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2022-TIOL-663-HC-AHM-GST
Munjaal Manishbhai Bhatt Vs UoI
GST - Writ applicant entered into an agreement dated 29th September 2020 with the Navratna Organisers & Developers Pvt. Ltd. (respondent No. 4) for the purchase of a plot of land - The said agreement also encompassed construction of bungalow on the said plot of land by the respondent No. 4 for the writ applicant - separate and distinct consideration was agreed upon between the parties to the agreement for (i) the sale of land and (ii) construction of a bungalow on the land - Writ applicant bona fide believed that by virtue of such clause he would be liable to pay tax Act, 2017 on the consideration payable for construction of bungalow inasmuch as it would constitute supply of construction service - Respondent No. 4 however, relying upon the impugned entry No. 3(if) of the Notification No. 11/2017-Central Tax (Rate) read with para 2 of the said notification informed the writ applicant that he would be liable to pay tax at the rate of 9% CGST + 9% SGST under the GST Acts on the entire consideration payable for land as well as construction of bungalow after deducting 1/3rd of the value towards the land in accordance with the impugned paragraph 2 of the said notification- Petitioner avers that the liability sought to be fixed by way of deeming fiction so as to presume only 1/3rd of total consideration towards land is ultra-vires the provisions of the GST Acts - It was argued out that the tax liability by virtue of deeming fiction by way of delegated legislation far exceeds the tax liability as computed in accordance with the provisions of the statute which is otherwise impermissible - It was further argued that the impugned notification leads to a consequence whereby tax is imposed on land which is never sought to be taxed by the statute - It was, therefore, contended that the impugned notification is ultra-vires the provisions of the GST Acts as well as arbitrary and violating Article 14 of the Constitution of India - Insofar as the Special Civil Applications 6840 of 2021 and 5052 of 2022, the petitioners submit that since the advance ruling appellate order took the view that only 1/3rd deduction was available in respect of supply of developed land because of the impugned notification, such orders were also required to be quashed and set aside.
Held:
+ It is not in dispute that the sale of land and building are not liable to tax under the GST Acts. However, as the exclusion of sale of building from the tax net is subject to clause (b) of paragraph 5 of Schedule II, the transaction with respect to the sale of building is taxable qua the construction services unless the entire consideration is received by the supplier after the receipt of completion certificate or first occupation whichever is earlier. [para 67]
+ It is thus provided by way of notification [ No. 11/2017-Central Tax (Rate) ] that insofar as the construction services involving transfer of land or undivided share of land are concerned, the deduction for such transfer of land or undivided share of land will be given to the extent of one-third of the total consideration charged for the entire transaction. In other words the value towards the transfer of land or undivided share in land is deemed to be one-third of the total consideration.[para 70]
+ While earlier VAT and service tax were imposed on tripartite agreements, such taxes were sought to be consolidated under the CGST Act with a specific exclusion of land element. In other words the construction which was carried out by the developer in accordance with the agreement with the prospective buyer, which was earlier taxable under the Vat/service tax law is now sought to be taxed under the CGST Act and, therefore, deduction is given for sale of land.[para 85]
+ Even otherwise "supply" under Section 7 of the CGST Act includes supply of goods or services made or agreed to be made for a consideration. Thus the factum of supply would be initiated only once the agreement is entered into between the supplier and recipient and such agreement is for consideration. [para 86]
+ Thus the legislative intent is to impose tax on construction activity undertaken by a supplier at the behest of or pursuant to contract with the recipient. There is no intention to impose tax on supply of land in any form and it is for this reason that it is provided in the Schedule III to the GST Acts that the supply of land will be neither supply of goods nor supply of services.[para 87]
+ Charge of tax is on supply of goods or services made or agreed to be made for a consideration and, therefore, even in a case of a tripartite agreement for sale of land and building, the imposition of tax can only be on the construction activity which is undertaken by the supplier at the behest of the proposed buyer. Thus, if a tripartite agreement is entered into after the land is already developed by the developer, then such development activity was not undertaken for the prospective buyer and, therefore, there is no question of imposition of GST on the developed land.[para 88]
