TaxTMI 
TaxTMI 
2026 (6) TMI 1301
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....'BLE MR. JUSTICE S.R. KRISHNA KUMAR For the Petitioner : Sri. G. Shivadass, Senior Counsel Appearing For Smt. Manasa Ananthan And Smt. Tanmayee Rajkumar Advocates For the Respondents : Sri. Aravind Kamath, ASGI Along With Sri. Jeevan. J, Neeralgi, Advocate CAV ORDER: This batch of writ petitions take exception to the impugned show cause notices (SCNs) issued by the respondents to the petitioners - Banks calling upon them to show cause as to why service tax not paid by the Banks for various periods upto 30.06.2017 (pre-GST regime) should not be demanded and recovered from the petitioners - Banks together with interest and penalty as demanded in the impugned SCNs issued by the respondents. 2. Briefly stated, the factual conspectus giving rise to the present batch of writ petitions may be adverted to thus:- The petitioners in these writ petitions are Public Sector Banks engaged in the rendition of banking and financial services, encompassing savings bank accounts, current accounts and a bouquet of other facilities and privileges made available to customers in the course of their banking relationship. It is contended by the petitioners that the customers are....
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....nior counsel for the petitioners submitted that the petitioners - Banks had not charged any consideration for the services provided by them to the customers, who maintained MAB which was merely one of the conditions of the contract entered into between the Banks and the customers and only in the event, the customers committed breach / default in complying with the said condition of maintaining MAB, the services would still be provided subject to payment of penalty and in the absence of any consideration being charged by the Banks to the customers for providing the said services without charging penalty and upon maintaining MAB, the respondents did not have any jurisdiction or authority of law to demand service tax from the petitioners who are not liable to pay service tax as demanded by the respondents in the impugned SCNs, which deserve to be quashed. It is submitted that since the impugned SCNs are contrary to the Circular No.178/10/2022- GST dated 03.08.2022, Circular No.214/1/2023 - Service Tax dated 28.02.2023 and CBEC Circular No.62/11/2003-ST dated 21.08.2003 as well as the provisions contained in Sections 66B, 65B(44) and (51), 66E(e) and Section 67 of the Finance Act, ther....
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.... it is always open for the petitioners to submit their replies to the impugned SCNs which would be considered by the respondents in accordance with law. It was submitted that the very fact that penal charges are collected when MAB is not maintained indicates that petitioners - Banks are providing additional services for the customers who maintain MAB and therefore, this very maintenance of MAB by the customers constitutes non-monetary consideration which is valued and quantified in terms of Section 67 of the Finance Act and the Rules made thereunder, thereby making the petitioners liable to pay service tax towards the said services rendered by the petitioners Banks, whose contentions and claims in the present petitions are devoid of merit and the same are liable to be dismissed. 6. I have accorded my anxious consideration to the rival submissions and perused the material on record. 7. Before proceeding to consider the rival contentions on merits, it is apposite and germane to extract the relevant provisions of the Finance Act, 2012 which are as under:- "65B. Interpretations : In this Chapter, unless the context otherwise requires,- (1) "actionable c....
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....9a) " Print media" means (i) " book" as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867(25 to 1867), but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes; (ii) " newspaper" as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867(25 of 1867);] (40) " process amounting to manufacture or production of goods" means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or 1[ or the Medicinal and Toilet preparation (Excise Duties) Act, 1955 (16 of 1955)] any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force; (41) "renting" means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other simi....
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....g of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the predictions of the Lottories (Regulation) Act, 1998] (b) by a foreman of chit fund for conducting or organising a chit in any manner] Explanation 3: For the purpose of this chapter- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 4. - A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory; (45) "Special Economic Zone" has the meaning assigned to it in clause (za) of section 2 of the Special Economic Zones Act, 2005; (46) "stage carriage" shall have the meaning assigned to it in clause (40) of section 2 of the Motor Vehicles Act, 1988; (47) "State Electricity Board" means the Board constituted under section 5 of the Electricity ....
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....uding a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority. Explanation. - For the purposes of this clause,- (I) the expression "competent authority" means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-- (A) architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (B) chartered engineer registered with the Institution of Engineers (India); or (C) licensed surveyor of the respective local body of the city or town or village or development or planning authority; (II) the expression "construction" includes additions, alterations, replacements or re-modelling of any existing civil structure; (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enha....
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...., promissory note, letter of credit, drat, pay order, travellers cheque, money order, postal remittance and other similar instrument but does not include currency that is held for its numismatic value] (c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and 2 [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise." Circular No.178/10/2022- GST dated 03.08.2022, reads as under:- Circular No. 178/10/2022-GST F. No. 190354/176/2022-TRU Government of India Ministry of Finance Department of Revenue (Tax Research Unit) ***** Room No. 146G, North Block, New Delhi, the 3rd August, 2022. To, The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/ Commissioner of Central Tax (All) / The Principal Director Generals/ Director Generals (All) Madam/Sir, ....
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....- This would include the case where an industrial unit agrees to install equipment for zero emission/discharge at the behest of the RWA of a neighbouring residential complex against a consideration paid by such RWA, even though the emission/discharge from the industrial unit was within permissible limits and there was no legal obligation upon the individual unit to do so. 3. The description "agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" was intended to cover services such as described above. However, over the years doubts have persisted regarding various transactions being classified under the said description. 3.1. Some of the important examples of such cases are Service Tax/GST demands on - i. Liquidated damages paid for breach of contract; ii. Compensation given to previous allottees of coal blocks for cancellation of their licenses pursuant to Supreme Court Order; iii. Cheque dishonour fine/penalty charged by a power distribution company from the customers; iv. Penalty paid by a mining company to State Government for unaccounted stock of river bed material; ....
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....ng or abstaining from such an act. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the consideration. 6.1 A perusal of the entry at serial 5(e) of Schedule II would reveal that it comprises the aforementioned three different sets of activities viz. (a) the obligation to refrain from an act, (b) obligation to tolerate an act or a situation and (c) obligation to do an act. All the three activities must be under an "agreement" or a "contract" (whether express or implied) to fall within the ambit of the said entry. In other words, one of the parties to such agreement/contract (the first party) must be under a contractual obligation to either (a) refrain from an act, or (b) to tolerate an act or a situation or (c) to do an act. Further some "consideration" must flow in return from the other party to this contract/agreement (the second party) to the first party for such : (a) refraining or (b) tolerating or (c) doing. Such contractual arrangement must be an independent arrangement in its own right. ....
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....hence such activities will not constitute "supply" within the meaning of the Act. Taxability of these transactions is discussed in greater detail in the following paragraphs. Liquidated Damages 7.1 Breach or non-performance of contract by one party results in loss and damages to the other party. Therefore, the law provides in Section 73 of the Contract Act, 1972 that when a contract has been broken, the party which suffers by such breach is entitled to receive from the other party compensation for any loss or damage caused to him by such breach. The compensation is not by way of consideration for any other independent activity; it is just an event in the course of performance of that contract. 7.1.1 It is common for the parties entering into a contract, to specify in the contract itself, the compensation that would be payable in the event of the breach of the contract. Such compensation specified in a written contract for breach of non-performance of the contract or parties of the contract is referred to as liquidated damages. Black's Law Dictionary defines 'Liquidated Damages' as cash compensation agreed to by a signed, written contract for breach of con....
