2024 (8) TMI 943 - HC - GST

GST cannot be levied on construction services for Maldives office under Section 13(4) IGST Act

The Telangana HC allowed a writ petition challenging GST levy on construction services provided to the petitioner's Maldives office. The court held that ... Fixed establishment - location of the supplier of services - location of the recipient of services - place of supply of services in relation to immovable property - works contract services - Explanations to Section 8 treating establishments in different territories as distinct establishments - proviso to Section 12(3) of the IGST Act (where immovable property is located outside India, place of supply shall be location of recipient) - Section 13(4) principle - place of supply where services are actually performed for immovable propertyFixed establishment - Explanations to Section 8 treating establishments in different territories as distinct establishments - Whether the petitioner and respondent No.2 had 'fixed establishments' at Addu, Maldives - HELD THAT: - The Court examined the statutory definition of 'fixed establishment' and the admitted facts that both parties established site offices at Addu, engaged a sizable number of personnel over several years and possessed human and technical resources for the project. The re-registration of the petitioner in Maldives was held to be a statutory compliance under Maldivian law and did not create a separate independent legal entity. Applying the definition and having regard to Explanation 1 and Explanation 2 to Section 8 (which treat establishments in different territories as establishments of the person and as distinct establishments), the Court concluded that the site offices at Addu possessed sufficient permanence and structure to qualify as 'fixed establishments' of the petitioner and respondent No.2. [Paras 46, 56, 58, 59, 60]The establishments maintained by the petitioner and respondent No.2 at Addu, Maldives are 'fixed establishments' for the purposes of the IGST/CGST scheme.Location of the supplier of services - location of the recipient of services - works contract services - place of supply of services in relation to immovable property - Whether the location of supplier and recipient for the works contract is the fixed establishments in Maldives and not the registered offices in India - HELD THAT: - The Court analysed the definitions of 'location of the recipient of services' and 'location of the supplier of services', noting the parallel structure of Clauses (a) and (b) and the determinative relevance of where the supply is received or made. It held that Clause (b) applies where supply is received/made at a place other than the place of business for which registration was obtained - i.e., a fixed establishment elsewhere. Since the works contract services were supplied and received at the fixed establishments in Addu, the location of both supplier and recipient is at Maldives. The Appellate Authority's contrary approach - treating the place where the agreement was entered or where registration was obtained in India as decisive - was found to be a misreading of the statutory scheme. [Paras 53, 54, 55, 61, 62]For the works contract, the location of the supplier and the recipient is the fixed establishment at Addu, Maldives, not the parties' registered offices in India.Proviso to Section 12(3) of the IGST Act (where immovable property is located outside India, place of supply shall be location of recipient) - Section 13(4) principle - place of supply where services are actually performed for immovable property - Whether, having regard to the proviso to Section 12(3) and Section 13(4) of the IGST Act, the place of supply and taxability under Indian GST can be sustained for construction carried out in Maldives - HELD THAT: - Section 12 generally governs place of supply where supplier and recipient are located in India, but the proviso to Section 12(3) qualifies that if the immovable property is located outside India, the place of supply shall be the location of the recipient. More directly, Section 13(4) provides that for services directly in relation to immovable property (including construction), the place of supply is where the immovable property is located. Applying these provisions and the factual finding that the immovable property (ISLES) is located in Maldives and the supply and receipt occurred at the fixed establishments there, the Court held that the statutory scheme points to Maldives as the place of supply and that Indian GST provisions are not applicable to the works contract carried out outside India. [Paras 66, 67, 68, 69, 70]Since the immovable property and the services in relation thereto are located in Maldives, the place of supply is outside India and Indian GST does not apply to the construction services.Scope of judicial review under Article 226 - Whether the Appellate Authority's order warranted interference under judicial review - HELD THAT: - The Court applied the Sudha Patil standard for judicial review, enquiring whether the authority failed to consider relevant material, considered irrelevant material, reached findings unsupported by evidence, or arrived at conclusions no reasonable person could. It found that the Appellate Authority and the Advance Ruling Authority failed to