+ It is not as if deduction is not granted if land is not developed. Deduction is granted for any transfer of land. Thus "sale of land" under Schedule III to the GST Acts covers sale of developed land even as per the impugned notification. [para 91]
+ Thus, ordinarily the value of supply of goods or services or both should be the value which is the price actually paid or payable for the said supply of goods. [para 94]
+ In the case of the writ applicant there is specific consideration agreed for sale of land and for construction of bungalow. There is no averment in the affidavit in reply filed by the Respondents that such bifurcation is not acceptable. If that be so and if specific value of land and value of construction service is available, then can the notification provide for a fixed deduction towards land?The answer has to be in the negative. When the statutory provision requires valuation in accordance with the actual price paid and payable for the service and where such actual price is available, then tax has to be imposed on such actual value. Deeming fiction can be applied only where actual value is not ascertainable.[para 95, 96]
+ Thus, mandatory application of deeming fiction of 1/3rd of total agreement value towards land even though the actual value of land is ascertainable is clearly contrary to the provisions and scheme of the CGST Act and, therefore, ultra-vires the statutory provisions.[para 100]
+ Such deeming fiction which leads to arbitrary and discriminatory consequences could be clearly said to be violative of Article 14 of the Constitution of India which guarantees equality to all and also frowns upon arbitrariness in law.[para 105]
+ The arbitrary deeming fiction by way of delegated legislation has led to a situation whereby the measure of tax imposed has no nexus with the charge of tax which is on supply of construction service. It is well established that the measure of tax should have nexus with the charge of tax.[para 106]
+ Thus, the prescription under Section 15(5) of the CGST Act has to be by rules and not by notification. Even if it is presumed that the Government had the competence to fix a deemed value for supplies, if the deeming fiction is found to be arbitrary and contrary to the scheme of the statute, then it can be definitely held to be ultra-vires.[para 109]
+ Therefore, even in a case where the value of supply of goods or services or both cannot be determined under sub-section (1), then the same can be determined in the prescribed manner. The valuation rules framed pursuant to Section 15(4) are contained in the Rules 27 to 31 of the CGST Rules.[para 113]
+ Thus, the revenue is not remediless even in a case where it doubts the correctness of the value assigned in the contract towards construction. [para 115]
+ When such detailed statutory mechanism for determination of value is available, then the impugned deeming fiction cannot be justified on the basis that it is meant to curb avoidance of tax when, in fact, such fiction is leading to arbitrary consequences.[para 116]
Conclusion:
++ Paragraph 2 of the Notification No. 11/2017-Central Tax (Rate) and identical notification under the Gujarat Goods and Services Tax Act, 2017 , which provide for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land is ultra-vires the provisions as well as the scheme of the GST Acts. Application of such mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India.[para 122]
+ While maintaining the mandatory deduction of 1/3rd for value of land is not sustainable in cases where the value of land is clearly ascertainable or where the value of construction service can be derived with the aid of valuation rules, such deduction can be permitted at the option of a taxable person, particularly in cases where the value of land or undivided share of land is not ascertainable.[para 123]
+ Paragraph 2 of Notification No. 11/2017- Central Tax (Rate) and the parallel State tax Notification is read down to the effect that the deeming fiction of 1/3rd will not be mandatory in nature. It will only be available at the option of the taxable person in cases where the actual value of land or undivided share in land is not ascertainable.[para 124]
+ Since Bench has declared the impugned deeming fiction to be ultra-vires and has read it down to be inapplicable in cases where the actual value of land is unavailable, consequently Bench directs the GST authority concernedto refund the excess amount of tax under the GST Acts to the writ applicant which has been collected by the respondent No. 4 and deposited with the Government treasury. Refund is to be granted along with the statutory interest at the rate of 6% per annum - entire exercise shall be completed within 12 weeks.[para 125]
- Petitions disposed of :GUJARAT HIGH COURT
2022-TIOL-55-AAR-GST
Utkarsh India Ltd
