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TMI Blog2025 (4) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... A Mahesh Chowdhary., Advocate). For The Respondents: (By Sri. K Hema Kumar, AGA). ORAL ORDER In W.P. No. 2552/2024, petitioner seeks for the following reliefs:- "a) Issue a writ of certiorari or any other writ or direction or order to quash Form GST DRC-01 No. ADCOM/ENF/SZ/ACCT-17/SUM-01/2023-24 dated 30.10.2023 for the period 2019-20 issued by the Respondent No.1 is enclosed as Annexure-A. b) Issue a writ of certiorari or any other writ or direction or order to quash impugned show cause notice dated 30.10.2023 bearing no. ADCOM/ENF/SZ/ACCT-17/SUM-01/2023-24 for the period of 2019-20 issued by the Respondent No.1, enclosed as Annexure-A1 for the reasons stated in the grounds. And c) Grant such other consequential reliefs as this Honourable High Court may think fit including refund of amounts paid with interest, If any and the cost of this writ petition." In W.P. No.17524/2024, petitioner seeks for the following reliefs:- "a) Issue a writ of certiorari or any other writ or direction or order to quash summary of order in Form GST DRC-07 bearing No. ZD290324053076F dated 20/03/2024 issued by the Respondent No. 2, is enclosed as Annexure-A. b) Issue a writ of certiorari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hence unconstitutional. b) Declare the act of Respondent of issuing the impugned order vide Annexure-A is bad in law. c) Any other relief/s as this Hon'ble Court deems fit in the interest of justice and equity." 2. Since common questions of law and fact arise for consideration in all the petitions, they are taken up together and disposed of by this common order. 3. Briefly stated the facts in these petitions are as under:- The petitioners were owners of immovable properties which were acquired by the KIADB for the benefit of the BMRCL for the purpose of construction of Bangalore Metro Rail Project under the provisions contained in Section 28 of the KIAD Act. In pursuance of the same, the BMRCL offered package compensation to the petitioners, who accepted the same and entered into Agreements with the KIADB under Section 29 (2) of the KIAD Act and received compensation towards acquisition of the lands. Subsequently, the respondents -revenue issued the impugned show cause notices calling upon the petitioners to pay GST towards the solatium component of the package compensation received by the petitioners. The petitioners having issued replies to the impugned show cause noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned show cause notices and orders deserve to be quashed. In support of his submissions, learned Senior counsel placed reliance on the following judgments: (i) Panna Lal Ghosh vs. Land Acquisition Collector - (2004) 1 SCC 467; (ii) Sunder vs. Union of India - (2001) 7 SCC 211; (iii) Union of India vs. Tarsem Singh -(2019) 9 SCC 304; (iv) CST vs. Bhayana Builders Pvt. Ltd., - 2018 (10) GSTL 118 (SC); (v) Munjaal Manishbhai Bhatt vs. Union of India - 2022 (62) GSTL 262; (vi) GE T & D India Ltd., vs. Deputy Commissioner of Central Excise, Chennai - 2020 (35) GSTL 89 (Mad); (vii) Societe Thermale d'Eugenie-les-Bains vs.Ministere de I'Economie, des Finances et de I'Industries C-277/05; (viii) Jurgen Mohr vs. Finanzamt Bad Segeberg C-215/94; (ix) Landboden Agrardienste GmBH & Co. vs. Finanzamt Calau C-384/95; (x) CST, Chennai vs. Repco Home Finance Ltd., - 2020 (42) GSTL 104 (Tri-LB); (xi) Southeastern Coalfields Ltd. Vs. Commr of C.Ex. & ST Raipur - 2021 (55) GSTL 549 (Tri-Del); (xii) Western Coalfields Ltd., vs. Commissioner of CGST & Central Excise, Nagpur - 2023 (4) Centax 271 (Tri-Mum); (xiii) Dy.GM Finance, Bhel vs. Commissioner of CGST & Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the petitioners under various heads by designating solatium under one head amongst several heads of compensation; merely because the package compensation offered by the BMRCL is split into various heads, the compensation offered by the BMRCL under the designated head "Solatium" cannot be construed or treated or understood as solatium in the real sense of the term / expression "solatium" either under the L.A. Act or under RFCTLARR Act; in other words, the package compensation offered by the BMRCL by categorising / describing various amounts out of the total package offered under various heads including solatium was for the limited / restricted purpose of offering package compensation and in reality / substance, the said amount cannot be treated as solatium in true / strict / real sense as wrongly contended by the respondents whose contention cannot be accepted on this ground also. (ii) It is an undisputed fact borne out from the material on record that pursuant to the package compensation offered by the BMRCL which was accepted by the petitioners, various documents including agreement, affidavit, indemnity bond, receipt etc., were executed by the petitioners in favour of the KIA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Entry 5 (e) of the CGST / KGST Act; in this regard, it is relevant to state that the entire compensation including the solatium component having been received by the petitioners pursuant to various documents executed by them in favour of the KIADB would clearly not amount to agreeing to an obligation to tolerate acquisition; in fact, rather than tolerating acquisition of their lands, petitioners have undisputedly executed various documents in favour of KIADB relinquishing / transferring / selling their right over the lands after receiving monetary compensation and neither these transactions nor any act, deed or thing done by the petitioners in this regard would amount to agreeing to the obligation to tolerate an act by the petitioners so as to attract Entry 5 (e) of Schedule - II and consequently, on this ground also, the contention of the respondents cannot be accepted. (v) Section 11 (2) of the L.A. Act contemplated passing of a consent award pursuant to an agreement entered into between the land losers and the Government / acquiring authority; it is well settled that compensation paid under a consent award in terms of Section 11 (2) of the L.A. Act was / is not amenable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) xxx (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and Entry 5(b) of the aforesaid Schedule II, reads as under:- 5. Supply of services. The following shall be treated as supply of services, namely:- (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. Explanation.