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TMI Blog2021 (8) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... /JP/ 84/IX/20/ ZY0805200179261, dated 20-5-2020 March, 2018 Refund rejected Rs. 4,98,41,700/- 2 APPL/JPR/CGST/JP/ 85/IX/20/ ZZ0805200179249, dated 20-5-2020 April, 2018 Refund rejected Rs. 1,54,52,949/- 3 APPL/JPR/CGST/JP/ 152/XII/20/ ZV0809200299165, dated 20-9-2020 July, 2018 Refund rejected Rs. 3,62,76,476/- 2. Brief facts of the case : 2.1 The appellant having GSTIN No. 08AAACB2100P1ZX is engaged in providing telecommunication services all across India with its offices in different States has filed refund claims under Section 54 of CGST Act, 2017 in respect of Tax paid inadvertently to the government exchequer. 2.2 On examination of refund claims filed by the appellant the adjudicating authority observed and has issued a show cause notices in Form GST-RFD-08, dated 28-4-2020, 28-4-2020 and 26-8-2020 respectively wherein following reasons have been mentioned. Further, directed to the appellant to furnish a reply to the notice within fifteen days from the date of service of the notice. "GST is not exempted on leasing and renting services with or without operator as per Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. Thus the refund is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-2020 and 20-9-2020 respectively has passed the orders-in-original and rejected the refund claims as inadmissible as Service is not exempted from GST for the period and amount mentioned at above in Para-1 in column No. (4) and (5) filed by the appellant. 4. Being aggrieved with the impugned orders dated 20-5-2020, 20-5-2020 and 20-9-2020, the appellant has filed these appeals on the following grounds which are summarized as under :- that the transaction is not a 'supply'; * that the Appellant submits that such transaction made by the Government is not a supply itself. The Appellant seeks to refer the relevant section wherein the term supply is defined. Section 7 of the CGST Act explains the scope of supply. In this regard, Section 7(1) provides that the expression "supply" includes - (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 4 of Indian Telegraph Act is precisely clear while mentioning that the exclusive privilege of establishing, maintaining and working telegraphs is with the Central Government and it is just that the Government is sharing its privilege to private entities such as Appellant. * that by issuing telecom license, DoT, Ministry of Communication, Government of India, is parting with it exclusive privilege and regulates the telecommunication services in discharge of its statutory functions which cannot be said to be rendition of any service. There is no quid pro quo in this transaction and therefore subsequently there is no 'supply'. The license has no connection with any services being provided or to be provided by the DoT in return for consideration in the form of fees paid by the Appellant. * that the regulatory fees by the Government because of allocation of spectrum by DoT to the appellant under Telegraph Act cannot be considered as an activity under GST Act. It is well settled law that such activity for distribution of a natural resource undertaken by the Government as a custodian of the natural resource and payment received by the government against the same cannot be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby creating charge of GST on activities of the government are manifestly arbitrary, unreasonable and in contravention of Articles 14, 19(1)(g), 246A and 265 of the Constitution of India. * that the Respondent contends that the refund is rejected as the service is not exempted from GST. It is submitted that an activity can be exempted from the levy of GST only if such a transaction falls under the meaning of supply under Section 9(1) of CGST Act. * that the appellant submits that for an activity to fall under Section 9(1) of CGST Act, all the following preconditions have to be satisfied simultaneously - (a) There must be a supply of goods or services (b) There must be a value/consideration for such supply (c) There must be a taxable event * that an activity is chargeable to tax under Section 9(1) of CGST Act, 2017 only when the above conditions are fulfilled. In the instant case, payment of LF/SUC does not satisfy the first condition itself and hence the question of chargeability (whether exempt or not) does not arise * that definition of exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassification of services as specified in column (2), shall be levied at the rate as specified in the corresponding entry in column (4), subject to the conditions as specified in the corresponding entry in column (5) of the said Table TABLE Sl. No. Chapter, Section or Heading Description of Service Rate (per cent.) Condition (1) (2) (3) (4) (5) 17 Heading 9973 (Leasing or rental services, with or without operator) Temporary or permanent transfer or (i) permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software. 