consider key statutory provisions (Section 13(4), and the Explanations to Section 8) and misinterpreted definitions governing 'location' and 'fixed establishment', producing conclusions which were legally untenable. [Paras 48, 50, 51, 61, 70]The impugned Appellate Authority order suffered from legal errors and omission of relevant statutory considerations and thus warranted interference; the orders were set aside.Reimbursement of tax deposited in respect of overseas construction services - Relief to be granted consequent to the setting aside of the impugned orders - HELD THAT: - Having held that the works contract services were outside the scope of Indian GST, the Court directed that amounts of GST, interest and penalty (if any) deposited by the petitioner in respect of the construction services provided in Maldives pursuant to the contract shall be reimbursed by the respondents to the petitioner within a specified period upon production of the order copy. The Court declined to entertain the contractual claim for reimbursement of tax as a separate substantive grant beyond this directive. [Paras 72, 73]The impugned orders were set aside and the respondents ordered to reimburse the GST, interest and penalty deposited by the petitioner in respect of the Maldives construction services within 90 days on production of this order.Final Conclusion: The writ petition is allowed: the Court held that the petitioner and NBCCL maintained 'fixed establishments' at Addu, Maldives, that the location of supplier and recipient for the works contract is the fixed establishments in Maldives, and that the place of supply for construction of the immovable property is outside India; the Appellate Authority's order was set aside and the respondents were directed to reimburse the GST (with interest and penalty, if any) paid by the petitioner in respect of the Maldives project within 90 days. Issues Involved:1. Applicability of GST on services provided outside India.2. Definition and relevance of a 'fixed establishment' under GST laws.3. Determination of the 'location of supplier' and 'location of recipient' for GST purposes.4. Interpretation of Section 12 and Section 13 of the IGST Act.5. Reimbursement of GST by the Government.Detailed Analysis:1. Applicability of GST on Services Provided Outside India:The petitioner contested the applicability of GST on services provided for the construction of a Police Academy in Maldives, arguing that such services fall outside the scope of Indian GST laws. The petitioner relied on various provisions of the CGST and IGST Acts, emphasizing that the lawmakers did not intend for these laws to apply beyond Indian territory. The petitioner highlighted that the works contract service was executed entirely in Maldives, and thus should not be subject to GST.2. Definition and Relevance of a 'Fixed Establishment' Under GST Laws:The petitioner and respondent No.2 established offices in Maldives to execute the construction project. The court examined whether these offices could be considered 'fixed establishments' under Section 2(7) of the IGST Act. The court concluded that the establishments in Maldives met the criteria of having a sufficient degree of permanence and suitable structure in terms of human and technical resources, thus qualifying as 'fixed establishments.'3. Determination of the 'Location of Supplier' and 'Location of Recipient' for GST Purposes:The court analyzed the definitions of 'location of recipient of services' and 'location of supplier of services' under Sections 2(14) and 2(15) of the IGST Act. It was determined that the location of the recipient (NBCCL) and the supplier (petitioner) should be considered as their fixed establishments in Maldives, not their registered offices in India. This interpretation was based on the fact that the supply and receipt of services occurred in Maldives.4. Interpretation of Section 12 and Section 13 of the IGST Act:The court examined the applicability of Sections 12 and 13 of the IGST Act. Section 12 deals with the place of supply of services where both the supplier and recipient are in India, while Section 13 applies when either the supplier or recipient is outside India. The court found that Section 13(4), which states that the place of supply for services related to immovable property is where the property is located, was applicable in this case. Since the property was in Maldives, the place of supply was determined to be Maldives.5. Reimbursement of GST by the Government:The petitioner argued that even if GST was applicable, the tax amount should be reimbursed by the Government of India to NBCCL, and subsequently to the petitioner, as per the contract terms. The court agreed, noting that the petitioner should not suffer financially for activities carried out in Maldives. The court directed the respondents to reimburse the GST amount to the petitioner within 90 days.Conclusion:The court set aside the Order-in-Appeal dated 16.07.2022 and the original advance ruling dated 05.08.2021. It was concluded that the GST laws of India do not apply to the works contract services provided by the petitioner in Maldives. The court ordered the respondents to reimburse the GST amount, interest, and any penalty paid by the petitioner. The writ petition was allowed, and no costs were imposed.