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....houses. It is a penalty paid by the builder to the buyers to compensate them for the loss that they suffer due to such delayed construction and not for getting anything in return from the buyers. Similarly, forfeiture of earnest money by a seller in case of breach of 'an agreement to sell' an immovable property by the buyer or by Government or local authority in the event of a successful bidder failing to act after winning the bid, for allotment of natural resources, is a mere flow of money, as the buyer or the successful bidder does not get anything in return for such forfeiture of earnest money. Forfeiture of Earnest money is stipulated in such cases not as a consideration for tolerating the breach of contract but as a compensation for the losses suffered and as a penalty for discouraging the non-serious buyers or bidders. Such payments being merely flow of money are not a consideration for any supply and are not taxable. The key in such cases is to consider whether the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or situation or simply doing an act. If the answer is yes, the....
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....ts will not be taxable if the principal supply is exempt. Compensation for cancellation of coal blocks 7.2 In the year 2014, coal block/mine allocations were cancelled by the Hon'ble Supreme Court vide order dated 24.09.2014. Subsequently, Coal Mines (Special Provisions) Act, 2015 was enacted to provide for allocation of coal mines and vesting of rights, title and interest in and over the land and mines infrastructure together with mining leases to successful bidders and allottees. In accordance with section 16 of the said Act, prior (old) allottee of mines were given compensation in the year 2016 towards the transfer of their rights/ titles in the land, mine infrastructure, geological reports, consents, approvals etc. to the new entity (successful bidder) as per the directions of Hon'ble Supreme Court. 7.2.1 There was no agreement between the prior allottees of coal blocks and the Government that the previous allottees shall agree to or tolerate cancellation of the coal blocks allocated to them if the Government pays compensation to them. No such promise or offer was made by the prior allottees to the Government. The allottees had no option but to accept....
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....ocal Authority for tolerating violation of laws. Laws are not framed for tolerating their violation. They stipulate penalty not for tolerating violation but for not tolerating, penalizing and deterring such violations. There is no agreement between the Government and the violator specifying that violation would be allowed or permitted against payment of fine or penalty. There cannot be such an agreement as violation of law is never a lawful object or consideration. The service tax education guide issued in 2012 on advent of negative list regime of services explained that fines and penalties paid for violation of provisions of law are not considerations as no service is received in lieu of payment of such fines and penalties. 7.4.1 It was also clarified vide Circular No. 192/02/2016-Service Tax, dated 13.04.2016 that fines and penalty chargeable by Government or a local authority imposed for violation of a statute, bye-laws, rules or regulations are not leviable to Service Tax. The same holds true for GST also. Forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period 7.5 An employer....
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.... the same service, consideration came from a person other than the actual user of service does not mean that the service has changed. Late payment surcharge or fee 9. The facility of accepting late payments with interest or late payment fee, fine or penalty is a facility granted by supplier naturally bundled with the main supply. It is not uncommon or unnatural for customers to sometimes miss the last date of payment of electricity, water, telecommunication services etc. Almost all service providers across the world provide the facility of accepting late payments with late fine or penalty. Even if this service is described as a service of tolerating the act of late payment, it is an ancillary supply naturally bundled and supplied in conjunction with the principal supply, and therefore should be assessed as the principal supply. Since it is ancillary to and naturally bundled with the principal supply such as of electricity, water, telecommunication, cooking gas, insurance etc. it should be assessed at the same rate as the principal supply. However, the same cannot be said of cheque dishonour fine or penalty as discussed in the preceding paragraphs. Fixed C....
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....odation, tour and travel, transportation etc. to provide the facility of cancellation of the intended supplies within a certain time period on payment of cancellation fee. Cancellation fee can be considered as the charges for the costs involved in making arrangements for the intended supply and the costs involved in cancellation of the supply, such as in cancellation of reserved tickets by the Indian Railways. 11.2 Services such as transportation travel and tour constitute a bundle of services. The transportation service, for instance, starts with booking of the ticket for travel and lasts at least till exit of the passenger from the destination terminal. All services such as making available an online portal or convenient booking counters with basic facilities at the transportation terminal or in the city, to reserve the seats and issue tickets for reserved seats much in advance of the travel, giving preferred seats with or without extra cost, lounge and waiting room facilities at airports, railway stations and bus terminals, provision of basic necessities such as soap and other toiletries in the wash rooms, clean drinking water in the waiting area etc. form part and parc....
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.... followed in determining whether tax on an activity or transaction needs to be paid treating the same as service by way of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act. 13. Any difficulty in implementation of the circular may be brought to the notice of the Board. Yours faithfully, (Smita Roy) Technical Officer, TRU Circular No.214/1/2023 - Service Tax dated 28.02.2023, reads as under: Circular No. 214/1/2023-Service Tax F.NO. CBIC-110267/14/2023-CX-VIII SECTION-CBEC Government of India Ministry of Finance Department of Revenue Central Board of Indirect Tax & Customs (CX & ST Wing) New Delhi, dated: 28th February, 2023 To, 1. The Principal Chief Commissioner / Chief Commissioner, CGST & CX (All) 2. The Principal Director General/ Director General (All) 3. The Principal Commissioner / Commissioner, CGST & CX (All) 4. [email protected] for uploading the Circular on CBIC's website Madam/Sir, Subject: Leviability of Service Tax on the declared service "Agre....
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.... an act. Such contractual arrangement must be an independent arrangement in its own right. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the consideration. 5. The issue also came up in the CESTAT in Appeal No. ST/ 50080 of 2019 in the case of M/s Dy. GM (Finance) Bharat Heavy Electricals Ltd in which the hon'ble Tribunal relied on the judgment of divisional bench in case of M/s South Eastern Coal Fields Ltd Vs. CCE Raipur {2021(55) G.S.T.L 549(Tri-Del)}. Board has decided not to file appeal against the CESTAT order ST/A/50879/2022-CU[DB] dated 20.09.2022 in this case and also against Order A/85713/2022 dated 12.8.2022 in case of M/s Western Coalfields Ltd. Further, Board has decided not to pursue the Civil Appeals filed before the Apex Court in M/s South Eastern Coalfields Ltd. supra (CA No. 2372/2021), M/s Paradip Port Trust (Dy. No. 24419/2022 dated 08-08-2022), and M/s Neyveli Lignite Corporation Ltd (CA No. 0051-0053/2022) on this ground. 6. In view of above, it is clarified that the activities contemplated under section 66E(e), i.e. when one party agrees to refrain from an act, ....
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....r tank, piping, electric wiring, in a residential premises etc. would not be covered in the definition of taxable service and thus would not be taxable. However, installing a booster pump, air-conditioned, water filter, water heater etc. would be covered in the definition and be taxable, as all these things are machinery or equipment. 1.3 Notification No.18/2003-Service Tax dated 21-8-03 has been issued which exempts commission or installation services provided by a commissioning or installation agency other than a commercial concern. Accordingly the commissioning or installation services provided by an individual will be exempt from service tax. 1.4 Notification No. 19/2003-Service Tax dated 21-8-03 has been issued which provides that in case of a contract which involves the commissioning or installation service along with supply of plant, machinery or equipment, service tax will be payable only on 33% of the gross amount charged for commissioning or installation and supply of plant, machinery or equipment. It is optional for the assessee to avail of this notification. It is emphasized under this notification that the gross amount (33% of which is chargeable to s....