6 - Temporary or permanent transfer or (ii) permitting the use or enjoyment of Intellectual Property (IP) right in 9 - respect of Information Technology software. [Please refer to Explanation no. (v)] Transfer of the right to use any goods (iii) for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Same rate of union territory tax as on supply of like goods involving transfer of title in goods - Any transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the applicable tariff on those services. * that the tariff list provided under the rate notification is divided into various categories depending on the nature of services. Also, the broad category are further divided into various sub-categories which deal with carious elements of such broad category. Therefore, for classifying a particular service, it has to be necessarily be determined whether the said service is classifiable under one of the broad category and then only, further sub-classification be resorted to and should not be considered for residual category. * that in this case in hand, the most appropriate tariff classification of the transaction is in nature of licensing/assignment of the right to use telecommunication spectrum for providing telecommunication service. Since the services of leasing, which as per the Annexure - Scheme of Classification of Service indicates, includes services of licensing, are specifically covered under the broad category/Heading 9973. * However, on a reading of Heading 9973 of the rate notification, ibid, none of the sub-categories, specifically covers the services of licensing of assigning the right to use spectrum. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty Act, 1882 to define that lease is a transfer of right of an immovable property to enjoy such property and whereas the term rent is also associated with leasing service and in turn is associated with immovable property only. * that in common parlance renting service never associated with intangible property and therefore the terms 'leasing' or 'rental' do not cover grant of license under Section 4 of the Telegraph Act. Licensing service is a mere permission. A lease or rent is a transfer of an interest in a specific immovable property, while licence is a bare permission, without any transfer of an interest. A lease or rent creates an interest in favour of the lessee with respect of the property, but a licence does not create such an interest. As such no GST can be levied on the License Fees payable by the Appellant under the newly introduced residuary entry too. * that without prejudice to the above, even if in the event it is held that the grant of license is covered by the term 'leasing or renting' under the newly introduced residuary entry, the same shall apply only from 1-1-2019 since the entry is not retrospectively introduced and therefore no tax was leviable till 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the appellant has cited various case laws in their defence are as under :- United Telecoms Ltd. v. CST, Bangalore-I as reported in 2020-TIOL-811-CESTAT-BANG = 2020 (43) G.S.T.L. 521 (Tri. - Bang.) State of Andhra Pradesh v. V. Prabhakara Reddy, (1987) 2 SCC 136 CCE v. WIMCO Ltd. - 2007 (217) E.L.T. 3 (S.C.) and Grasim Industries v. Union of India - 2011 (273) E.L.T. 10 (S.C.). Indian National Shipowners' Association v. UOI as reported in 2009 (14) S.T.R. 289 (Bom). Kranti Associates (P) Ltd. v. Masood Ahmed Khan, (2010) 9 SCC 496 = 2011 (273) E.L.T. 345 (S.C.) Siemen Engineering & Mfg. Co. Ltd. v. Union of India, AIR 1976 SC 1785 5. Personal hearing in virtual mode through video conference was held on 5-2-2021. Miss Richa Gupta, Authorized Representative of the appellant appeared for personal hearing. She reiterated the written submission and explained the case in details. She pleaded for all the three appeals. In view of the written as well as oral submission she requested for early decision in the matter. 6. I have gone through the facts of the case and the written submissions made by the appellant in their appeal memo as well as also oral submission a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trum" CBIC has issued a Circular No. 192/02/2016-Service Tax, dated 13-4-2016 wherein at S. No. 9 of the table it was clarified that 'any periodic payment required to be made by the assignee, such as Spectrum User Charges, license fee in respect of spectrum, shall be taxable.' As per Cambridge dictionary the term 'license' has been defined as : "to give someone official permission to do something" As per appeal memo in terms of Section 4 of the Telegraph Act, "The Central Government shall have the exclusive privilege of establishing, maintaining and working telegraphs : Provided that the Central Government may grant a licence, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain or work a telegraph within any part of India. Granting permission for carry out the establishing, maintaining and working telegraphs and allocation of spectrum is a service which falls under HSN Head 997338 which specifically defines "Licensing services for right to use other natural resources including telecommunication spectrum". In the instant case, consideration in the form of LF and SUC is also available. In view of the above, it is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held that these charges are regulatory fee. Further, as per Section 4 of the Telegraph Act "The Government merely grants/delegates permission of carrying out the establishing, maintaining and working telegraphs". Granting permission for carry out the establishing, maintaining and working telegraphs and allocation of spectrum is a