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 ... Levy of GST - license fee granted to the Private Contractors to run parking of vehicles - demand made by the Southern Railway - HELD THAT:- When there is no provision to collect the GST from the contractors on the license fee, then the terms and conditions of the agreement became null and void and therefore, the conditions imposed in the agreement would not be binding on the contractors. In this regard, the learned counsel for the petitioner relied on Section 32 of the CGST Act and sub-clause (2) to Section 32 stipulates that “no registered person shall collect tax except in accordance with the provision of this Act or the Rules made thereunder” - In the present cases, even before the introduction of the present CGST Act, the Contractors were paying the taxes based on the erstwhile Act, mainly Service Tax Act. After the implementation of the CGST Act, when there is prohibition of unauthorised collection of tax, the demand now made by the Southern Railways is in violation of the provisions of the CGST Act and therefore, the writ petitions are to be allowed. The facts admitted are that the land belongs to the Southern Railways, the writ petitioners were given license to run vehicle parking and while entering into an agreement of license, the Southern Railways, in clear terms, stated that the contractors are liable to pay taxes as applicable under the CGST Act. In turn, the contractors are also liable to pay the service tax, if they are falling within the ceiling prescribed under the Act. Thus, the Railway has to pay tax for the services rendered to the contractors by collecting license fees and the contractors, in turn, have to pay service tax for collection of parking fee from the end users - This being the pattern of liability to pay tax, which is contemplated under the provisions of the Act, there is no question of granting exemption to anyone of the persons, either the Railways or the contractors, who all are licensees and permitted to run the vehicle parking areas and therefore, their liability under the provisions of the Act, is unambiguous. In the present cases, liability of the licensees are well enumerated with reference to Section 7 and Schedule II to the Act. As discussed above, when the liability is unambiguous and the nature of services are also falling within the scope of Section 7 r/w Schedule II, then there is no reason to consider the claim of the writ petitioners for invoking Section 32 of the Act - Section 32 deals with prohibition of unauthorised collection of tax. Here the question of unauthorised collection does not arise at all. When the collection of tax is in consonance with the provisions of the Act, the provisions of Section 32, cannot be invoked at all. Thus, the arguments with reference to Section 32 stands rejected. The provisions of the CGST Act is crystal clear that the services rendered are liable for payment of service tax and more specifically, with reference to Section 7 r/w Schedule II, the services rendered by the Railways to the writ petitioners/contractors and the writ petitioners/contractors to the end users, are falling within the scope of Section 7 r/w Schedule II of the CGST Act and therefore, all the writ petitioners are liable to pay tax, as applicable and as demanded by the Southern Railways. There is no scope for entertaining the grounds as raised in the present writ petitions and consequently, all the writ petitions are devoid of merits and accordingly, they stand dismissed. 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.