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.... or payroll-processing activities etc. and such service may not be primarily in relation to computer system. 2.3 It is clarified that there is no contradiction between the clarifications dt.28-2-03 and dt.20-6-2003. The scope of IT services is explained in the definition of Business Auxiliary Service in the Act itself as any service in relation to designing, developing or maintaining of computer software or computerized data processing or system networking or any other service primarily in relation to operation of computer systems. The last words "primarily in relation to operation of computer systems" make the intention abundantly clear. The words "back office processing" used in the clarification dated 28-2-2003 have to be read in conjunction with the other terms used therein viz. data processing, networking, computer facility management. Thus any service of back office processing primarily in relation to operation of computer system will be covered as IT services and not taxable. Payroll-processing, accounts management etc. even by using computer programs, can not be termed as activities primarily in relation to computer systems. The use of computer in these services is....
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....hich are authorized to deal in foreign exchange are covered in the definition of "foreign exchange brokers" under service tax provisions. However, as explained above only the service of "foreign exchange broking" when provided by foreign exchange brokers (other than banking company/financial institution/body corporate which are already covered) has been brought under the tax net. 5. Service rendered free of charge: 5.1 In the context of certain services, a doubt has been raised as to whether service tax will be payable if the service is provided free of charge. 5.2 As per charging section viz. section 66 of the Act, service tax is chargeable at the rate of 8% of the value of taxable service. Thus if the value is zero the tax will also be zero even though the service is taxable. Receipt of this letter may please be acknowledged." 8. It is not in cavil and stands borne out from the record that, under the Finance Act, with effect from 01.07.2012 onwards, a negative list regime was introduced and the term "service" was specifically defined under Section 65B(44) as being an activity carried out by one person for another for a consideration; the expression "taxable s....
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....in terms of the Finance Act and the Rules made thereunder; nor can it be said that the contract contemplates charging of service cost to the customers on a post facto basis and the contract only envisages recovery of penalty post facto which is the consideration for non-maintenance of such MAB and no other consideration is charged or is in contemplation of the contract. 10. As stated supra, in the event of a failure to maintain the stipulated MAB, the contractual framework governing the relationship between the petitioner Banks and their customers contains no covenant providing for recovery of the cost of services from the customers, which unmistakably demonstrates that the rendition of services continues notwithstanding such default and that adherence to the MAB stipulation is susceptible of verification only post facto; in other words, the Banks does not charge any consideration nor is there any intention to charge the costs of services to the customers as can be discerned from the apparent tenor of the contract and the only charge is for non-maintenance of MAB which the Banks may impute as a recovery for the costs in servicing such customers; it follows therefrom that so long....
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....er provision of this Act, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the said Board: Provided that no such orders, instructions or directions shall be issued- (a) so as to require any Central Excise Officer to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Commissioner of Central Excise (Appeals) in the exercise of his appellate functions."] The binding nature of such circulars has long been acknowledged by this Court. 20. In Paper Products Ltd. v. CCE [Paper Products Ltd. v. CCE, (1999) 7 SCC 84] the settled position on this point of law was noted in the following passage : (SCC p. 87, para 4) "4. The question for our consideration in these appeals is : what is the true nature and effect of the circulars issued by the Board in exercise of its power under Section 37-B of the Central Excise Act, 1944? This question is no more res integra in view of....
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....n the winning or losing of court proceedings." 22. Thus, the starting point of our analysis on this question is that the CBEC Circular of 1-7-2002 is binding on the Revenue. If the show-cause notice issued by the Revenue is found to be contrary to the Circular, it would prima facie result in abrogation of the uniformity and consistency which is strongly emphasised upon in Ranadey Micronutrients [Ranadey Micronutrients v. CCE, (1996) 10 SCC 387] . It goes without saying that the Revenue's stance against its own circular can potentially lead to a chaotic situation where, with one hand, the Revenue would lay down instructions on how to interpret the relevant statutes and rules, and with the other hand, it would promptly disobey those very directions. Maintaining predictability in taxation law is of utmost importance and, for this reason, the Court should not accept an argument by the Revenue that waters down its own Circular as this would fall squarely within the contours of the prohibition outlined in Paper Products [Paper Products Ltd. v. CCE, (1999) 7 SCC 84]. 12. In Asha's case supra, this Court held as under:- 9. Since both the issues are interlinked, the....
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....andoned and gave up their claim, right, title, interest, possession etc., in the lands in favour of KIADB for consideration offered by the BMRCL; it follows there from that though the BMRCL categorised a particular component of the consideration offered by them to the petitioners as solatium, in reality, the transaction essentially entered into between petitioners and KIADB under Section 29(2) of the KIAD Act was in the nature of a sale / transfer of all rights in land of the petitioners which was directly and squarely exempted from levy of GST under Entry 5 of the Schedule - III of the CGST / KGST Act, since compulsory acquisitions of land where the owners lose their entire right on the property is akin to sale and ought to be treated as such and on this score also, the impugned orders, notices etc., deserve to be quashed. (iii) There is no gainsaying the fact that ordinarily, when compensation is awarded by the State / acquiring authority in favour of the land losers under any enactment, one of the components of compensation would necessarily be solatium paid by the State / acquiring authority; a land loser who is not satisfied with any component of compensation includin....
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....y of the various components of compensation including solatium. Similarly, certain States viz., Gurajat, Andhra Pradesh, Maharastra etc., amended Section 23 by inserting / incorporating Section 23-A of the RFCTLARR Act, thereby providing for passing of consent award pursuant to agreement entered into between the land losers and the Government / acquiring authority. In the instant cases, a perusal of the package compensation offered by the BMRCL as well as subsequent documents executed between the petitioners and KIADB will indicate that the compensation is paid with the consent of the petitioners, thereby indicating that no portion of the compensation including solatium would be exigible / amenable as wrongly contented by the respondents and viewed from this angle also, the contention of the respondents cannot be accepted. (vi) Even assuming that the component / head described / designated / categorised as solatium in the package compensation offered by the BMRCL is to be treated or construed or understood as solatium, the said amount paid to the petitioners towards acquisition of their lands cannot be said to be exigible/amenable to GST for more than one reason; in this c....
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....e Architects Act, 1972;or (ii) a chartered engineer registered with the Institution of Engineers (India); or (iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority; (2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; Entry 5 of Schedule III (Activities or transactions which shall be treated neither as a supply of goods nor a supply of services) reads as under: 5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. (vii) Section 7(1) of the CGST/KGST Act provides for the scope of supply; it includes all forms of supply of goods and services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. (viii) Clause (d) of sub-section (1) of Section 7 states that the activities referred to in Schedule II shall be treated as "supply of goods" or "supply of services". This clause was omitted vide CGST Amendment Act, 2018 w.e.....
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....e the supply is inter-State supply. 10. The State of Karnataka enacted the KGST Act to levy and collect tax on intra-State supply of goods or services or both within the state of Karnataka. 11. GST is a multi-stage tax, as each point in a supply chain is taxed (unless specifically exempted by law) till the goods and services reach the final consumer. This can be demonstrated by the following : * A manufacturer procures "input goods" and "input services" to manufacturer his goods and would make "outward supply" to a wholesale supplier. Here, the levy of GST would be on the manufacturer/seller. However, the incidence of GST would be on the wholesale supplier. * For the wholesale supplier, the goods procured from the manufacturer/seller becomes "input goods". The wholesale supplier would make value additions thereon and make an "outward supply" of the same to the retailer. In doing so, GST is levied on the wholesale supplier, but the incidence of GST, which was earlier on the wholesale supplier, is further passed on to the retailer. * The goods procured from the wholesale supplier becomes "input goods" for the retail seller. The retail sell....
