NO SERVICE TAX ON LIQUOR LICENSE FEE-TAX PAID REFUNDABLE

[Dr. Sanjiv Agarwal]

Services proved by the Government to business entities including by way of grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment of consideration in the form of fee, royalty etc. are taxable under GST. Same was the position under Service Tax regime also with effect from 1st April, 2016 where Tax was required to be paid by the business entities on such services under reverse charge.

Grant of liquor licences by State Government against payment of consideration in the form of licence fee, application fee etc. was a taxable service under Service Tax, therefore to implement GST Council’s recommendation, Central Government decided to exempt service provided or agreed to be provided by way of grant of liquor licence by the State Government, against consideration in the form of licence fee or application fee, by whatever name called, during the period from 01.04.2016 to 30.06.2017. Clause No. 117 of Finance Act, 2019 made the necessary amendment in this regard.

Thus, by virtue of this amendment, any such fee by whatever name called, became refundable if refund was sought by the assessee within a period of six months from the date of enactment, i.e. from 01.08.2019.

In one of the recent Cestat order dated 01.02.2022,  in the case of M/S. RAMBAGH PALACE HOTEL PVT. LTD. VERSUS COMMISSIONER, CENTRAL EXCISE & CGST, JAIPUR-I [2022 (2) TMI 1074 - CESTAT NEW DELHI], assessee was allowed refund of Service Tax paid under reverse charge mechanism on license fee paid for grant of license to the State Government.

The brief facts and grounds of Rambagh case are summarized below:

Facts

• Appellant is a luxury hotel at Jaipur and after revenue audit, had deposited Service Tax along with interest on Liquor License Fee paid to the State Government amounting to ₹ 261762 for the period 2016-17.
• Amount was paid under Reverse Charge Mechanism (RCM) on 18.11.2017.
• Finance Act, 2019 inserted clause 116 providing retrospective exemption to all such tax paid on Liquor License Fee. Service tax paid thus became refundable.
• Appellant applied for refund which was sanctioned and disbursed after issuance of SCN and adjudication thereof.
• It was reviewed and revenue appeal filed before Commissioner (Appeal) which was decided in revenue favour, rejecting the refund already granted.
• Department also issued another SCN seeking refund of erroneously sanctioned refund, pending adjudication as on date.
• Aggrieved, Rambagh hotel filed the instant appeal, which has been decided holding and confirming the refund to be in order.

Grounds of Defense in Brief

• Main issue of rejection – unjust enrichment
• Retrospective exemption from levy of service tax on grant of liquor license vide section 116 of Finance Act, 2019 made applicable for the period from 01.04.2016 to 30.06.2017. The amounts of service tax paid during said period were allowed to be refunded within six months from enactment of Finance Act, 2019 i.e., six months from 01.08.2019, upto 01.01.2020
• Order-in-Original No. 26/ST/Ref/2019 dated 27.12.2019 in favor that the Respondent has rightly claimed the refund of service tax.
• It is submitted that the service tax was paid under reverse charge as service tax was payable for services provided by Government (Liquor License fees) and therefore, there is no question of such service tax being recovered from any customer or anybody else whatsoever. The said amount has been treated as business expenditure and booked accordingly.

The Tribunal observed / asserted / held as follows:

• The payment of service tax was held to not to be the liability of the appellant any more in terms of the amendment introduced by Finance Act, 2019 provided that the levy pertains to the period from 01.04.2016 to 30th June, 2017.
• The refund claim to which appellant become entitled pursuant to the introduction of retrospective amendment was filed within the stipulated time period of 6 months of coming into effect the Finance Act of 2019.
• Apparently and admittedly, present case was not the case of alleged duty evasion. Rather the payment of service tax for the Financial Year 2017-18 admittedly was made by the appellant though subsequently, but with respect to the liability that accrued during the period mentioned in clause 116 of Finance Act, 2019 which came into effect from 01.08.2019.
• There was utmost compliance of all statutory provisions on part of the appellant. There appears no evasion of duty. Question of malafide intent on part of the appellant, in the given circumstances, also did not appear. More so, Department did not issue any Show Cause Notice at the relevant time proposing imposition of penalty or for proposing the duty demand against the appellant. The impugned refund has also been filed in utmost compliance of the provisions of law i.e. the amendment by Finance Act, 2019.
• The impugned refund would not have ever been applied had there not been an amendment in Finance Act, 2019, that too with the retrospective effect. The said amendment since came two years later, also the duty was not paid at the appropriate time but payments was made later after it was pointed by the audit team, that too, under reverse charge mechanism. Hence, from no stretch of imagination, it can be presumed that the burden of said payment would have been passed on to the customers.
• The only reason for such presumption is that the aforesaid amount has been shown as an expense in profit and loss account by the appellant. Since the payment was made under RCM there appears no error on part of appellant when the said payment is shown as expense in the profit and loss account.

