Reverse charge GST on bar licence fees fails where the supplier is not the State Government

Writ challenges to tender notices and licence conditions were treated as infructuous because the licence period had already expired. The Court held that GST under reverse charge on 99% of the bar licence fee could not be sustained where the notification applied only to services supplied by the Government and TASMAC is a body corporate, not the State Government. In the later batch, the assessment orders and show cause notice were quashed because liability had been examined without proper consideration of turnover and registration status; the matters were remitted for action under the statutory mechanism for assessment of unregistered persons.

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Issues: (i) Whether the writ petitions challenging notices and tender conditions had become infructuous on expiry of the licence period; (ii) whether the demand of GST under reverse charge mechanism on 99% of the bar licence fee paid to the Government through TASMAC was sustainable; (iii) whether the assessment orders and show cause notice impugned in the later batch were liable to be quashed and the matters remitted for action under the provision governing assessment of unregistered persons.

Issue (i): Whether the writ petitions challenging notices and tender conditions had become infructuous on expiry of the licence period.

Analysis: The challenge to the notices and tender conditions related to licences for a fixed period, and the Court found that the licence term had already expired by the time of decision. In that situation, any ruling on the correctness of the notices or tender conditions would be purely academic. The matters were therefore treated as having ceased to survive for adjudication on merits.

Conclusion: The challenge to the notices and tender conditions was dismissed as infructuous.

Issue (ii): Whether the demand of GST under reverse charge mechanism on 99% of the bar licence fee paid to the Government through TASMAC was sustainable.

Analysis: The Court examined the bar licence framework under Rule 9B of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 and the reverse charge notification for services supplied by the Central Government, State Government, Union Territory or Local Authority to a business entity. It held that TASMAC is a body corporate and not the State Government for the purpose of the reverse charge notification. Since the impugned demand proceeded on the footing that TASMAC was supplying a service as the State Government, that basis failed. The Court also noted that the actual taxable activities of the licensees, namely sale of short eats and sale of used or empty bottles, were not the basis of the impugned demand.

Conclusion: The GST demand on the 99% licence fee under the reverse charge mechanism was held unsustainable.

Issue (iii): Whether the assessment orders and show cause notice impugned in the later batch were liable to be quashed and the matters remitted for action under the provision governing assessment of unregistered persons.

Analysis: The Court found that the impugned assessments and the show cause notice had proceeded without adequate examination of the petitioners' actual turnover and their possible entitlement to registration exemption. It held that the correct route, if warranted, was the mechanism for assessment of unregistered or recalcitrant persons under Section 63 of the GST enactments, rather than confirmation of liability on the footing adopted in the impugned orders. Accordingly, the orders could not stand in their present form and the matters required fresh consideration under the proper statutory framework.

Conclusion: The assessment orders were quashed and the matters were remitted for action under Section 63 of the GST enactments, and the show cause notice was also quashed for that purpose.

Final Conclusion: The batch was disposed of in part on mootness and in part by setting aside the impugned GST demands, with liberty to proceed afresh under the proper statutory mechanism where applicable.

Ratio Decidendi: A reverse charge levy under a notification applicable only to services supplied by the Government cannot be fastened on a body corporate that is not the State Government, and where the proper basis for taxation is the taxable turnover of an unregistered person, the authority must proceed under the specific assessment provision for such cases.

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