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.... The tax which is paid at an anterior stage of the supply chain is adjusted. The fundamental object is to achieve both neutrality and equivalence by the grant of seamless credit of the duties paid at an anterior stage of the supply chain." Section 16 of the IGST Act, 2017 reads as under : "Zero rated supply.-(1) 'zero rated supply' means any of the following supplies of goods or services or both, namely : (a) export of goods or services or both ; or (b) supply of goods or services or both to a special economic zone developer or a special economic zone unit. (2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services tax Act, credit of input tax may be availed for making zero rated supplies, notwithstanding that such supply may be an exempt supply. (3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely : (a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim ref....
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....puts and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both ; (C) 'Turnover of zero-rated supply of goods' means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both (D) 'Turnover of zero-rated supply of services' means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely : Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply....
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....ines which have been emphasized by Counsel during the course of the arguments furnish the underlying rationale for the enactment of the law but cannot furnish either a valid basis for judicial review of the legislation or make out a ground for invalidating a validly enacted law unless it infringes constitutional parameters. While adopting the constitutional framework of a GST regime, Parliament in the exercise of its constituent power has had to make and draw balances to accommodate the interests of the States. Taxes on alcohol for human consumption and stamp duties provide a significant part of the revenues of the States. Complex balances have had to be drawn so as to accommodate the concerns of the States before bringing them within the umbrella of GST. These aspects must be borne in mind while assessing the jurisprudential vision and the economic rationale for GST legislation. But abstract doctrine cannot be a ground for the Court to undertake the task of redrawing the text or context of a statutory provision. This is clearly an area of law where judicial interpretation cannot be ahead of policy making. Fiscal policy ought not be dictated through the judgments of the High Courts....
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.... chargeable to service tax. It is proposed to treat the aforesaid activities under GST as supply of service (Model GST Law). 2.1 Under the Service Tax law, an activity which constitutes merely transfer of title in goods or immovable property is excluded from the definition of service [section 65B (44) of Finance Act]. 2.2 Under the GST regime, it is proposed to subject supply of goods or services to GST. Goods have been defined under the Constitution to include "all materials, commodities and articles". Likewise, services have been defined under the Constitution "as anything other than goods". Goods and services tax have been defined in the Constitution to mean "any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption". Supply has been defined in the model GST law in the broadest possible sense and includes sale. 2.3 What is presently being taxed under service tax law is provision of service in relation to land and buildings. Under the proposed GST, the taxable event is supply of goods or services [Articles 246A & 286 of the Constitution]. However, immovable property has not been inc....
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....service tax and VAT is more (embedded taxes). GST on supply of land and building will equalize the tax incidence in respect of houses in metros and non-metros. (vi) Without levying GST on supply of land and building, it would be very difficult to complete the input tax credit chain (ITC) and allow ITC in respect of construction services and construction material used in creation of immovable property which is further used for carrying out taxable activities. This is highly distortionary. While at the behest of business and industry, the ITC chain would get liberalized, the tax administration would forever be saddled with non-completion of ITC chain thereby resulting in disincentives to obtain taxable invoices for availing input tax credit. Non inclusion of land and building in GST results in cascading of taxes. (vii) Gains from GST arising out of a comprehensive tax base, would be negated owing to a large hole in the tax base [As per MOSPI data, construction sector constitutes almost 9% of the total gross value added (GVA) in the country]. This is for the reason that levy of GST on supply of land and buildings would be an impediment to the generation, flow and par....
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....han Mantri Awas Yojana, only for existing slum dwellers. c) low-cost houses up to carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; d) low cost houses up to a carpet area of 60 square meters per house in a housing project approved by the competent authority under: i. the "Affordable Housing in Partnership" component of the Housing for all (Urban) Mission/ Pradhan Mantri Awas Yojana; ii. any housing scheme of a State Government. (IV) Sale of residential premises other than new residential premises. Note: - 1) A residential premise is new when any of the following apply: 1. it has not previously been sold as residential premises 2. a new building replaces a demolished building on the same land. 4.1 We may prescribe a different rate of GST for supply of land vis-à-vis supply of buildings, with full ITC of both. 4.2 Further, the amount of stamp duty paid on land or buildings, may be allowed to be ....
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....en constructed and under-construction property. Starting the discussion on this agenda item, the Hon'ble Minister from Uttar Pradesh raised the question as to what percentage of sale of property was fully-constructed vis-à-vis those under construction. The Secretary to the Council stated that such data was not readily available. The Hon'ble Minister from Uttar Pradesh observed that most property sales would be of under-construction property as it would be difficult for developers to fully fund by themselves the development of a property. The Hon'ble Minister from Uttarakhand stated that the hill States should have special exemption. The Hon'ble Chairperson observed that this would be decided once the main issue was settled. The Hon'ble Minister from Punjab observed that if a developer constructed the property on his own, then the completed project's cost would be higher as the developer would also recover the cost of capital investment. The Hon'ble Deputy Chief Minister of Gujarat did not support the proposal under this agenda item. He observed that in almost 90% cases, an under-construction flat was booked by customers and money was paid....
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....availed. The Hon'ble Minister from Kerala stated that he did not support the proposal under this agenda item. He observed that the Transfer of Property Act gave power to States to levy stamp duty on the transfer of property after completing the paper work. He informed that in Kerala, rebate of stamp duty was given against payment of VAT. He further stated that cement, etc. were not obtained from the grey market as this could risk collapse of the building. He emphasised that stamp duty was a source of revenue for the State government and that it should be left with the States. The Hon'ble Minister from Tamil Nadu stated that the proposal under this agenda item appeared to be unconstitutional as stamp duty was constitutionally retained. He also added that the definition of goods in the Constitution did not include land and building. The Hon'ble Chairperson summed up the two broad view points namely that incidence of tax was likely to go up and the other that the tax amount would remain the same due to availability of ITC on inputs used as construction material. The Hon'ble Minister from Punjab observed that if GST was imposed on land and building, the cost fo....
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....Khachar and others v. State of Gujarat and another - 1995 Supp (10) SCC 596, analysed the definition of 'land' given in Black's Law dictionary and Law Lexicon as under: "11. In Black's Law Dictionary (Sixth Edition) at page 877, land is defined to mean-"in the most general sense, comprehends any ground, soil or earth whatsoever, including......rocks. "Land" may include any estate or interest in lands, either legal or equitable, as well as easements and incorporeal hereditaments. Technically, land signifies everything comprehending all things of a permanent nature, and even of an unsubstantial provided they be permanent. Ordinarily, the term is used as descriptive of the subject of ownership and not the ownership. Land is the material of the earth, whatever may be the ingredients of which it is composed, weather, soil, rock, or other substance, and includes free or occupied space for an indefinite distance upwards as well as downwards, subject to limitations upon the use of airspace imposed, and rights in the use of airspace granted by law. 12. According to the Law Lexicon (Reprint edn. 1987) by Ramanatha Iyer p. 701, the word 'land" in the ordinary legal s....