-For the purposes of this clause- (1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:- (i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972;or (ii) a chartered engineer registered with the Institution of Engineers (India); or (iii) a licensed s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; in this context, it is relevant to state that the entire scheme of indirect taxes in India has undergone transformation upon introduction of GST with effect from July 1, 2017. This tax is being levied with concurrent jurisdiction of the Centre and the States on the supply of goods or services. For this purpose, the Constitution of India has been amended vide Constitution (101st Amendment) Act, 2016 with effect from September 16, 2016. The Constitutional Amendment Bill specifically mentions that the objective of introducing GST is to avoid cascading effect of taxes. 8. The Central Government enacted the CGST Act to provide for levy and collection of tax on supply of goods or services or both where the supply is intra-State supply ; so also, the CGST Rules were also framed including the impugned rule 89(4)(C). 9. The Central Government enacted the IGST Act for the purpose of levy and collection of GST on the supply of goods or services or both where the supply is inter-State supply. 10. The State of Karnataka enacted the KGST Act to levy and collect tax on intra-State supply of goods or services or both within the state of Karnataka. 11. GST is a multi-stage tax, as each po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it would, logically, be leviable only on services provided within the country. The service tax is a value added tax." 13. In the case of Union of India v. VKC Footsteps India Pvt. Ltd. [2021] 93GSTR 160 (SC) ; (2022) 2 SCC 603, the apex court held as under (para 23, page 202 in 93 GSTR) : "44. The idea which permeates GST legislation globally is to impose a multi-stage tax under which each point in a supply chain is potentially taxed. Suppliers are entitled to avail credit of tax paid at an anterior stage. As a result, GST fulfils the description of a tax which is based on value addition. Value addition is intended to achieve fiscal neutrality and to obviate a cascading effect of taxation which traditional tax regimes were liable to perpetuate. In a sense therefore, the purpose of a tax on value addition is not dependent on the distribution or manufacturing model. The tax which is paid at an anteriorstage of the supply chain is adjusted. The fundamental object is to achieve both neutrality and equivalence by the grant of seamless credit of the duties paid at an anterior stage of the supply chain." Section 16 of the IGST Act, 2017 reads as under : "Zero rated supply.-(1) & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "89. Application for refund of tax, interest, penalty, fees or any other amount.-(1) - (3). .. (4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula- Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC /* Adjusted Total Turnover Where,- (A) 'Refund amount' means the maximum refund that is admissible ; (B) 'Net ITC' means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both ; (C) 'Turnover of zero-rated supply of goods' means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier, as declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis furnishes a depiction of an ideal State of existence of GST legislation within the purview of a modern economy, as a destination-based tax. But there can be no gain saying the fact that fiscal legislation around the world, India being no exception, makes complex balances founded upon socio-economic complexities and diversities which permeate each society. The form which a GST legislation in a unitary State may take will vary considerably from its avatar in a nation such as India where a dual system of GST law operates within the context of a federal structure. The ideal of a GST framework which Article 279A(6) embodies has to be progressively realized. The doctrines which have been emphasized by Counsel during the course of the arguments furnish the underlying rationale for the enactment of the law but cannot furnish either a valid basis for judicial review of the legislation or make out a ground for invalidating a validly enacted law unless it infringes constitutional parameters. While adopting the constitutional framework of a GST regime, Parliament in the exercise of its constituent power has had to make and draw balances to accommodate the interests of the States. Taxes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building) are subjected to service tax: - (1) Any lease, tenancy, easement, license to occupy land; (2) Any lease or letting out of the building including a commercial, industrial, or residential complex for business or commerce. Both are covered under renting of immovable property, which has been declared a service under the Finance Act, 1994. 1.2 Further, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly except where the entire consideration has been received after issuance of completion certificate, is chargeable to service tax. It is proposed to treat the aforesaid activities under GST as supply of service (Model GST Law). 2.1 Under the Service Tax law, an activity which constitutes merely transfer of title in goods or immovable property is excluded from the definition of service [section 65B (44) of Finance Act]. 