Supreme Court
Withdrawal of tax rate concessions by the Government, cannot be subject to judicial scrutiny
The Supreme Court of India ("Supreme Court"), in the case of Union of India vs. ABP Pvt. Ltd. and Anr.1 ruled on the scope of judicial scrutiny in respect of withdrawal of concessional tax rates by the Government of India ("GoI"). ABP Pvt. Ltd. ("Respondent") was engaged in importing specific printing machines, eligible for concessional rate of customs duty at the rate of 5%2, which was subsequently withdrawn by the GoI3. The Respondent filed the bills of entry for import of printing machines, in accordance with the notification providing concessional rate of customs duty. However, due to the withdrawal of the concessional rate, the Respondent was ineligible for such benefit. Aggrieved by the withdrawal of the concessional rate, the Respondent filed a writ petition before the High Court of Calcutta ("Calcutta HC") seeking to declare the withdrawal of the concessional rate of customs duty to be ultra vires.
The Calcutta HC set aside the notification (withdrawing concessional rate of duty) on the ground that no intelligible differentia existed for granting concession on one type of machinery and withdrawing concession for other types of machinery, directing the government to allow concessional rate of customs duty to the Respondent. Aggrieved by the ruling of the Calcutta HC, the authorities approached the Supreme Court.
The petitioner contended that there is no vested right in the concession provided to a taxpayer and such concession can be withdrawn at any time, also no timelimit should be insisted upon before it is withdrawn. The Supreme Court agreed with the arguments of the revenue authorities and held that issuance and withdrawal of any fiscal benefit is within the ambit of the executive and such withdrawal cannot be subject to judicial review.
No service tax payable on user development fee payable at international airport
The Supreme Court in the case of Central GST Delhi vs. Delhi International Airport Ltd4., ruled upon the taxability of user development fee collected by the airport operation and maintenance entities. Delhi International Airport ("DIAL") entered into a joint venture arrangement with the Airports Authority of India ("AAI"), whereby DIAL was required to undertake activities, enjoined upon the AAI under the AAI Act5, for the purpose of operation, management and development of the airports. A demand was raised by the service tax authorities on the ground that development fee collected by DIAL from the passenger will be subject to service tax. The demand was confirmed at the adjudication level, which was challenged by DIAL before the CESTAT6.
CESTAT Mumbai held that 'user development fee' levied and collected by the airport operation, maintenance, and development entities from passengers was a statutory levy and therefore cannot be subjected to service tax. It was further observed by the CESTAT that such development fee was collected for the purpose of upgradation and renovation of airports and not for providing any services. Revenue authorities challenged the order of the CESTAT before the Supreme Court.
The Supreme Court held that as per the economic policies of GoI, the upgradation and renovation of airports are funded through user development fee, which is a statutory levy. Further, the fact that user development fees are not deposited in a government treasury, per se, does not make it any less a statutory levy or compulsory exaction. The respondent was authorised by notifications issued by the GOI under Section 22A of the AAI Act to collect the 'development fee'. The Supreme Court noted that the fee was collected to bridge the funding gap of project cost for the development of future establishment of the airports. Therefore, it was held that user development fee collected by the respondent is not subject to levy of service tax.
JSA Comment: While the ruling is issued in the context of levy of service tax on the user development fee charged by the AAI, the ratio of this judgement could be extended in respect of levy of GST7 on other statutory levies or licence fees, etc. which is already in dispute in some of the instances.
Designs imported in paper form are taxable as services and not goods - same activity can be taxed as goods and services
In the case of Commissioner of Customs, Central Excise and Service Tax vs. Suzlon Energy Ltd.8, the assessee was engaged in manufacturing of Wind Turbine Generators ("WTG") and entered into an agreement with its sister concern in Germany for import of engineering, Design & Drawings ("Designs") of various models to be used in manufacturing of WTG in India. The assessee imported and cleared the said Designs in a blueprint form on paper and claimed benefit of nil rate of customs duty. Further, the assessee adopted a tax position that the imported Designs were to be included in value of goods, and not to be treated as services, and therefore, there was no requirement of paying service tax on the same.
An audit was conducted by the authorities and an SCN9 was issued to the assessee, for the period June 2007 to September 2010, demanding service tax on import of the Designs under the category of 'design service' of the erstwhile service tax law10. The adjudicating authority confirmed the said demand, along with interest and penalty. Subsequently, the assessee preferred an appeal before the CESTAT, wherein it was held that Designs imported in the form of paper are goods and not services. It was further held that the taxation of goods and services are mutually exclusive, and therefore the same activity cannot be taxed as both goods and services.
Aggrieved by the order of the CESTAT, the authorities preferred an appeal before the Supreme Court. However, the Supreme Court ruled against the assessee and held that the Designs imported from sister companies are classifiable as 'design service' and leviable to service tax, based on the following observations:
- designs may be shown as goods in a bill of entry under the Customs Act11. However, this by itself cannot lead to exclusion of such Designs from the purview of the definition of design service;
- there is a distinction between sale of goods and contract of services. Therefore, the intention of the contracting parties must be ascertained as to whether the contracting parties intend to transfer both goods and services, either separately or in an indivisible composite manner; and
- as per the aspect theory, different aspects of a transaction can be taxed through separate provisions. Therefore, service tax can be levied on the aspect of services, and further the same activity can be taxed both as goods and services, provided the contract is indivisible.
JSA Comment: This is an important ruling given the fact that industry has adopted a position that once an activity is taxed as goods, the same cannot be levied to service tax or GST as services due to mutual exclusivity of scheme of taxation for goods and services. This ruling of the Supreme Court could result in past period liability for businesses which needs to be analysed and dealt with.
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Footnotes
1. 2023 (5) TMI 620
2. Notification No 86 of 2003 (Cus) Classification, dated May 28, 2003
3. Notification No 164 of 2003 – Customs, dated November 11, 2003
4. 2023 (5) TMI 867
5. Airports Authority of India Act,1994
6. Central Excise and Service Tax Tribunal
7. Goods and Services Tax
8. 2023 (4) TMI 409
9. Show Cause Notice
10. Section 65(35b) read with Section 65(105) (zzzzd) of the Finance Act, 1994
11. Customs Act, 1962
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