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....for the petitioners, compulsory acquisition of land would fall under Entry 5 of Schedule III r/w Section 7(2) of the CGST/KGST Act and that this Entry is only by way of 'ex abundanti cautela' to show the Legislative intent not to tax sale of land and completed building, i.e., excess of caution does no harm; in the case of Gokaraju Rangaraju vs. State of Andhra Pradesh -1981 (3) SCC 132, the Apex Court held as under: 18. We do not agree with the submission of the learned Counsel that the de facto doctrine is subject to the limitation that the defect in the title of the judge to the office should not be one traceable to the violation of a constitutional provision. The contravention of a constitutional provision may invalidate an appointment but we are not concerned with that. We are concerned with the effect of the invalidation upon the acts done by the judge whose appointment has been invalidated. The de facto doctrine saves such acts. The de facto doctrine is not a stranger to the Constitution or to the Parliament and the legislatures of the States. Article 71(2) of the Constitution provides that acts done by the President or Vice-President of India in the exercise and per....
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.... judicial pronouncements have already declared the law on the subject, the statutory reiteration of the law with reference to particular case does not lead to the necessary inference that the law declared by the judicial pronouncements was not thought to apply to the particular cases but may also lead to the inference that the statute-making body was mindful of the real state of the law but was acting under the influence of excessive caution and so to silence the voices of doubting Thomases by declaring the law declared by judicial pronouncements to be applicable also to the particular cases. In Chandra Mohan case [AIR 1966 SC 1987 : (1967) 1 SCR 77 : (1967) 1 LLJ 412] this Court had held that appointments of District Judges made otherwise than in accordance with Article 233 of the Constitution were invalid. Such appointments had been made in Uttar Pradesh and a few other States. Doubts had been cast upon the validity of the judgments, decrees etc. pronounced by those District Judges and large litigation had cropped up. It was to clear those doubts and not to alter the law that the twentieth amendment of the Constitution was made. This is clear from the Statement of Objects and Rea....
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....er words, even if the said entries were not present in the said schedule, there was still no intention to tax stamp duty transactions of the nature which could be subsumed under the GST and consequently, not only sale of land or completed building, even compulsory acquisitions of such land cannot be the subject matter of a GST levy. (xxvi) Learned Senior Counsel is also right in contending that after the retrospective amendment in Section 7 to exclude 7(1)(d) and include Section 7(1A), Schedule II is merely a classification schedule; Entry 5(e) of Schedule treats "agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" as a supply of service and would only be a classification entry and the need to prove that an activity or transaction is a supply stems from Section 7(1). (xxvii) Circular No. 178/10/2022-GST dated 03.08.2022 issued by the respondents explains the three expressions as under (para 2): (i) Agreeing to the obligation to refrain from an act - Example of activities that would be covered by this part of the expression would include non-compete agreements, where one party agrees not to compete with ....
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....hue, the expression "such" occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing "such" taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such "taxable service". That according to us is the plain meaning which is to be attached to Section 67 (unamended i.e. prior to 1-5-2006) or after its amendment, with effect from 1-5-2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that the High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider "for such service" and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 27. This position did not change even ....
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....r customers and, in the event of a breach or default thereof, the only consequence that ensues is the levy of a penalty. Such penal charges can by no stretch of imagination be construed, characterised, categorised or treated as "consideration" flowing to the Banks, particularly when no monetary accrual or pecuniary benefit enure to the petitioners - Banks merely by reason of the maintenance of such MAB. Significantly, a customer remains at liberty to withdraw the entire amount standing to the credit of the account, which inexorably leads to the conclusion that the MAB, or the maintenance thereof, cannot be regarded as "consideration" for the services rendered by the Banks. Further, it is not the case of the respondents that they are entitled to appropriate the entire MAB as their consideration for providing services and / or that the same was recognised as such in their books; under these circumstances, in the light of the principles laid down in the aforesaid judgments, the Circulars issued by the Board and the contract entered into between the petitioners - Banks and their customers, I am of the considered opinion that the impugned SCNs proceed on a fundamentally erroneous premis....
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....is required to maintain such minimum balance and, in the event of a failure to adhere thereto, becomes liable to the penal consequences envisaged under the very contract governing the account relationship. Thus, non maintenance of the MAB merely attracts a penalty. The maintenance of an MAB is, in essence, nothing more than the maintenance of a deposit in a bank account and such deposit entitles the customer to the interest accruing thereon, whereas any breach of the MAB stipulation is visited with a penalty. Put differently, for agreeing to maintain a deposit, the account holder receives interest, while any infraction of that obligation attracts a penal charge. The amount recovered by the Bank on account of such breach unmistakably partakes the character of a penalty and not "consideration". To the extent such penal charges are recovered by the Banks, the corresponding tax consequences are attracted and the same are not in dispute. Equally, the stipulation relating to maintenance of MAB is uniformly applicable to all customers falling within the concerned category and those customers who maintain the requisite deposit are compensated by the petitioner Banks through payment of inte....
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....ng but a form of deposit and, like all deposits, the funds remain fungible in character. Every such deposit earns interest at the same applicable rate and no intrinsic, tangible or discernible benefit accrues either to the customer or to the petitioner Banks solely by reason of the maintenance of MAB. There is neither any enhanced interest enuring to the benefit of the depositor nor any corresponding diminution of interest operating to the advantage of the Bank. Equally, the Bank does not assume custody of the funds in a manner that denudes the customer of the unfettered right of withdrawal, nor does a breach of the MAB stipulation result in the customer being disentitled to the attendant features, facilities or services associated with the account. If the MAB deposit were to be construed as "consideration", it is elementary that such consideration must accrue to and vest in the petitioner Banks, a proposition wholly divorced from commercial reality. For the MAB to qualify as "consideration", the funds would necessarily have to be irretrievably parted with by the customer and irrevocably appropriated by the petitioner Banks. Stated differently, if the MAB were indeed "consideration....
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....by the service recipient to the service provider/assessee is to be included to arrive at the "gross amount", or not is the poser. On this aspect, there is no difference in amended Section 67 from unamended Section 67 of the Act and the parties were at ad idem to this extent. 12. On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients: (a) Service tax is payable on the gross amount charged - the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word "gross" the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into t....
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....sub-section (4) of Section 67 states that the value shall be determined in such manner as may be prescribed, however, it is subject to the provisions of sub-sections (1), (2) and (3). Moreover, no such manner is prescribed which includes the value of free goods/material supplied by the service recipient for determination of the gross value. 14. We may note at this stage that Explanation (c) to sub-section (4) was relied upon by the learned counsel for the Revenue to buttress the stand taken by the Revenue and we again reproduce the said Explanation hereinbelow in order to understand the contention: "(c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise." (emphasis supplied) 15. It was argued that payment received in "any form" and "any amount credited or debited, as....
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.... cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider. 17. Faced with the aforesaid situation, the argument of the learned counsel for the Revenue was that in case the assessees did not want to include the value of goods/materials supplied free of cost by the service recipient, they were not entitled to the benefit of Notification dated 10-9-2004 read with Notification dated 1-3-2005. It was argued that since building construction contract is a composite contract of providing services as well as supply of goods, the said notifications were issued for the convenience of the assessees. According to the Revenue, the purpose was to bifurcate the component of goods and services into 67% : 33% and to provide a ready formula ....
