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2023 (4) TMI 590 - HC - GSTValidity of Clause (iii) of the impugned Notification No. 16/2017 - benefits of exemption from levy of GST on passenger transportation services by a non-air-conditioned stage carriage has been denied when such services/supply are availed through ECOs - supplies continue to be exempted when booking is made by consumers directly through bus operators (offline/online) or offline agents - violative of Articles 19(1)(g) and 21 of the Constitution - whether the impugned Notifications arbitrarily create a classification between the ECOs and the individual service providers solely based on the mode of booking availed by the consumer for availing the said service? - discrimination against the ECOs by denying the ECOs the benefit of exemption available to the individual service providers under the parent Notification. HELD THAT - The Supreme Court in R.K Garg 1981 (11) TMI 57 - SUPREME COURT held that the question which the Constitutional Court must address to itself is whether the classification made by the statute satisfies the test of real and substantial distinction or is it arbitrary and irrational and hence violative of the equal protection clause in Article 14 of the Constitution. The ECOs for the purpose of Section 9(5) and Section 52 of the Act of 2017 are entities, which are liable to collect and pay tax on the supplies made through it by other individual suppliers. Thus, Sections 9(5) and 52 of the Act of 2017 statutorily recognises the ECO as a class distinct from the individual supplier registered with the ECO - The ECOs under Section 9(5) are liable to pay tax for the services provided by individual suppliers through it, even when the said individual supplier is otherwise exempt from taxation under Section 22(1) read with 23(2) of the Act of 2017. Section 52 makes the ECOs liable to collect the amount of tax collected at source from suppliers, who have made supplies through the ECO. To enforce this obligation of the ECO, the individual supplier who is otherwise exempt from registration under Section 23(2) is required to obtain the compulsory registration under Section 24(ix) to enable the ECO to comply with the said obligation. This interplay of Section 24(ix) and 52 of the Act of 2017 also evidences the distinction between the supply of service through the e-platform of the ECO and the individual supplier, as a separate class of persons under the statute - A conjoint reading of the Sections 22(1), 23(2) and 24(ix) with the Notifications Nos. 17/2017 and 23/2017 shows that it is the underlying scheme of the Act that even when the individual supplier is per se exempt from levy of GST under Section 23(2), however, if the service is provided by the same said individual supplier through an ECO, the said services are exigible to levy of GST under Sections 9(5) and 52 of the Act of 2017 respectively. The services of radio taxi, motor cabs, maxi cabs and motor cycles are also available through the Uber App of Petitioner 1 and similarly, GST is being levied under Section 9(5) of the Act of 2017 on the fare of these cabs when booked through its App. Similarly, Petitioner 1 has not objected to the said levy of GST being discriminatory. The effect of the impugned Notifications in levying GST on the fare of an auto-rickshaw ride booked through the Uber App is identical and not discriminatory. ECOs seeking parity with the individual auto-rickshaw drivers and bus operators and therefore seek equality amongst unequals - HELD THAT - This Court is of the opinion that the classification of the ECOs like Petitioner 1 and 3, as a class of service providers, which are separate and distinct from the individual supplier is, therefore, statutorily classified and recognised in the provisions of the Act of 2017 and more specifically in Sections 9(5) and 52 of the Act of 2017 - In view of the statutory recognition in the Act of 2017 that the ECOs are a distinct category, the submission of the Petitioner 1 and 3 that an ECO is necessary entitled to all the exemptions, which are available to an individual service provider is incorrect. Hence, this Court is of the view that the impugned Notifications are not ultra vires to Sections 9(5) of the Act of 2017. Classification has a rational nexus with the object sought to be achieved by the Act of 2017 - HELD THAT - This Court is of the view that the object which has to be borne in mind for determining validity of the classification, which is the subject matter of challenge in the present petition is the objective of the GST law. The constitutional scheme of GST has been looked into by the Supreme Court, in UNION OF INDIA ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. 2021 (9) TMI 626 - SUPREME COURT , wherein it has been held that The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax - thus, the classification between ECO and the individual service provider has a rational nexus with the object sought to be achieved by the Act of 2017. The impugned Notifications does not result in an artificial discrimination and classification based on the mode of booking - HELD THAT - Petitioner 1 and 3 are not acting as agents of the auto-rickshaw drivers and the bus-operators. The ECOs charge commission to the registered driver partners and the bus operators for providing digital platform to connect with the potential consumers. This is in addition to the convenience charge, the ECOs collect from the consumer - the ECOs are an independent supplier of service to the consumer. And, the service provided by the individual supplier is only one facet of the bundle of services assured by the ECOs to the consumer booking through it. Hence, the impugned Notifications do not result in discrimination on the basis of the mode of booking - The Petitioner 1, 2 and 3 cannot claim exemption from taxation as a vested right. The Respondents are well within their power to withdraw