary of Gujarat State Petroleum Corporation Ltd., argued they qualify as Government Companies under Section 617 of the Companies Act, 1956. The court examined the statutory definitions and concluded that the petitioners, being step-down subsidiaries of a Government Company, fall within the definition of 'applicant' under Section 96A(b) of the Finance Act. Therefore, the applications filed by the petitioners were maintainable.Discretionary Power of the AAR to Reject Applications under Section 96D(2) of the Finance Act:The court analyzed whether the AAR had the discretionary power to reject the petitioners' applications on grounds other than those specified in the proviso to Section 96D(2). The court agreed with the view taken in Microsoft Operations Pte. Ltd. that the AAR has discretionary power, which must be exercised judiciously. However, the court held that the AAR does not possess absolute discretionary power and must decide applications unless the specific conditions in the proviso are met. The court found that the AAR erred in rejecting the applications based on the pending issue with the petitioners' holding company, as the transactions were not identical and the petitioners had not yet entered into any transactions.Consideration of Facts on Record:The court noted that the Commissioner had admitted the petitioners were Government Companies and their applications were maintainable. The AAR's rejection of the applications was based on the erroneous assumption that the transactions of the petitioners and their holding company were identical. The court emphasized that the petitioners had not yet commenced any activity or service and had sought advance ruling on a proposed business activity. The court concluded that the AAR's decision was not supported by the facts on record and the applications should have been decided on their merits.Conclusion:Both writ petitions were allowed, and the AAR's order rejecting the applications was quashed. The AAR was directed to decide the questions raised in the petitioners' applications under Section 96C on merits, preferably within three months. The rule was made absolute, and parties were ordered to bear their own costs.