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....ncluding value of such goods and materials for the purpose of arriving at gross amount charged, it did not deal with any eventuality whereby value of goods and material supplied or provided by the service recipient were also to be included in arriving at "gross amount charged". 19. Matter can be looked into from another angle as well. In CCE v. Larsen & Toubro Ltd. [CCE v. Larsen & Toubro Ltd., (2016) 1 SCC 170] this Court was concerned with exemption notifications which were issued in respect of "taxable services" covered by sub-clause (zzq) of clause (105) read with clause (25-b) and sub-clause (zzzh) of clause (105) read with clauses (30-a) and (91-a) of Section 65 of Chapter V of the Act. This Court in the aforesaid judgment in respect of five "taxable services" [viz. Sections 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)] has held as under: (SCC p. 195, para 23) "23. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines "taxable service" ....
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....that it relates to only such service which is rendered for valuable consideration. 5. The counsel would next advert to paragraph 3.1.12 of the Commissioner's order where the following was recorded:- "further, the consideration can be of two types viz., monetary consideration and non monetary consideration. In the present case, the Assessee has argued that they have not received any consideration. In such case it's for the department to prove that the Assessee's claim is wrong. It is observed that nowhere in the Show Cause Notice, attempt has been made to prove that the Assessee received either monetary or non- monetary consideration in any form. It is not alleged or proved in the Show Cause Notice as to how the Assessee got any benefit from their subsidiaries in monetary or non-monetary terms for the Corporate Guarantees issued. Missing this vital point, valuation of the consideration using provisions of Section 67(1) of the Finance Act, 1994 become a futile exercise." 6. Mr. Rai Chandani then read paragraphs 8 and 9 of the judgment of the Tribunal, which are extracted below; "8. The criticality of 'consideration' for determination of service, as....
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....described as 'consideration' towards the services provided by the petitioners- Banks leading to the sole / unmistakable conclusion that the demand for payment of service tax on the erroneous premise that maintaining MAB in the accounts of the customers amounts to consideration as sought to be contended in the impugned SCNs is clearly contrary to law and facts and the impugned SCNs deserve to be quashed on this ground also. 23. The impugned SCNs seek to invoke the definition of 'consideration' as defined under Section 2(d) of the Indian Contract Act for the purpose of making the impugned demand; in this context, it is apposite to observe that for the alleged promise made by the customers to be construed as "consideration", such promise must necessarily fructify into a benefit or consideration accruing to and receivable by the petitioners-Banks. It is only upon satisfaction of this foundational requirement that a monetary value can be ascribed to such "consideration" for the purposes of levy of Service Tax. In the absence of these indispensable prerequisites being satisfied, it would be wholly untenable to contend that the maintenance of the stipulated MAB by the customers constit....
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....ble supply of goods and services made by them. b) Their major business income consists of income from banking operations viz: acceptance of deposits in various forms such as fixed deposits, recurring deposits, savings bank deposits, current deposits etc. and provide various lending activities in the form of term loans, overdraft, cash credit, housing loans, gold loans, consumer loans etc. income from money transfer business and purchase or sale of foreign currency etc. and allied activities permitted by the RBI such as safe deposit vaults, marketing of insurance products, mutual funds etc. c) For the purpose of discharging the applicable GST, the Bank is registered under the provisions of Central Goods and Services Tax Act, 201 7 (hereinafter referred to as 'CGST Act') and Kerala Goods and Services Tax Act, 2017 (hereinafter referred to as 'KGST Act') vide GSTIN 32AABCT0022F2Z6. d) The taxpayer provides to its customer various variant of bank accounts as explained above. Based on the type of account, the Customer opts for the Bank to provide certain features/facilities/service (like debit card/ Internet banking/SMS banking etc.,). It is im....
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....bank accounts, the Bank first explains the different varieties of bank accounts and also informs the Customer about the features/ facilities/ services that are offered by the Bank as a part of each kind of bank account. Further, the Bank also explains the different terms and conditions that are attached with each kind of bank account. This is done so as to enable the Customers to choose the bank account that satisfies their requirements. k) Once the Customers finalize the kind of bank account which the Customers wish to open with the Bank, the Bank provides an account opening form. The account opening form is required to be filled by the customers selecting the type of bank account which he desires to open. Pursuant to which, the customers agree to the terms and conditions laid down under each type of bank account. 30. The taxpayer further submitted their para-wise reply to the contentions raised in the SCN, which is as given below: a) There is no consideration charged by the bank and consequently there is no supply of goods or services by the bank. i) The taxpayer has submitted that under the GST laws, the taxable event prescribed is 'Supply....
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....the purpose of understanding the scope of the term 'Consideration', a reference is required to be made to the understanding as provided under the Indian Contract Act, 1872 ('Contract Act'); that the concept of consideration has been derived from the Latin phrase "quid pro quo" which means "something for something"; that in line with the above, consideration means anything, monetary or otherwise, that is paid or made towards an activity of service undertaken. vi) Furthermore, the taxpayer referred to the definitions for the 'consideration' given as per various dictionaries as follows: Black Law Dictionary; "Consideration means something which is of value in the eye of law, moving from the plaintiff, either of benefit to the plaintiff or of detriment to the defendant. Webster's Dictionary: "Something of value given or done in exchange for something of value given or done by another, in order to make binding contract; inducement for a contract." vii) The taxpayer further stated that the aforesaid definitions clearly indicate that consideration would mean 'something for something in return' and it signifies the be....
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.... any consideration whether monetary or otherwise should have flown or should flow from the service recipient to the service provider and should accrue to the benefit of the later" b. They have further submitted that the Apex Court while affirming the aforesaid view of the Larger Bench in the case of Commissioner of Service Tax vs Bhayana Builders (P) Ltd reported at 2018 (10) GSTL 118 (SC) further held that the value on which service tax is payable has to satisfy the following ingredients: Service tax is payable on the gross amount charged: - the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word "gross" the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the se....
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....to our notice in the Finance Act, 1994 under which though the service provider has not charged any value for service, service tax thereon still can be levied on its deemed value, be it market value or fair value. It is a different matter altogether if the departmental authority disbelieves that though service was provided but no charge was collected and in such a case, the authority would have ample power to inquire into the matter and come to appropriate conclusion on the basis of available materials on record However, if the department proceeds on the premise that a certain service though otherwise a taxable service, the service provider did not collect any charge for the same from the service recipient, in our opinion, it would simply not be possible for the authority to collect any service tax on such service. Thus, the term taxable service has a direct relation to the consideration either paid in cash or by way of deferred payment or by mentioning of any other valuable consideration. This would reinforce our belief that when no charge was collected for providing the service, there would be not question of applying a rate of tax on the value of such service. I....
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.... Central Excise vs Edelweiss Financial Services Ltd reported in (2023) 5 Centex 58 (SC) has confirmed the view of the Tribunal that no Service Tax can be levied on corporate guarantee, in the absence of consideration collected by the provider of such guarantee. ix) The taxpayer further submitted that from a perusal of the aforesaid decisions, it is essential for a consideration to be there in order to make a transaction subject to GST and in the present case there is no consideration received by them in respect of the account holders maintaining MAB, accordingly, the same is not subject to GST and no demand can be confirmed pursuant to the impugned Notice. x) The taxpayer also submitted that it is an admitted position that where MAB is not maintained by the customers, the Bank charges a fee, on which GST is discharged; that a mere promise of providing a service will not make it a consideration. Further, they added that there is nothing in the terms and conditions agreed to between the Bank and the customers that establish the nexus between the facilities provided by the Bank and maintenance of MAB by the customers; that with each account variant, the Bank offers s....