service which falls under HSN Head 997338 which specifically defines "Licensing services for right to use other natural resources including telecommunication spectrum". If no GST is leviable on grant of license then why a service category at HSN Head 997338 as "Licensing services for right to use other natural resources including telecommunication spectrum" has been specified in the GST Act. Thus, it can be concluded that such type of services 'License Services for right to use other natural resources including Teleservices Spectrum' are not regulatory fee and are taxable as per GST law under the specific Head 997338 meant for such services. (c) In respect of issue at S. No. (c) I find that : &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the telegraph authority all or any of it its powers under the first proviso to sub-section (1). Definition of LF & SUC : 8. Further, the telecom sector was liberalised under the National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee. To provide relief from the steep fixed license fee, the government in 1999 gave an option to the licensees to migrate to the revenue sharing fee model. Under this, mobile telephone operators were required to share a percentage of their AGR with the government as annual License Fee (LF) and Spectrum Usage Charges (SUC). License agreements between the Department of Telecommunications (DoT) and the telecom companies define the gross revenues of the latter. AGR is then computed after allowing for certain deductions spelt out in these license agreements. The LF and SUC were set at 8 per cent and between 3-5 per cent of AGR respectively, based on the agreement. LF & SUC has also been defined in Para 18.2 & 18.3 respectively of the Unified License Agreement as : "18.2 License Fee : 18.2.1 In addition to the Entry Fee, an annual License fee as a percentage of Adjusted Gross Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of LF and SUC paid by the appellant to the government is 'consideration' as per clause (31) of Section 2 of CGST Act, 2017 which cover all the elements specified under ibid section of the Act. There are service provider as well as service recipient and the element of consideration is also involved in the instant case. Hence, the taxability is fasten on these payments as per GST Act. (d) In respect of issue at S. No. (d) I find that : On perusal of Tax Invoice filed with appeal memo, it reveals that appellant has paid GST under the HSN Head 9973, under Reverse Charge Mechanism, meant for 'Leasing or rental services with or without operator' which is proper head for the services of 'Grant of License' and 'Allocation of Spectrum'. As per Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 rate of GST is defined at S. No. 17 against clause (vi). HSN sub-heading 997338, meant for "Licensing services for right to use other natural resources including telecommunication spectrum" is the proper classification of the nature of service in question. Service tax codes is specified for the service under question as tabulated below : Sl. No. Chapter, Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices, with or without Same rate of Central Tax as on (viia) Leasing or renting of goods Same rate of Central Tax as on operator, other than (i), (ii), (iii), (iv), (v), (vi) and (vii) above supply of like goods involving supply of like goods involving (viii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi), (vii) and (viia) above 18 Discussion : 1. Heading 9973 of scheme of classification of services under GST includes "Group 99733 : the licensing services for the right to use intellectual properly and similar products". However, the rate notification No. 11/2017-C.T. (R), dated 28-6-2017, prescribes rate only for transfer or permitting the use or enjoyment of Intellectual Property Rights (IPR). No rate has been prescribed for transfer of intellectual property and similar products other than IPR. IPR, as held in several decisions of the Tribunal and the Courts, refers to rights in intellectual property protected by the relevant IPR law in force. Intellectual property not protected by IPR law in force cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was implicit. Clarificatory notifications have been issued to end the dispute between the parties." From the above discussion, the fact to be appreciated is that the rate amendments carried out vide Notification No. 27/2018-Central Tax (Rate), dated 31-12-2018 is nothing but to clarify the legislative intent as well as to resolve the unintended interpretations. Hence, the rate of tax specified vide Notification No. 27/2018-Central Tax (Rate), dated 31-12-2018 is very much applicable to the disputed period and as such the prevalent rate, at which appellant has paid, found in order. (e) In respect of issue at S. No. (c) I find that : In this regard, I am agree with the contention of the appellant that the order is non-speaking order. However, I am also in the view that "Licensing services for right to use other natural resources including telecommunication spectrum" is specified in HSN sub-heading 997338, whereby taxability of said service has been fastened as per Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. Since, taxability o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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