GST - Applicant was awarded a contract by East Coast Railways, Khurda Road Division, Orissa for execution work for dismantling of existing bridge timber/steel channel sleepers on bridge including removal of all fittings of sleepers and removing footpath, tie bar lacing/angle lacing etc. and fabrication, manufacture and supply of H- beam steel sleepers and installation of the same - Applicant seeks to know as to whether dismantling of existing sleeper fixing and/or installation of new (H-Beam Steel sleepers) is amounting to execution of original work and would attract IGST @12% in terms of Notification No. 20/2017-Integrated Tax (Rate) or w hether the applicant is eligible for getting the benefit of Notification No. 20/2017-Integrated Tax (Rate) by paying IGST @ 12% for construction, erection, commission or installation of original works pertaining to Railways? Held: It transpires that the applicant has been awarded the contract which involves fabrication, manufacture and supply of galvanised H-Beam steel sleepers after dismantling of existing bridge timber/steel channel sleepers on bridge - The applicant doesn't construct a new bridge nor is the applicant entrusted to lay a new railway track - The applicant undertakes the work of replacing the old sleepers with new ones which essentially requires dismantling as well as removal of existing sleepers first - In the work order "Unit" has been specified as 'per sleeper' and the rate has been determined based on (i) number of sleepers to be dismantled and removed and (ii) number of sleepers to be supplied and installed which also establishes the fact that the applicant has been awarded the contract to replace the existing sleepers only - Further, nowhere in the work order, it has been mentioned that the work is related to additions and alterations to abandoned or damaged structures that are required to make them workable - Authority is, therefore, of the view that the instant composite supply of works contract cannot be considered as 'original work' in terms of definition given in clause 2 (zs) of Notification No. 12/2017- Central Tax (Rate) - Supply is a 'composite supply' as defined in clause 2(119) of the Act and is not covered under Sr. no. 3(v) of notification 08/2017-ITR as amended by 20/2017-ITR so as to attract tax @12%: AAR
- Application disposed of: AAR
2022-TIOL-54-AAR-GST
Singareni Collieries Company Ltd
GST - Consideration received for forbearance is taxable - Liquidated damages and penalties received by the applicant due to breach of conditions of the contract from the contractor are exigible to tax under CGST and SGST Acts - Taxable under CGST and SGST @9% each under the chapter head 9997 at serial no. 35 of Notification No. 11/2017- Central/State tax rate : AAR
- Application disposed of: AAR
2022-TIOL-53-AAR-GST
Som VCL (JV)
GST - In the instant case , the work of construction of residential quarters has been awarded to the applicant by NPCIL - This cannot be construed to be 'in relation with the work' entrusted to NPCIL by the Central Government, in the absence of any document evidencing the same, inasmuch as the work entrusted to NPCIL is to 'implement atomic power projects for the Generation of Electricity' - Execution of works contract service for construction of residential quarters for the employees of Kudankulam Nuclear Power Project is not covered under Sl. No. 3(vi) of Notification 11/2017-CTR - The applicable rate is @18% GST as per Sl. No 3(xii) of Notification 11/2017-CTR: AAR GST - Question on how the differential tax is to be paid is found to be on the procedural aspects of payment and is out of the purview of Section 97(2) and hence is not answered: AAR
- Application disposed of: AAR
2022-TIOL-52-AAR-GST
Sivanthi Joe Coirs
GST - Authority does not have jurisdiction to admit questions relating to refund of any tax paid by the applicant as per Section 97(2) of GST Act - Question Nos. 1, 2 and 4 raised by the applicant is on the applicability of Explanation inserted to the rules governing the provisions of 'REFUNDS' of Integrated tax paid by the applicant and falls outside the purview of Section 97(2), therefore, not admitted: AAR GST - In the case at hand, the question is on the procurement to be made by the applicant and not on the supplies made or proposed to be made by them - The subject issue raised in the question No.3 is related to 'receipt of supply' with or without tax for exports - As per section 95(a) only the 'supplier of goods or services or both' alone is eligible to seek advance ruling - The applicant being recipient in respect of question No.3, it is noticed that this question is also 'outside the purview of the Advance Ruling Authority' under 97(2) of the GST Act: AAR
- Application rejected: AAR
2022-TIOL-51-AAR-GST
Freeze Tech Innovations
GST - Product "PSA Medical Oxygen Generation Plant" is Classifiable under CTH 8421 39 90 and the applicable CGST is 9% as per Sl.No. 322 of Schedule III of Notification No. 01/2017-Central Tax (Rate) : AAR GST- Applicant seeks to know the tax benefit for the hospital for installing PSA Medical Oxygen plant - matter raised in the question falls outside Section 97(2), this question is not admitted and therefore rejected: AAR
- Application disposed of: AAR |