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....vide the facilities is therefore without any basis and based on conjectures and surmises. xiii) Further the taxpayer has pointed out that it is a settled position that taxability is to be determined on the basis of the actual transaction between the parties and not on the basis of presumptions; that the FAQs on Banking, Insurance and Stockbrokers Sector issued by the CBIC at Q.31 is unequivocal that services supplied by an unrelated party without consideration would not be liable to GST. This FAQ was specifically relied by them in their submissions when the present investigation was being undertaken, however, the same has not been considered while issuing the impugned notice. xiv) They further alleged that the consideration has been presumed in the Show Cause Notice, the fact of which can be ascertained from the invocation of Rule 27(b) in order to arrive at the value of the consideration; that the law does not provide for assumption of consideration; that the consideration should be actual though it can be either in monetary terms or non-monetary terms; that a mere promise which cannot be considered to be a nonmonetary consideration, is not a consideration and it....
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....onsideration would be covered even if there was no legal obligation for doing such an act. Applying the above principles to the facts of the present case, they have submitted that there is no obligation to provide any service to the customer who maintains MAB, unless the customer specifically requests for a specified service; that once such a request is made, then the service is either provided free of charge or at a concessional rate and if such a charge is collected, GST is paid. iv) Further, they stated that the promise of a customer to maintain MAB is not adhered to always by the customer; that the very fact that penal charges are collected evidence that such commitments are also not adhered to. v) The taxpayer further contended that in Para. 6.1 and 7 of the Circular, supra, it is specifically indicated that the intention of a positive or negative act in lieu of consideration must be expressly indicated in the agreement by the parties. The relevant portion of the Circular reads as under: "61. A perusal of the entry at serial S(e) of Schedule II would reveal that it comprises the aforementioned three different sets of activities viz. (a) the ....
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.... amounts recovered for not tolerating an act or situation and to deter such acts; such amounts are for preventing breach of contract or non-performance and are thus mere 'events' in a contract. Further, such amounts do not constitute payment (or consideration) for tolerating an act, because there cannot be any contract: (a) for breach thereof, or (b) for holding more stock than permitted under the mining contract, or (c) for leaving the employment before the agreed minimum period or (d) for doing something leading to the dishonour of a cheque. As has already been stated, unless payment has been made for an independent activity of tolerating an act under an independent arrangement entered into for such activity of tolerating an act,, such payments will not constitute 'consideration' and hence such activities will not constitute "supply" within the meaning of the Act. Taxability of these transactions is discussed in greater detail in the following paragraphs. " vi) They have submitted that the aforesaid portion of the Circular squarely applies to the facts of the present case and the proposal to demand tax on the premise that the promise to maintain MAB in it....
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....en by them and consequently the demand proposed in the impugned notice is liable to be dropped. c) Notwithstanding the above, the valuation adopted is without any basis i) In this regard the taxpayer has submitted that they provide host of services to their customers and not every customer uses all the services rendered by the Bank. Each customer uses the services provided by the Bank basis their requirements. All the services are made available to all the customers falling under the respective categories and the customer is given the option of to avail such services at his discretion and the Bank does not interfere in any manner. ii) They added that the Bank does not thrust on MAB proposal on any customer so as to assume any derivative benefits or consideration; as per Section 15 of the CGST Act, 2017, transaction value is the price actually paid or payable by recipient for the supply of goods and or/ services to him by the supplier, where supplier and recipient of supplier are not related and price is the sole consideration for the supply. iii) They further submitted that customer and Bank are unrelated parties and hence Section 15(1) will be a....
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.... or both means the full value in money, excluding the Integrated tax, Central tax, State tax, Union Territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made; (b) "supply of goods or services or both of like kind and quality" means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and the reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both.'~ vii) They added that on a perusal of the above definitions, it can be observed that both the definitions indicate that the value would be such amount charged from unrelated person to provide similar service. viii) It is also mentioned that in the notice, the highest penalty levied for non-maintenance of MAB is construed to be the value determined in terms of Rule 27 of the CGST Rules; however, this ass....
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....egard, the taxpayer has placed their reliance on J .K. Synthetics Ltd. v Commercial Taxes Officers [(1994) 4 SCC 276], wherein it was held by the Hon'ble Supreme Court that no interest can be levied on an amount which is not admitted as tax. The relevant extract from the judgment is as follows "14 . ... Therefore, the expression 'tax payable' under the said two sub Sections is the full amount of tax due and 'tax due' is that amount which becomes due ex-hypothesis on the turnover and taxable turnover 'shown in or based on the return'. The word 'payable' is a descriptive word, which ordinarily means 'that which must be paid or is due, or may be paid' but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to 'due'. Therefore, the conjoint reading of Sections 7(1), (2) and (2A) and 1 lB of the Act leaves no room for doubt that the expression 'tax payable' in Section 11B can only mean the full amount of tax which becomes due under Sub-Sections (2) and (2A), of the Act ....
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....dgment is as follows: 7 . ... But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.,, ix) Further, the taxpayer has also placed reliance on the case of, EID Parry v ACCT [2000 AI....
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.... case, submissions made by the tax payer in their reply to the notice and during the personal hearing and relevant provisions of law and now make the following findings. In order to determine whether the tax demand in SCN 11 is sustainable it is absolutely essential to examine whether the alleged activities of the taxpayer qualify as "supply" as defined in Section 7(1) of the CGST Act, 2017. 34. Now let me examine the contentions by the Department in this regard. As per Section 7 (1) of the CGST Act 2017 the expression supply includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; and] (c) the activities specified in Schedule I, made or agreed to be made without a consideration; 34.1. As per Section 7(1A) of the CGST Act 2017, where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treate....
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....re extracted in the SCN. "5 The description of the declared service in question, namely, agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act in para 5 (e) of Schedule II of CGST Act is strikingly similar to the definition of contract in the Contract Act, 1872. The Contract Act defines 'contract' as a set of promises, forming consideration for each other. 'Promise' has been defined as willingness of the 'promisor' to do or to abstain from doing anything. 'Consideration' has been defined in the Contract Act as what the promisee' does or abstains from doing for the promises made to him. 6. This goes to show that the service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement. A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. Th....
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...., consideration signifies the benefit which must be bargained for between the parties and is an essential reason for a party entering into a contract; ► There is nothing in the terms and conditions agreed between the bank and the customers that establishes a nexus between the facilities provided by the bank and maintenance of MAB by the customers; ► Where MAB is not maintained by the customers, the bank charges a fee, in which GST is charged; ► The charges collected by the bank for non-maintenance of MAB is a condition of contract and the same cannot be construed as consideration of contract; ► Neither the customer nor the bank recognizes the agreement to maintain MAB as a consideration for the commitment to provide services, and the treatment of customers; agreement to maintain MAB as consideration for an agreement to provide facilities is based on conjectures and surmises; ► FAQs on Banking, Insurance and Stockbrokers Sector issued by the CBIC is unequivocal that services supplied by an unrelated party without consideration would not be liable for GST; ► The promise to maintain MAB, in itsel....
