Legal update from the Judiciary – Dec 2020

11-01-2021 CA Ravi Kumar Somani


1) Students hostel whether to be treated as a residential dwelling for the purpose of claiming exemption:

‘Residential dwelling’ when used as ‘residence’ is exempt from tax net, however what constitutes ‘residence’ is a subject matter of dispute in as much as whether the usage be looked at from the lessee’s point of view or based on its ‘end’ use. Now, lessee when lets it out to students for hostel purpose is a commercial usage but a student when ultimately uses it for daily abode is also no less than that as a ‘residence’. Recently, Karnataka appellate authority of advance ruling denied exemption on lease of student’s hostel treating it to be for 'commercial' use. Now this denial of exemption is nothing but a loose interpretation as derived out of the lame reading of one sentence without dwelling into the interpretation of the term ‘residence’, the objective of keeping it out, the common parlance theory and more specifically the precise joint interpretation of the classification architecture when read with the explanatory notes and the corresponding exemption schedules. [Taghar Vasudeva Ambrish, Order No. KAR/AAAR-01/2020-21] AAAR GST - Kar 2020 (41) GSTL 47]


2) Beneficial Tax rate of 5% whether allowed in case of sub-contracted tour operator services:

‘Tour operator service’ enjoys a beneficial tax rate of 5% as long as it qualifies to be a ‘tour operator’. Although looks simple, but the issue arises when we usher into a reality where typically a single ‘tour’ would involve multiple ‘operators’ with one ‘operator’ receiving the order from the end consumer followed by a string of sub-contractors providing their piece of services to the same consumer. Now, but for the great ‘Advance ruling authority’ who could have dared to opine that this benefit can also be denied on the frivolous interpretation that the benefit be available only to someone who provides a complete package by themselves. Now, when the meaning of the term ‘tour operator’ is simple to clearly cover any person ‘engaged in the business of operating tours’, it is for such vague interpretation that is required to complicate the otherwise ‘Good and Simple Tax’. [Crown Tours and Travels AAR No. RAJ/AAR/2020-21/06 Dated 23.07.2020 (41) GSTL 70 - AAR GST-RAJ]


3) Whether ‘Money’ be seized in the course of inspection & search proceedings:

Section 67 of the CGST Act authorises the officers to search and seize any ‘documents’ or ‘books’ or ‘things’, which in his opinion shall be useful for or relevant to any proceedings under this Act. While the power to seize ‘documents’ or ‘books’ is understandable, but what would be covered within the meaning of the term ‘things’. Whether ‘things’ can also cover ‘Cash’. Recently, Hon’ble MP High Court relying on the rule of ‘purposive interpretation’ in the ‘Heydon’s case held that the term ‘things’ would also cover ‘Cash’ or ‘Money’ within its ambit. While this conclusion is drawn based on the ‘mischief rule’ i.e. a construction that suppresses the mischief and advances the remedy. The problem is if this #interpretation is strictly applied, then it can lead to damaging results in as much as department can straight away seize 'money' making a simple inquiry notice into a direct recovery proceedings breaching the entire scheme of natural justice inbuilt in the #law. We hope that such extreme measures of seizing 'cash' in an inspection proceeding is avoided without first establishing its usefulness or relevance and how its possession aids the examination. [Kanishka Matta v/s UOI WP No. 8204 of 2020 Dated 26.08.2020 2020 (42) GSTL 52 (MP)]


4) Whether ‘foreclosure charges’ levied by Banks takes the colour of a ‘service’ for being liable to service tax:

Premature termination of a loan results in loss of future interest income for the banks and to compensate for the same, an amount is debited as “foreclosure charges”. While the loan is a mere transaction in money and the interest arising thereof is exempt from tax net. However, the issue arises as to whether the ‘foreclosure charges’ partakes the colour of a separate service for being liable to service tax. Recently, larger bench of the tribunal precisely pointed that ‘Foreclosure charges’ are anti-thesis to lending and cannot be construed as ‘in relation to lending’. Even alternative mode of performance still contemplates the performance of a contract, whereas foreclosure leads to an express repudiation of a contract. Damages arising out of a contract cannot be understood as a consideration towards performance of a contract. The Indian contract act provides for ‘liquidated damages’ to be exercised upon breach of certain conditions of a contract and therefore foreclosure charges are at the most a compensation for disruption of a service and not a ‘consideration’ towards ‘lending’ any service, they not liable to service tax. [Commissioner of Service Tax v/s Repco Home Finance Limited Order No. 440053/2020 dated 08.06.2020 (Tri-LB) (42) GSTL 104]


5) Accumulated credit lying on closure of business, whether is refundable:

Accumulated credit lying on closure of business, whether is refundable? Now, this is important from the context of GST, where the very concept requires an assessee to pay tax only on the ‘value addition’ and the whole architecture is designed around this framework. Now, the problem comes when the ITC element surpasses the outward tax liability leading to accumulation of the tax credits due to various reasons. In a recent case, similar issue was faced by a 100% EOU, where the rebate claim under the erstwhile Central excise law was rejected leading to accumulation of Cenvat credit lying unutilised with no recourse of usage due to closure of factory. Hon’ble Madras High court while allowing the refund of the unutilised Cenvat credit, rightly pointed that there is no provision in the law which shows that the unutilised credit be allowed to accumulate & lapse. The decision holds the true spirit of the value add based taxation by allowing the refund based on the ‘VAT’ concept and denying the last mile squeezing of taxes in the name of unutilised input tax credits. [Leo Prime Comp Pvt. Ltd. vs Dy, Commr of Central Excise W.P. No. 10877 of 2017 decided on 07.20.2020 (Mad HC)] - 373 (ELT) 820 2020]


6) Whether an officer can take a different view than the one decided by the higher forum?

In the course of filing an appeal or making submissions before the lower authorities, an assessee would place reliance on various judicial precedents including the decisions of Hon’ble High Court/ Supreme Court. Despite detailed submissions, it is seen that the lower adjudicating authorities are least bothered. They would not only ignore it but also go on to state that they carry a different view. Due to high headed and a revenue biased approach, these authorities have not only lost respect for themselves but also made their functioning totally useless and futile in as much as that assesses have lost trust and have serious doubts over their judicial intellect. The important question is whether an officer can take a different view than the one decided by the higher forum. Recently, Cestat Delhi quoted a landmark ruling of the apex court stating that “It cannot be too vehemently emphasized that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities… The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department in itself an objectionable phrase. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws." [Union of India Vs. Kamlakshi Finance Corporation Ltd. 1991 (55) ELT 433 (SC)] & M/s Rohan Motors Ltd V/s Commissioner of Central Excise Dehradun Service Tax Appeal No. 53344 of 2015]


  • CA Ravi Kumar Somani

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