JUNE 27, 2018

By Vijay Kumar

Vijay Mallya's Aircraft up for grabs - Any takers?

THIS is not exactly a GST story, but that of the predecessor Service Tax, but could as well be a GST one somewhere in the future.

In 2013, the Service Tax Department seized a private Jet Airbus 319 belonging to Vijay Mallya's Kingfisher and since then, while Vijay Mallya is cooling his heels in some cool place abroad, the Service Tax Department is all heated up in turbulent turmoil caused by the static aeroplane coolly hangared at the Mumbai International airport. The Mumbai International Airport is not exactly happy with this trophy in its ken as it occupies valuable and scarce space which has a huge cost. As to who will pay the cost and to whom, there is no clarity as of now.

The much aggrieved Mumbai International Airport which, it seems, charges just Rs.15,000 for an hour of stay in its premises for such aircrafts, approached the Bombay High Court in November 2014 in writ petition against the Commissioner of Service Tax to get an order to get the aircraft removed from its premises.

After a few hearings, during the hearing dated 14.08.2015, the High Court - 2015-TIOL-3045-HC-MUM-ST took note of an affidavit filed by the Additional Commissioner of Service Tax

I say that the Service Tax Department is in the process of appointing a government approved auctioneer capable of conducting a global auction for the aircraft VT-VJM (MSN 2650). I further say that in order to dispose off the aircraft VT-VJM (MSN 2650), a period of at least two months time would be required subject to the maintenance records/statutory audit records of the aircraft and its engines be submitted by M/s Kingfisher Airlines Ltd. to the Service Tax Department. …..

In view of the necessary steps proposed to be taken by the Service Tax Department as required in law to auction the aircraft presently lying in the premises of MIAL, it is submitted that the entire process would take about two months. Hence it is humbly prayed that a leave of two months period may be granted to the Service Tax Department for appointing a valuer at international level so that the aircraft is inspected, valued and the upset price is determined to initiate and complete the process of auction/sale of the aircraft VT-VJM (MSN 2650) and thus the Hon'ble Court may be pleased to pass such orders to enable the Service Tax Department to complete the steps as stated above.

The High Court took the above statements as undertakings to the Court. At this stage entered another party who leased out the aircraft to Vijay Mallya's Kingfisher. However, they had no objection to the Service Tax Department selling the aircraft, but perhaps they would have a better claim than the Service Tax Department to the sale proceeds. The High Court ordered that the sale proceeds should not be disbursed but should be deposited with the Court.

Two months passed and the case came up for hearing on 26.10.2015, but the aircraft neither flew nor moved. It stayed put where it was. They call it status quo ante . On this date the High Court ordered,

We are of the opinion that the larger interest of justice would be served if we stipulate the date of 28th February, 2016, as the date on which all processes, procedures and steps must end, either culminating in the sale / auction of the aircraft or its disposal in accordance with law. It is clarified that when we direct and hold that all steps and processes must come to an end by the stipulated date and time, we also mean conclusion of the auction and removal of the aircraft after sale and, if necessary, by making it air-worthy. All consequential and incidental steps will have to be taken and the terms and conditions thereof can be determined by the Commissioner for Service Tax.

The Court, however, clarifies that it would not consider any application by the Commissioner for Service Tax for extension of time, to conclude the sale, beyond the stipulated period hereinabove.

Our earlier order and direction recording agreement of all parties that the sale proceeds must be deposited in this Court on the conclusion of the sale remains unaffected and unaltered by this order. The Commissioner for Service Tax, therefore, is under an obligation to deposit the sale proceeds in this Court and with due intimation to all concerned parties.

The High Court posted the case for 21.03.2016.

Come 21.03.2016 and the aircraft neither moves nor swoons. And the Commissioner of Service Tax is before the High Court seeking more time and was in for some rebuke from the High Court - 2016-TIOL-632-HC-MUM-ST .

The Authorities who are in-charge of this auction ought to realise that technical services and experts are required so as to undertake an auction of a Aircraft. If the Service Tax Commissioner has woken up now and such services have to be requisitioned, then, it is apparent that no steps are taken after the last order passed by this Court.

The entire Commissionerate are unaware of the steps that would be required to be taken for conducting an auction of the Aircraft. They have considered this to be any other or routine sale.