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....nclude any subsidy given by the Central Government or a State Government: Here, the existence of the act of agreeing to provide free services to account holders maintaining specified minimum balance, on the part of the bank, and the act of the act of agreeing to maintain the specified minimum balance, on the part of the customer, is not in dispute. Therefore, the issue boils down to the question whether the obligation undertaken by the customers is in respect of, in response to, or for the inducement of the obligation undertaken by the bank. In other words, the question is whether there is sufficient nexus between the obligations undertaken by the customer and the bank that meets the requirement of Clause (b) of Section 2 (31). 39.2. In this regard, The Department as well as the bank have cited CBIC Circular 178/ 10/2022 GST dated 03.08.2022, to support of their respective contentions (The department has cited Para 5 and 6 and the bank has cited Para 2, 6.1 and 7). The last sentence of Para 6 of the Circular cited by the Department is reproduced below: "There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain f....
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.... express or implied promise establishing a necessary and sufficient nexus between the mutual obligations / commitments in a contract, the same can only be treated as mere conditions of contract. 39.4. The SCN has failed to cite any concrete evidence to show that the obligation / commitment undertaken by the customers to maintain minimum balance was towards the obligations undertaken by the bank (to provide certain services free of cost to account holders maintaining the specified minimum balance. On the contrary, the facts on record indicate that they are mere conditions of contract, as descried below: 39.5. It is an undisputed fact that where minimum balance (MAB / QAB) is not maintained by the customers, the bank charges a fee and penalise the customer for his lapse. Moreover, the balance amount in the account is payable by the bank to the customer on demand at any time subject to the specified charges for non-maintenance of the specified minimum balance (AMB/AQB). One method that can be used to test the nexus between the mutual obligations in a contract is to apply the inversion test. That is to analyse / observe the effect of an instance of one party failing t....
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....nsiderable force in the bank's submissions and am inclined to accept their contention that there is nothing in the terms and conditions agreed between the bank and the customers that establishes a nexus between the facilities provided by the bank and maintenance of MAB by the customers. I am also inclined to accept that the treatment of customers' commitment to maintain MAB as consideration for the obligation to provide facilities (provision of certain services frees of cist / at concessional rate) in the SCN is based on conjectures and surmises, as the SCN has failed to establish the necessary "quid pro quo". 40. In view of the analysis of relevant facts and legal provisions described in the foregoing paragraphs, I hold that commitment to maintain minimum balance by the customers cannot be treated as consideration for the commitment by the bank, to provide certain services free of cost / concessional rate, and accordingly the latter does not qualify as a supply under Section 7 of the CGST Act, 2017. I find that the crucial factor that there must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the....
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.... order dated 30.12.2023 by accepting very same / identical / similar contentions urged by South Indian Bank on 08.06.2024 as noticed supra, the impugned SCNs issued by the respondents containing the very same allegations deserve to be quashed on this ground also. 27. Insofar as the objection canvassed on behalf of the respondents regarding the maintainability of the present petitions in view of the availability of an equally efficacious alternative remedy is concerned, it is pertinent to note that, prior to instituting the present proceedings, the petitioner Banks, several other banking institutions and the Indian Banks' Association had submitted representations to the respondents raising objections to the proposed levy of Service Tax on account of non-maintenance of MAB by bank customers. Despite such representations, no remedial or corrective measures were forthcoming from the respondents and, on the contrary, the impugned SCNs came to be issued not only to the petitioner Banks but also to several other banking institutions similarly situated. 28. In Magadh Sugar's case supra, the Apex Court held as under:- 20. While a High Court would normally not exercise its....
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....er Article 226 of the Constitution. This rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion. 27.6. In cases where there are disputed questions of fact, the High Court may decide to decline jurisdiction in a writ petition. However, if the High Court is objectively of the view that the nature of the controversy requires the exercise of its writ jurisdiction, such a view would not readily be interfered with." (emphasis supplied) 21. The principle of alternate remedies and its exceptions was also reiterated recently in the decision in Commr. of State Tax v. Commercial Steel Ltd. [Commr. of State Tax v. Commercial Steel Ltd., (2022) 16 SCC 447] In State of H.P. v. Gujarat Ambuja Cement Ltd. [State of H.P. v. Gujarat Ambuja Cement Ltd., (2005) 6 SCC 499] this Court has held that a writ petition is maintainable before the High Court if the Taxing Authorities have acted beyond the scope of their jurisdiction. This Court observed : (Gujarat Ambuja Cement case [State of H.P. v. Gujarat Ambuja Cement Ltd., (2005) 6 SCC 499], SCC pp. 517-18, para 23) : "23. Where under a statute there is an allegation of infringement of fundam....
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....ssue or jurisdictional issue arising in the facts of the case and remit the matter for consideration on merits by the competent authority? Again, it is somewhat difficult to state with absolute clarity any principle governing such exercise of jurisdiction. It always will depend upon the facts of a given case. We are of the considered view that interest of administration of justice shall be better subserved if the cases of the present kind are heard by the courts only where they involve primary questions of jurisdiction or the matters which go to the very root of jurisdiction and where the authorities have acted beyond the provisions of the Act. ... 82. It is argued and to some extent correctly that the High Court should not decline to exercise its jurisdiction merely for the reason that there is a statutory alternative remedy available even when the case falls in the above stated class of cases. It is a settled principle that the courts/tribunal will not exercise jurisdiction in futility. The law will not itself attempt to do an act which would be vain, lex nil frustra facit, nor to enforce one which would be frivolous-lex neminem cogit ad vana seu inutilia-the la....
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....of Bihar, 2017 SCC OnLine Pat 3688] . Both the petitions - filed by the appellant and NTPC before the High Court challenged the power of the State Government to levy tax on sale of electricity to Electricity Boards. A three-Judge Bench of this Court in Sree Meenakshi Mills Ltd. v. CIT [Sree Meenakshi Mills Ltd. v. CIT, 1956 SCC OnLine SC 42 : (1957) 31 ITR 28 : AIR 1957 SC 49] succinctly explained the tests for the identification of questions of fact, questions of law and mixed questions of law and facts. T. L. Venkatarama Aiyar, J. writing for the Bench observed that: "9. ... To take an illustration, let us suppose that in a suit on a promissory note the defence taken is one of denial of execution. The court finds that the disputed signature is unlike the admitted signatures of the defendant. It also finds that the attesting witnesses who speak to execution were not, in fact, present at the time of the alleged execution. On a consideration of these facts, the court comes to the conclusion that the promissory note is not genuine, Here, there are certain facts which are ascertained, and on these facts, a certain conclusion is reached which is also one of fact. ... ....
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....utor; and whether the first respondent has the legislative competence to levy duty on the sale of electricity to an intermediary distributor in view of the decision of this Court in State of A.P. [State of A.P. v. NTPC Ltd., (2002) 5 SCC 203] The question of whether the appellant is liable to file returns under Sections 6-B(1) and 5-A of the Act is directly related to the issue of whether the sale of electricity by the appellant to BSEB falls under the charging provisions of Section 3(1). The questions raised by the appellant can be adjudicated without delving into any factual dispute. Thus, the present matter is amenable to the writ jurisdiction of the High Court. 29. A perusal of the impugned SCNs would indicate that the respondents have already pre-determined and concluded that the petitioner Banks are liable to pay Service Tax in respect of the services rendered to customers qua the maintenance of MAB, thereby clearly suggesting that the impugned proceedings are premeditated in nature; moreover, the stand adopted by the respondents in their statement of objections leaves little room for doubt that they have wholeheartedly endorsed the proposal contained in the impugned SCNs.....