2021 (5) TMI 39 - HC - GST

Court upholds 18% GST on parking contract fees, rejects refund claim

The court upheld Southern Railway's demand for 18% GST on license fees for vehicle parking contracts, finding it lawful under the CGST Act. The court ... Supply including licence, rental or lease - License to occupy land and renting of immovable property treated as supply of services under Schedule II - Scope of supply under Section 7 - Prohibition on unauthorised collection of tax - Liability to register and pay GST by supplier and recipient as per statutory schemeScope of supply under Section 7 - License to occupy land and renting of immovable property treated as supply of services under Schedule II - License granted to contractors to run vehicle parking and renting/ licence to occupy railway land constitute supply of services under the CGST Act. - HELD THAT: - The Court examined Section 7 (scope of supply) read with Schedule II and concluded that activities such as licence to occupy land and renting of immovable property fall within the definition of 'supply' and are to be treated as supply of services. The statutory text in Schedule II treating lease, tenancy and licence to occupy land as services, and clause treating renting of immovable property as supply of services, led to the conclusion that the grant of licence for parking and the renting/ licence aspects are within the ambit of taxable services under the CGST scheme. The Court also relied on Board/departmental circulars and implementation instructions which consistently treated renting of space (including parking) as taxable at the applicable rate, reinforcing the statutory classification. [Paras 7, 11, 13, 36, 45]The licence/renting involved in the parking contracts is a supply of services under Section 7 read with Schedule II and therefore falls within the GST regime.Prohibition on unauthorised collection of tax - Liability to register and pay GST by supplier and recipient as per statutory scheme - Section 32's prohibition on unauthorised collection of tax does not assist the petitioners; collection of GST in these contracts is not unauthorised where it conforms to the CGST Act and contractual terms. - HELD THAT: - Petitioners contended that Section 32 forbids collection of tax except as provided by the Act and therefore agreements purporting to collect GST are void. The Court rejected this contention, holding that Section 32 addresses unauthorised collection, but where collection is in conformity with the CGST Act (i.e., the transactions are taxable supplies), Section 32 cannot be invoked to nullify contractual provisions. The Court pointed out that the licence agreements expressly contemplated payment of taxes and that the CGST provisions unambiguously impose liability in the facts of these cases; hence collection demanded by Southern Railways is not 'unauthorised' within the meaning of Section 32. [Paras 20, 41, 42, 46]Section 32 does not render the contractual tax-collection clauses void where the underlying transactions are taxable under the CGST Act; the challenge under Section 32 is rejected.Liability to register and pay GST by supplier and recipient as per statutory scheme - Supply including licence, rental or lease - Both the Southern Railways and the private contractors have distinct GST liabilities: Railways for the licence fee received from contractors; contractors for parking services provided to end users, subject to registration and applicable exemptions. - HELD THAT: - The Court identified two separate services in the transaction chain: (i) the Railways supplying the licence to contractors (taxable to Railways on licence fee), and (ii) contractors supplying parking services to end users (taxable to contractors if within registration thresholds). The agreements wherein contractors agreed to pay applicable taxes were held binding, and the statutory scheme requires registration and tax compliance by parties who fall within the taxable thresholds. The Court emphasised that contractors who are registered must generate tax-compliant invoices and pay GST for supplies to end users; Railways must account for GST on licence fees collected from contractors. [Paras 31, 38, 47, 48, 49]Railways are liable to GST on licence fees collected from contractors; contractors are liable to GST on parking services to end users and must register/pay as required by law.Exemption verification by competent authority - Whether particular parking services supplied by contractors to end users are exempt from GST is not decided on merits and is left for verification by the competent GST authorities. - HELD THAT: - The Court observed that while the statutory scheme generally makes the transactions taxable, specific claims of exemption in respect of services rendered by contractors to end users require factual and legal verification by the GST authorities. The Court declined to determine exemption qua individual contractors' supplies and directed that the Competent Authorities of the GST Department should examine and pass appropriate orders regarding any exemption claims. [Paras 50, 51]Claims of exemption for services provided by contractors to end users are to be verified and decided afresh by the competent GST authorities; the questions are remitted for administrative determination.Final Conclusion: Writ petitions dismissed on merits. The Court held that licence/renting of railway land for parking constitutes taxable supply of services under Section 7 read with Schedule II of the CGST Act; contractual tax-collection clauses are not rendered void by Section 32 where collection conforms to the Act; Southern Railways is liable to GST on licence fees and contractors are liable to GST on parking services (subject to registration thresholds). Claims of exemption by contractors vis-a -vis supplies to end users are left to the competent GST authorities for verification and appropriate orders. Issues Involved:1. Legality of Southern Railway's demand for 18% GST on license fees for vehicle parking contracts.2. Applicability of CGST Act provisions to the license agreements.3. Validity of Southern Railway's refusal to refund deposits due to unpaid GST.4. Interpretation and application of Section 32 of the CGST Act regarding unauthorized tax collection.Detailed Analysis:1. Legality of Southern Railway's demand for 18% GST on license fees for vehicle parking contracts:The core issue revolves around the Southern Railway's demand for 18% GST on the license fees granted to private contractors for running vehicle parking areas. The court examined the provisions of the CGST Act, particularly Section 7 and Schedule II, which clearly define the scope of supply to include licenses, rentals, and leases as services. The court highlighted that 'license to occupy land' and 'renting of immovable property' are categorized as supply of services under Schedule II of the Act. Consequently, the demand for 18% GST by Southern Railway was found to be in accordance with the CGST Act.2. Applicability of CGST Act provisions to the license agreements:The court analyzed the contractual agreements between the Southern Railway and the contractors, which explicitly stated that the contractors are liable to pay all applicable taxes, including GST. The court noted that the contractors had agreed to these terms and conditions, which included the payment of GST. The court emphasized that the provisions of the CGST Act, including Section 7 and Schedule II, unambiguously cover the services rendered by the Railways to the contractors and by the contractors to the end users. Therefore, the applicability of the CGST Act to the license agreements was upheld.3. Validity of Southern Railway's refusal to refund deposits due to unpaid GST:The court acknowledged that the Southern Railway had withheld the refund of deposits from the contractors due to unpaid GST. The contractors argued that the demand for GST was unauthorized and that the terms of the agreement became null and void. However, the court found that the contractors had agreed to pay all applicable taxes, including GST, as per the terms of the agreement. The court concluded that the Southern Railway's refusal to refund the deposits was justified as the contractors were liable to pay the GST as per the agreement and the provisions of the CGST Act.4. Interpretation and application of Section 32 of the CGST Act regarding unauthorized tax collection:The contractors contended that the demand for GST was unauthorized under Section 32 of the CGST Act, which prohibits the collection of tax except in accordance with the provisions of the Act. The court examined Section 32 and found that the collection of GST by Southern Railway was authorized and in consonance with the CGST Act. The court rejected the contractors' argument, stating that there was no unauthorized collection of tax as the demand for GST was in line with the provisions of the Act. The court emphasized that the judgments cited by the contractors were not applicable as they were decided prior to the implementation of the CGST Act.Conclusion:The court concluded that the Southern Railway's demand for 18% GST on the license fees for vehicle parking contracts was lawful and in accordance with the CGST Act. The contractors were found liable to pay the GST as per the terms of the agreement and the provisions of the Act. The Southern Railway's refusal to refund the deposits due to unpaid GST was upheld. The court dismissed the writ petitions, stating that the provisions of the CGST Act were clear and unambiguous, and there was no scope for granting exemption or relief to the contractors. The court emphasized the need for strict interpretation of tax laws and rejected the arguments based on Section 32 of the CGST Act.