Reluctantly, the Court posted the case for hearing on 11.04.2016

As usual, the aircraft did not move, but the Commissioner moved the Court with another affidavit. The Court - 2016-TIOL-793-HC-MUM-ST observed,

We would not like the Service Tax Commissioner to go on addressing letters and communications now. It was his plain duty to have obtained all the records and documents from the concerned parties and surely, he is not so powerless as to depend upon this Court. The Service Tax Commissioner must give up his habit of seeking or attempting to seek relief in this petition which is not filed by him but some other entity. This Court cannot assist him beyond certain limit in somebody else's litigation. Some times and on some occasions, he must take a risk . If he is now guided by the experts and technical personnel, then by all the more we would expect him not to raise such pleas or file affidavits containing vague and general statements.

We would take it that after the date and the time, which is mentioned as last flight in the petition, filed by the Petitioner, this Aircraft has not taken off but continues to be parked and lying in the subject place and from where its removal is sought by the Petitioner.

The deponent of the Affidavit as also the Chief Commissioner would be personally responsible for compliance of the orders and directions of this Court and for all statements that are made in the affidavits till date. It is depending upon their compliance that we considered the request of extension of time. We hope and trust that they will make genuine and sincere efforts and act bona fide in compliance of the orders of the Court.

And the next hearing date was fixed as 06.05.2016.

On this date, the Court is informed that the Service Tax Department is awaiting the response to the auction.

Next date of hearing was 04.07.2016 and the High Court observed,

We are really surprised that the concerned persons could not auction an aircraft and which is lying in the premises of the Mumbai International Airport Private Limited.

The deponent of the affidavit ought to realise that the aircraft lying in the airport premises causes obstruction and it is the duty of all concerned to remove it and if necessary by this auction process.

We do not think that the excuses that are now set out in the affidavit deserve to be accepted. The counsel appearing for the Commissioner of Service Tax prays for additional time to take steps to auction the aircraft.

We hope that all concerned will bear in mind the anxiety of this court and in larger public interest to ensure that the aircraft is shifted.

The matter was listed for next hearing on 22.08.2016.

On that date, the Court observed - 2016-TIOL-1833-HC-MUM-ST,

After a series of orders, directions and steps and measures, it is stated that the Additional Commissioner of Service Tax-V, Mumbai Commissionerate, had been successful in receiving a bid from two bidders, whose details are set out in the additional affidavit.

The highest bid, though below the reserved price, was submitted by one M/s. SGI Commex Limited, Mumbai. That was for 4.1 million USD. In Indian rupees this equals 27.39 crores. The result of this auction has been set out at Annexure-A to the additional affidavit. Alternatively, the highest bidder also sent an e-mail and offered to pay 26 million US$ which is equivalent to Rs.50,00,00,000/-, inclusive of all taxes, hangar charges and the cost of equipments to be installed to make the aircraft airworthy. That is how the Service Tax Commissioner seeks leave of this Court to finalise and confirm this auction and in favour of M/s. SGI Commex Limited.

It is in the above circumstances that after detailed hearing, we allow the Service Tax Commissionerate to confirm the sale and accept the highest bid of M/s. SGI Commex Limited, Mumbai. They shall complete the formalities of sale and the further steps expeditiously.

The purchaser will also take prompt steps to remove the aircraft from the site. However, it is submitted that the aircraft is not air-worthy and for its removal, it would have to be made as such. For that, some repairs would have to be carried out.

We do not approve of this casual attitude of the Service Tax Commissionerate for it ought to indicate with clarity, precision and completeness how the auction was finalised and what are its detailed terms and conditions.

The next date was fixed as 13.09.2016

The hearing took place on 14.09.2016 and though the aircraft did not move an inch, the story took a u-turn and the High Court- 2016-TIOL-2188-HC-MUM-ST noticed a disturbing fact. The Service Tax Department did not want to sell the aircraft for the price submitted in the last hearing, because the highest bid of 4.1 Million USD is 81.8% lesser than the Reserve price of USD 22.5 Million.

