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2024 (8) TMI 1453 - HC - GSTLegality of SCN demanding IGST - Levy of GST on the activity of holding equity capital by the Holding Companies in the Petitioner company and on the ECB received by the Petitioner from AOSH - HELD THAT - Though the petitioner submitted a response on 16.01.2023 specifically referring to the aforesaid Notification dated 28.06.2017, respondents have not considered nor referred to the same in the impugned Show cause Notice. Consequently, the same deserves to be quashed and matter remitted back to respondent No.3 for reconsideration after providing an opportunity to the petitioner to the limited extent of Table No.IX referred to in the impugned Show Cause Notice. The impugned SCN insofar as it relates to proposal to levy/demand GST under the heading Continuous Equity Share holding is hereby quashed - the impugned SCN relating to proposal to levy / demand GST under the heading Value of the Credit Grant in Service determined as a service fee @1% is concerned, petitioner is reserved liberty to submit its response / reply to the same within a period of four weeks from today. Petition allowed.
Issues Involved:
1. Quashing of the Show Cause Notice demanding IGST. 2. Legality of GST levy on holding equity capital. 3. Legality of GST levy on ECB received by the petitioner. 4. Clarification on exemptions from GST for certain financial activities. Issue-wise Detailed Analysis: 1. Quashing of the Show Cause Notice demanding IGST: The petitioner sought a writ to quash the Show Cause Notice No. DCCT/AUDIT/GST/73/2022-23 T.No.490 dated 04.02.2023, which proposed to demand and recover IGST amounting to Rs. 4,12,17,787/- along with interest and penalty for the period July 2017 to March 2018. The petitioner argued that the demands were not sustainable in law and relied on several documents, including notifications and circulars, which exempted certain financial activities from GST. Despite detailed objections submitted by the petitioner, the respondents proceeded to issue the impugned Show Cause Notice, which the petitioner claimed was illegal, arbitrary, and without jurisdiction. 2. Legality of GST levy on holding equity capital: The petitioner contended that the levy of GST on the activity of holding equity capital by the Holding Companies in the petitioner company was illegal and without jurisdiction. The court referenced the judgment in M/s. Yonex India Private Limited Vs. Union of India and others, which clarified that mere holding of shares by the holding company in the subsidiary company cannot be classified as a 'supply of service' and thus cannot attract GST. The court held that the impugned order based on this premise was illegal, arbitrary, and without jurisdiction, and thus deserved to be quashed. 3. Legality of GST levy on ECB received by the petitioner: The petitioner also challenged the levy of GST on the ECB (External Commercial Borrowing) received from AOSH. The court noted that the Central Board of Indirect Taxes and Customs had issued a Circular dated 26.06.2024, clarifying that extending deposits, loans, or advances insofar as the consideration is represented by way of interest or discount, is exempt from GST. The court held that the proposal to levy tax in respect of Table No. IX in the Show Cause Notice was illegal and deserved to be quashed. 4. Clarification on exemptions from GST for certain financial activities: The court referred to the Notification No. 9/2017 dated 28.06.2017, which exempted extending deposits, loans, or advances insofar as the consideration is represented by way of interest or discount from GST. The court also referenced the Circular dated 26.06.2024, which reiterated that such financial activities are exempt from GST. The court noted that the respondents had not considered these exemptions in the impugned Show Cause Notice and thus quashed the notice to the extent it proposed to levy GST on exempted activities. The matter was remitted back to respondent No.3 for reconsideration with an opportunity for the petitioner to submit a response. Order: (i) The petition was allowed. (ii) The impugned Show Cause Notice dated 04.02.2023 was quashed insofar as it related to the proposal to levy/demand GST at Table No. VII. (iii) The petitioner was given liberty to submit a response to the proposal to levy/demand GST at Table No. IX within four weeks. (iv) The respondents were directed to consider the petitioner's response in light of the Notification dated 28.06.2017 and Circular dated 26.06.2024.
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