2.2 Under the GST regime, it is proposed to subject supply of goods or services to GST. Goods have been defined under the Constitution to include "all materials, commodities and articles". Likewise, services have been defined under the Constitution "as anyt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d service tax are leviable on under construction property and not on flats sold after completion of construction, buying an under construction flat is more taxing for a buyer. (v) Further, though service tax and VAT are charged generally @ 4.5% and 1% of the value of the flat (which includes the value of the undivided share of land) respectively, there are embedded taxes in the flat. The total tax incidence in respect of flats in non metros is more than that in metros. In fact, where the value of land is less, the incidence of service tax and VAT is more (embedded taxes). GST on supply of land and building will equalize the tax incidence in respect of houses in metros and non-metros. (vi) Without levying GST on supply of land and building, it would be very difficult to complete the input tax credit chain (ITC) and allow ITC in respect of construction services and construction material used in creation of immovable property which is further used for carrying out taxable activities. This is highly distortionary. While at the behest of business and industry, the ITC chain would get liberalized, the tax administration would forever be saddled with non-completion of ITC chain thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) any housing scheme of a State Government. (h) Post-harvest storage infrastructure for agriculture produce including cold storage for such purposes. (III) Sale of: a) houses constructed under Rajiv Awas Yojana; b) houses constructed under 'In -situ rehabilitation of existing slum dwellers using land as a resource through private participation' under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers. c) low-cost houses up to carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; d) low cost houses up to a carpet area of 60 square meters per house in a housing project approved by the competent authority under: i. the "Affordable Housing in Partnership" component of the Housing for all (Urban) Mission/ Pradhan Mantri Awas Yojana; ii. any housing scheme of a State Government. (IV) Sale of residential premises other than new residential premises. Note: - 1) A residential premise is new when any of the following apply: 1. it has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T could be imposed on supply of land and building and the rate could be 12% or 18% with a provision to block refund if there was an incidence of duty inversion between input tax and the output tax on the final supply. He stated that such a measure would take care of the present anomaly of taxation between constructed and under-construction property. Starting the discussion on this agenda item, the Hon'ble Minister from Uttar Pradesh raised the question as to what percentage of sale of property was fully-constructed vis-à-vis those under construction. The Secretary to the Council stated that such data was not readily available. The Hon'ble Minister from Uttar Pradesh observed that most property sales would be of under-construction property as it would be difficult for developers to fully fund by themselves the development of a property. The Hon'ble Minister from Uttarakhand stated that the hill States should have special exemption. The Hon'ble Chairperson observed that this would be decided once the main issue was settled. The Hon'ble Minister from Punjab observed that if a developer constructed the property on his own, then the completed project's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt from GST. He further observed that the final, effective rate of tax on the consumer would not change but there would be greater flow of ITC and a self-policing mechanism would come into play. The Hon'ble Minister from Punjab stated that for residential property, ITC could not be availed. The Hon'ble Minister from Kerala stated that he did not support the proposal under this agenda item. He observed that the Transfer of Property Act gave power to States to levy stamp duty on the transfer of property after completing the paper work. He informed that in Kerala, rebate of stamp duty was given against payment of VAT. He further stated that cement, etc. were not obtained from the grey market as this could risk collapse of the building. He emphasised that stamp duty was a source of revenue for the State government and that it should be left with the States. The Hon'ble Minister from Tamil Nadu stated that the proposal under this agenda item appeared to be unconstitutional as stamp duty was constitutionally retained. He also added that the definition of goods in the Constitution did not include land and building. The Hon'ble Chairperson summed up the two broad view po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Act, Registration Act etc., would clearly show that not only the physical property but also the rights and benefits arising out of such property are recognised as immovable property. (xxii) The Apex Court in the case of Jilubhai Nanbhai Khachar and others v. State of Gujarat and another - 1995 Supp (10) SCC 596, analysed the definition of 'land' given in Black's Law dictionary and Law Lexicon as under: "11. In Black's Law Dictionary (Sixth Edition) at page 877, land is defined to mean-"in the most general sense, comprehends any ground, soil or earth whatsoever, including......rocks. "Land" may include any estate or interest in lands, either legal or equitable, as well as easements and incorporeal hereditaments. Technically, land signifies everything comprehending all things of a permanent nature, and even of an unsubstantial provided they be permanent. Ordinarily, the term is used as descriptive of the subject of ownership and not the ownership. Land is the material of the earth, whatever may be the ingredients of which it is composed, weather, soil, rock, or other substance, and includes free or occupied space for an indefinite distance upwards as well as