2024 (11) TMI 371 - HC - GST

Challenge to SCN demanding GST on annuity payments - Constitutional validity of Circular No.150/6/2021 GST dated 17.06.2021 - contravention to Sl. No.23-A of Notification No. 12/2017-CT(Rate) dated 28.06.2017 (as amended) and the 22nd recommendations of the GST Council - HELD THAT - By the contents of the circular, the Entry of 23A in the Notification that the GST is exempt on service falling under Service Code 9967, by way of access to a road or a bridge on payment of annuity has been reaffirmed. Additionally, explained that the service code covers (a) supporting services in transport (b) operation services of National Highways, State Highways, Express Highways, Roads and streets, (c) bridges and tunnel operation services, by way of access to a road or bridge on payment of toll under Entry 23 of the Notification. In substance, the services enumerated in 23 and 23A for providing access to roads or bridges are exempted, whether the consideration is in the form of tolls or annuities. The clarification of the 43rd GST Council saved exemption to the service under 9967 in entry No.23A and held that the exemption does not cover any deferred/annuity payment for construction service. Therefore it has been announced that the construction of roads simplicitor is taxable service, though the payment is in full or annuity to the concessionaire. The council s reiteration preserved the exemption of the Service under the Code 9967 and enunciated that the taxable Service fall within the scope of heading 9954. A close reading of notification Nos. 12, 32 and 33 of 2017 in no way suggests that the entries 23 or 23A or 24A exempts the services under 9954 i.e. construction service of the highways, bridges, and so on - there is no intersection or overlap or contradiction of direction in the resolutions of the 22nd and the 43rd GST Council vis- -vis Notifications Nos. 12, 32 and 33 of 2017 and the impugned circular. In the present case, so many factors need determination to positively conclude the petitioner s claims and in the absence of any specific tenable ground demonstrating lack or error in the jurisdiction of the respondent department in the issuance of show cause notice or any other tenable ground necessitating interference of the Court at the stage of show cause notice and as there is also possibility of dropping the show cause notice considering the reply of the petitioner and on determination of facts, it is opined that interference at this stage is not warranted. Keeping open the claims of the petitioner to be presented before the appropriate authority and determination of contested facts, this writ petition is dismissed.

Summary

Issues Involved:

1. Legality of the Show Cause Notice demanding GST on annuity payments.
2. Validity of Circular No.150/6/2021 GST in relation to GST exemptions.
3. Jurisdiction and appropriateness of challenging a show cause notice via writ petition.

Issue-wise Detailed Analysis:

1. Legality of the Show Cause Notice:

The petitioner challenged the Show Cause Notice No.5/2023-24 dated 28.04.2023, which demanded GST on annuity payments received for the period September 2017 to September 2022. The petitioner argued that the annuity payments were exempt from GST under Sl. No.23A of Notification No. 12/2017-CT(Rate) dated 28.06.2017, as amended by subsequent notifications. The petitioner contended that the annuity payments were akin to toll charges, which were exempt from GST, and that the construction and maintenance services were completed before the GST Act, 2017 came into force. The respondent department, however, argued that the services rendered by the petitioner fell under Service Accounting Code (SAC) 9954, which pertains to construction services and is not exempt under the GST notifications. The court found that the determination of whether the services fall under the exempt category requires a fact-finding exercise, which cannot be conducted in a writ petition.

2. Validity of Circular No.150/6/2021 GST:

The petitioner sought to declare Circular No.150/6/2021 GST as ultra vires, arguing that it contradicted the exemption notifications and the 22nd GST Council's recommendations. The circular clarified that GST is not exempt on annuity payments for road construction services, which fall under SAC 9954. The court held that the circular did not contradict the GST Council's resolutions or the notifications, as it merely clarified that the exemption under Entry No.23A applies only to services under SAC 9967 and not to construction services under SAC 9954. The court disagreed with the Karnataka High Court's judgment, which had quashed a similar circular, and upheld the validity of the circular.

3. Jurisdiction and Appropriateness of Challenging a Show Cause Notice:

The court emphasized that ordinarily, a writ petition should not be entertained against a show cause notice, as it does not constitute an adverse order affecting rights unless it is issued without jurisdiction or is otherwise illegal. The court cited several Supreme Court judgments underscoring this principle. The petitioner failed to demonstrate any jurisdictional error or other exceptional circumstances warranting interference at this stage. The court noted that the petitioner could present its claims before the appropriate authority in response to the show cause notice, which might result in the notice being dropped. Consequently, the court dismissed the writ petition, allowing the petitioner to submit an explanation to the respondent authority within four weeks.