MAY 21, 2024

By Abhijit Saha

IN a recent decision by Supreme Court in the case of Bharti Hexacom Ltd. & Others - 2024-TIOL-52-SC-IT Supreme Court has waived off the interest levy on tax arising from its October 2023 [2023-TIOL-146-SC-IT] rulings. Telecom service providers including Bharti Airtel, Vodafone idea, and Tata Communication are set to save about Rs 3000/- crores following the above Supreme Court order. The issue is that Delhi High Court had ruled in 2013 that the licence fees paid by the telecommunication companies (telcos) qualified as revenue expenditure and hence the income was reduced to that extent resulting in less payment of income tax accordingly. However, in October 2023 after a lapse of ten years, the Hon'ble Supreme Court in the above case reversed the Delhi High Court decision and held that the said licence fees paid by the telcos are capital expenditure and not revenue expenditure. Accordingly, the telcos paid the differential income tax for the entire back period. Now the question arises as to whether interest is required to be paid for delayed payment of tax resulting out of the Supreme Court decision in October 2023.

Hon'ble Supreme Court held:

"It was submitted that a heavy burden would now be on the Assessees as from the Assessment year 2000-2001 onwards the tax demand would have to be recomputed and met. Therefore, the Assessees have in fact sought for waiver of interest for the said period.

Learned A.S.G however, objected to this submission by contending that now that the tax demand would have to be met by the Assessees, it is logical that the interest on the said demand would also have to be paid.

We have given our thoughtful consideration to the submissions advanced at the Bar. We find that since the judgment of this Court is dated 16.10.2023, and having regard to the Telecom Policy, which commenced from the year 1999, the payment of interest for the

period for which the tax demand is now to be met in respect of these cases stands waived. However, this order shall not be a precedent in any other case as we have passed this order bearing in mind the peculiar facts of this case and having regard to the lapse of time in litigation before the Delhi High Court and this Court.

It is also brought to our notice that there are other identical matters pending before the High Courts, Tribunals and Statutory Appeals etc. While disposing of those appeals, the said Courts, Tribunals etc. may bear in mind this order vis-a-vis the interest aspect."

The above decision of Supreme Court although in the context of income tax will have direct implication on deciding the similar issues under GST law. For example, as per the ruling of the Supreme Court in the case of M/s. Northern Operating Systems Private Limited [Civil appeal 2289-2293 of 2021] ('NOS Ruling') [2022-TIOL-48-SC-ST-LB], it was held that the overseas entity shall be treated as the employer of the seconded employee and the arrangement would be treated as service by the overseas entity and accordingly taxable under service tax as manpower supply service. The above ruling was given by the Supreme Court on 19 May, 2022. Prior to that NOS ruling, it was a settled position of law that such seconded employee arrangement is not liable to service tax. In the case of M/s Volkswagen India Private Limited vs. Commissioner of Central Excise (2013-TIOL-1640-CESTAT-MUM): wherein it was held that the seconded employees are working as the employees of the assessee and there exists an employee-employer relationship. The mere method of disbursement of salary cannot make the transaction as supply of manpower service rendered to the assessee by the overseas group company. The said decision of the Tribunal was appealed by the department; however, the Supreme Court dismissed the appeal filed by the department.

Tribunal in the case of M/s Nissin Brake India Private Limited vs. Commissioner of Central Excise, Jaipur - I (2018-TIOL-1976-CESTAT-DEL) has also held that there exists an employee-employer relationship between the employees deployed by the parent company to the assessee and the method of disbursement of salary cannot determine the nature of transaction. The said decision of the Tribunal was appealed by the department; however, the Supreme Court (2019-TIOL-151-SC-ST) dismissed the appeal filed by the department.

However, the department is demanding interest for delayed payment of GST pursuant to NOS Ruling. In this context it may be mentioned that assessee cannot be saddled with interest, in case there is ambiguity in the Law.

Supreme Court in the case of Commissioner of Central Excise & Service Tax, Rohtak vs. Merino Panel Product Ltd. [Civil Appeal No. 6891 of 2018] [2022-TIOL-103-SC-CX] held:

"38. The only remaining facet of the case is the extended period of limitation invoked against the Respondent-Assessee under the CEA. The justification of extending the period of limitation depends upon whether the Respondent-Assessee has suppressed facts and failed to provide accurate information regarding its sales to the Revenue. To this extent, there is a finding of fact against the Assessee. At the same time, we are of the considered view that since the Revenue itself appeared to be unclear on the correct method of valuation of the goods, it is not appropriate to saddle the Respondent with additional liability, namely, other than the excise duty. Hence, though we confirm the demand made by the Appellant, we do not approve the levy of interest and penalties upon the Respondent, and direct that these amounts be reduced from the total recoverable amount from the Assessee…"

In view of the above, it may be stated that the above Supreme Court decision Bharti Hexacom Ltd. although in the context of Income tax Act, may be relevant to decide that there is no interest liability, in case where the Supreme Court has made the transaction as taxable by negating the settled position by High Court that it is not taxable.

Given the above, it can be said that even though interest is compensatory in nature, the liability to pay interest may not automatically trigger and would require an existence of liability and as a consequence, delay in payment of such liability. Since the existence of liability in the instant case is practically not feasible before the decision of NOS, the concept of delay in payment of such liability is also a non-feasible proposition and hence may not have the sanction of law.

(The views expressed are strictly personal.)