the exemption granted previously under the unamended parent Notification - the challenge of the Petitioner 1, 2 and 3 to the impugned Notifications, cannot be accepted on the ground that they have a continuing right to claim exemption along with the individual suppliers - This Court is of the opinion that if Respondents have decided to withdraw the exemption from this distinct category of consumer who opts to use the ECO for making bookings, the same is well within their legislative purview. Since, the Petitioner 1, 2 and 3 have failed to prove that they are similarly placed with the individual suppliers to whom the exemption have already been granted, this Court is of the opinion that the Respondents are well within their purview to deny the exemption to the ECOs like the Petitioner 1 and 3 in view of the impugned Notifications. Instances of levying tax on other transportations facilitated through ECOs - HELD THAT - This Court is satisfied that the Respondents have sufficiently explained that since the services at categories a to d are those which are provided by the sovereign with an element of public welfare and subsidised rates, the decision to not levy tax on bookings made through ECO for the said services is based on public interest. The taxing event which attracts the levy of GST - HELD THAT - The scheme of the statute shows that Respondents are entitled to exclude a class of suppliers from the levy of tax under Sections 11, 22 and 23 of the Act of 2017 while the service or the goods itself may continue to be exigible to tax - The issuance of the impugned Notifications by the Respondents evidences that the service of transportation by mode of auto rickshaw and non-air-conditioned stage carriages when availed through ECOs has been made exigible to tax with effect from 01.01.2022. Even in the case of the ECO, though the supply of service of transportation through the auto-rickshaw or the bus continues to be provided by an individual supplier, the said supply of service when provided through the ECO has been made exigible to tax under Section 9(1) read with Section 9(5) of the Act as a taxable event under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 read with the impugned Notifications. The locus of the Petitioner - HELD THAT - The Respondents have raised an objection that Petitioner 2 which is a union has no locus to maintain the present petition. It is stated that since the withdrawal of the exemption effects the consumer using the auto rickshaw and since no consumer has objected to the said levy, the present petition is not maintainable at the behest of the Union. In this regard, reliance has been placed on a judgment of a coordinate Bench of this Court in Sitaram Mehto 2012 (9) TMI 1234 - DELHI HIGH COURT - the Respondents have also, on similar grounds, raised an objection that Petitioner 1 and 3 ECOs are not entitled to maintain the present petition since the levy has been made on the consumer and is payable by the rider. The conclusions drawn by this Court are as under a) the Clauses (iii) and (iv) of Notification No. 16/2021- Central Tax (Rate) and Clauses 1(i) and 2(i) of Notification No. 17/2021- Central Tax (Rate), both dated 18.11.2021 are not violative of Articles 14, 19(1)(g) and 21 of the Constitution; b) the impugned Notifications do not create an unreasonable classification on the basis of the mode of booking availed by the consumers; c) the Respondents are empowered to issue the impugned Notifications under Section 9(5) and 11 of the Act of 2017 and we are, therefore, unable to accept the challenge to the constitutional validity of the said notifications. Application disposed off.
Issues Involved:
1. Whether the impugned Notifications arbitrarily create a classification between the Electronic Commerce Operators (ECOs) and individual service providers solely based on the 'mode of booking' availed by the consumer for availing the said service. 2. Whether the impugned Notifications violate Articles 14, 19(1)(g), and 21 of the Constitution. 3. Whether the impugned Notifications are ultra vires to the Central Goods and Services Tax Act, 2017 (the Act of 2017). Summary: Issue 1: Classification Based on Mode of Booking The court held that the impugned Notifications do not create an unreasonable classification based on the 'mode of booking' availed by consumers. The provisions of the Act of 2017 recognize ECOs as a distinct and separate class from individual service providers. Sections 9(5) and 52 of the Act of 2017 create a statutory distinction, making ECOs liable to pay tax for services provided through their platforms, even when individual suppliers are otherwise exempt. The ECOs provide additional value-added services such as security, digital payments, and convenience, which justify the differentiation. Issue 2: Violation of Constitutional Articles The court found that the impugned Notifications are not violative of Articles 14, 19(1)(g), and 21 of the Constitution. The classification of ECOs as a distinct category has a rational nexus with the object of the GST law, which aims to tax every transaction of supply of goods and services. The exemption continues to apply to individual service providers who do not have the means to comply with the GST provisions, thereby ensuring a level playing field. Issue 3: Ultra Vires to the Act of 2017 The court held that the impugned Notifications are not ultra vires to Sections 9(5) and 11 of the Act of 2017. The Respondents are empowered to issue such notifications to withdraw exemptions conditionally. The ECOs cannot claim a vested right to exemptions, and the Respondents are within their legislative purview to withdraw the same. Conclusion: The court concluded that the impugned Notifications are valid and do not violate constitutional provisions or the Act of 2017. The petitions were dismissed, and the pending applications were disposed of.
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