The high Court observed,

a curious and interesting picture emerges. Firstly, the Service Tax Commissioner, knowing fully well that the offer of the highest bidder is much below the reserved price, persuaded this court to pass an order and record a statement therein that the commissionerate be allowed to accept this bid. Secondly, statements were made by the Service Tax Commissioner seeking to confirm the sale without informing the court that a written communication communicating acceptance of the offer has to be released and issued to the bidder. Finally and more importantly that the sale must be concluded within 21 days from the date of such communication was also not a statement and factually made before this court.

On the next date, 19.09.2016, the Additional Solicitor General of India appeared for the Service Tax Commissioner and stated that the CBEC has not given permission for the auction. Matter posted for 26.09.2016 - 2016-TIOL-2312-HC-MUM-ST.

After a couple of hearings, where nothing much happened, on 14.10.2016, the Court was informed that only the Metal Scrap Trade Corporation Limited (MSTC Ltd), a Government of India undertaking, can be nominated to conduct the auction.

The Court observed,

Now, that there would be a fresh auction and having taken care of all the objections and issues raised, we expect the aircraft to be auctioned and sold as expeditiously as possible and latest by 16th December, 2016.

The matter was posted for directions on 20th December, 2016 - 2017-TIOL-33-HC-MUM-ST. On that date, it was informed that the e-auction notice was given but the highest bid was only 2.65 Million U. S. Dollars. The reserve price of the aircraft is 12.5 Million U. S. Dollars, which is 78.80% lesser than the reserve price. Permission for re-auction was sought. (See how the prices have come down since the last aborted auction)

In the meanwhile, the Karnataka High Court ordered winding up of the Company and appointed an Official Liquidator, who was impleaded as a respondent.

After some more hearings, on 24.04.2018, the High Court observed, "We post this matter on 04th July, 2018. By this date we expect both the valuation and the draft of the sale notice to be finalized, the sale notice to be published as well. We are keeping open the issue of shifting the aircraft presently."

The official Liquidator has now issued an E-Auction Notice to hold the auction on 28.06.2018. There were heavy rains in Mumbai during the last few days. It is not known whether the aircraft is standing still or floating. 

The Valuation Report attached to the Auction document states -

1  The Aircraft is not preserved as required by Civil Aviation Regulation.

2  The aircraft was very dirty and in a very poor aesthetic condition.

3  The aircraft has not been preserved for over 5 years and has not been washed for more than 30 months.

4  Garbage and bird activity is present in the engines.

5  There are clear signs of corrosion given the geographical location of the aircraft both humidity and the fact that the aircraft has been stored in a coastal city for over 5 years.

6  Only a nominal value can be attributed to the aircraft.

The photos attached to the Auction documents are very impressive. See the Bed Room which has a double bed, dressing table, full size wardrobe and diwan and a master lavatory with full standing shower.

So, what does the Service Tax Department get out of seizing this aircraft? Nothing but unadulterated misery. Even if they get some money for the aircraft, that will go to the lessor and the keeper. What would have happened if they had seized a ship? They did once and that story, some other time.

Lesson for GST regime: Don't seize more than you can store or sell.

GST Day

GST Notices by email and Abusive Replies - CESA Rues

The Prime Minister, in his latest Mann ki Baat said "In the GST scheme, information technology has replaced the inspector." Has it?

Shishir K Agnihotri has a sad story. Mr. Shishir Agnihotri is the General Secretary of the Mumbai Central Excise Superintendents Association. (CESA - the Association hasn't changed its name after GST). In a letter to his Chief Commissioner with copies marked to the Revenue Secretary and CBIC Chief, Mr. Agnihotri says that a Commissioner has forced some Inspectors to visit the premises of GST assessees without any authorisation. He reminds his boss that GST policies impress upon less contact with the taxpayers, so that harassment to the taxpayer can be avoided.

He also cites certain cases of abusive mails from assessees. A lady Superintendent sent a very polite email to a supposedly non-filer assessee.

It is to bring to your kind notice that the name of your company has appeared in the list of non-filers of returns viz. GSTR-1 & GSTR-3B. In this connection, the Commissioner, GST … has directed the undersigned to request you to fill up the questionnaire enclosed herewith and resubmit .

For this mail, she got a nasty and vulgar reply from the assessee.

Information Technology has replaced the Inspector, you bet!