• MAFATLAL INDUSTRIES LTD. VERSUS UNION OF INDIA [1996 (12) TMI 50 - SUPREME COURT] case was distinguished as:

• Apex Court had held that any amount which was deposited during investigation and was shown as expenditure in profit and loss account the same has to be considered a Central Excise Duty and the principles of unjust enrichment shall apply for refund of such amount.
• Said decision is not applicable to the present case, for the reason that in Maffatlal case, the amount was shown as expense in PLA with an object of claiming reduction under section 43 of Income Tax Act, 1961 which is not the fact for the present case.
• Most importantly the peculiar distinguishing fact of the present case is that the service tax was paid under the then prevalent law in the year 2017, but the refund was claimed under the amended law denying levy on liquor license fee that too with retrospective effect.
• Unless and until there is the evidence produced by the Department to prove that the burden of the impugned amount stands passed on by the appellant to its customers, the applicability of principle of unjust enrichment cannot be presumed.
• Since the refund has been filed only due to the introduction of the said clause, the said principle otherwise also cannot be implied that too, for the purpose of rejecting the refund claim which is made permissible under the said clause due to the element of retrospectivity therein.
• Commissioner (A) has failed to appreciate the Chartered Accountants Certificate dated 17.11.2019 as was issued by the statutory auditors of the appellant alongwith the relevant pages of the balance-sheet for the year 2016-17 and 2017-18.
• Commissioner (Appeals) has committed an error by holding the refund to hit by unjust enrichment merely on presumptive basis. No relevant evidence at all been discussed by him while coming to the said conclusion. Rather, the relevant evidence as was considered by Original adjudicating authority has miserably been ignored by the Appellate Authority.

Thus, it was held refund was rightly sanctioned by the original adjudicating authority and the refund does not get hit by the principle of unjust enrichment. The appeal was, therefore, allowed.

Position under GST

GST Council in its 26th meeting held on 10.03.2018, recommended that GST was not leviable on license fee and application fee, by whatever name it is called, payable for alcoholic liquor for human consumption and that this would apply mutatis mutandis to the demand raised by Service Tax/Excise authorities on license fee for alcoholic liquor for human consumption in the pre-GST era, i.e. for the period from 01-04-2016 to 30-06-2017.

Further, GST Council in its 37th meeting held on 20.09.2019 further recommended that the decision of the 26th GST Council meeting be implemented by notifying service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee or by whatever name it is called, by State Government as neither a supply of goods nor a supply of service. Therefore, in exercise of powers conferred under sub-section 2 (b) of section 7 of CGST Act, 2017, Notification No. 25/2019-Central Tax (Rate) dated 30th September, 2019 has been issued.

GST Council further decided in the 37th meeting held on 20.09.2019, to clarify that this special dispensation applies only to supply of service by way of grant of liquor licenses by the State Governments as an agreement between the Centre and States and has no applicability or precedence value in relation to grant of other licenses and privileges for a fee in other situations, where GST is payable.

Retrospective Amendment made by Finance Bill, 2022 in CGST / IGST / UTGST [Clause 117, 120 and 123 of Finance Bill, 2022]

The summary of these amendments is as follows:

• Clause 117 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 746(E), dated the 30th September, 2019 with effect from the 1st day of July, 2017.
• Clause 120 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 745(E), dated the 30th September,2019 with effect from the 1st day of July,2017.
• Clause 123 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 747(E), dated the 30th September, 2019 with effect from the 1st day of July, 2017.
• Thus, Notification No. 25/2019-CT (Rate) dated 30.09.2019 shall have retrospective effect from 01.07.2017. The said Notification No. 25/2019-CT (Rate) dated 30.09.2019 declares that “services by way of grant of alcoholic liquor license against consideration in the form of license fee or application fee or by whatever name it is called” shall neither be treated as supply of goods or supply of services.
• Similar retrospective amendment has been proposed in respect of Notification 24/2019-IT(Rate) dated 30.09.2019, vide clause 120 of the Finance Bill.
• Similar retrospective amendment has been proposed in respect of Notification 25/2019-UTT (Rate) dated 30.09.2019, vide clause 123 of the Finance Bill.
• However, no refund shall be made of all such taxes which have been collected but which would not have been so collected, had the notification been in force during relevant period. The tax already paid shall not be refunded (as if it may always be considered as a cost incurred for being honest taxpayer).
• It implies that tax collected / paid between 01.07.2017 and 30.09.2019 will not be refunded now, i.e., those who have paid will not get refund but those who did not paid till now need not pay such tax.

The above amendments goes on to imply that no GST was ever leviable on supply of services by way of grant of grant of alcoholic liquor licence against any consideration in the form of licence fee or application fee or by whatever name it is called as such supply shall w.e.f. 07.07.2017 never be treated as supply of goods or supply of services.