downwards, subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the grant was bound by the provisions of that Act and that he was not entitled to have his tenant evicted except in accordance with the provisions of the Act." (xxiii) As rightly contended by learned Senior Counsel for the petitioners, compulsory acquisition of land would fall under Entry 5 of Schedule III r/w Section 7 (2) of the CGST/KGST Act and that this Entry is only by way of 'ex abundanti cautela' to show the Legislative intent not to tax sale of land and completed building, i.e., excess of caution does no harm; in the case of Gokaraju Rangaraju vs. State of Andhra Pradesh -1981 (3) SCC 132, the Apex Court held as under: 18. We do not agree with the submission of the learned Counsel that the de facto doctrine is subject to the limitation that the defect in the title of the judge to the office should not be one traceable to the violation of a constitutional provision. The contravention of a constitutional provision may invalidate an appointment but we are not concerned with that. We are concerned with the effect of the invalidation upon the acts done by the judge whose appointment has been invalidated. The de facto doctrine saves such acts. The de facto doctrine is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presumed not to make superfluous legislation. The presumption is not a strong presumption and statutes are full of provisions introduced because abundans cautela non nocet (there is no harm in being cautious). When judicial pronouncements have already declared the law on the subject, the statutory reiteration of the law with reference to particular case does not lead to the necessary inference that the law declared by the judicial pronouncements was not thought to apply to the particular cases but may also lead to the inference that the statute-making body was mindful of the real state of the law but was acting under the influence of excessive caution and so to silence the voices of doubting Thomases by declaring the law declared by judicial pronouncements to be applicable also to the particular cases. In Chandra Mohan case [AIR 1966 SC 1987 : (1967) 1 SCR 77 : (1967) 1 LLJ 412] this Court had held that appointments of District Judges made otherwise than in accordance with Article 233 of the Constitution were invalid. Such appointments had been made in Uttar Pradesh and a few other States. Doubts had been cast upon the validity of the judgments, decrees etc. pronounced by those Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h clearly states that Sale of land either as it is or after some development is covered by Entry No.5 of Schedule III of the CGST/KGST Act and accordingly, does not attract GST; in other words, even if the said entries were not present in the said schedule, there was still no intention to tax stamp duty transactions of the nature which could be subsumed under the GST and consequently, not only sale of land or completed building, even compulsory acquisitions of such land cannot be the subject matter of a GST levy. (xxvi) Learned Senior Counsel is also right in contending that after the retrospective amendment in Section 7 to exclude 7(1)(d) and include Section 7(1A), Schedule II is merely a classification schedule; Entry 5 (e) of Schedule treats "agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" as a supply of service and would only be a classification entry and the need to prove that an activity or transaction is a supply stems from Section 7(1). (xxvii) Circular No. 178/10/2022-GST dated 03.08.2022 issued by the respondents explains the three expressions as under (para 2): (i) Agreeing to the obligation to refrain from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty simplicter and there is no agreement to tolerate an act or refrain from an act or to do an act; the illustrations given in the said Circular clearly point out to an agreement, where an obligation is undertaken for a compensation and no such obligation is present in the instant agreements. (xxx) It is also difficult to comprehend how a compulsory acquisition would amount to tolerating an act when actually the party is agreeing to an amount for acquisition of the land and as set out in the Circular is not actually tolerating the act. The subject matter of the agreement is not an obligation to do or tolerate an act; it is simply an acquisition of land by the Government. In fact, the learned Senior counsel is right in stating that the Apex Court in Tarsem Singh's case supra would show that solatium is paid for not parting with the land and is therefore, an amount paid for not tolerating an act and what is sought to be taxed is obligation for tolerating an act. This fine distinction also should be kept in mind. The conditions are incidental to the acquisition of land and is to ensure that there is finality to the same as regards both the parties. It is not an agreement for an obli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (xxxii) It is well settled that Solatium is part of the compensation paid to the landowner on account of the fact that a landowner, who may not be willing to part with his land has now to do so; solatium is part and parcel of compensation that is payable for compulsory acquisition of land as held by the Apex Court in the case of Union of India Vs. Tarsem Singh - (2019) 9 SCC 304, wherein it was held as under: 11. Before embarking on a discussion as to the constitutional validity of the Amendment Act, it is important to first understand what is meant by the expression "solatium". In Sunder v. Union of India [Sunder v. Union of India, (2001) 7 SCC 211], a Bench of five Judges of this Court laid down the nature of solatium as follows : (SCC p. 229, paras 21 and 22) "21. It is apposite in this context to point out that during the enquiry contemplated under Section 11 of the Act the Collector has to consider the objections which any person interested has stated pursuant to the notice given to him. It may be possible that a person so interested would advance objections for highlighting his disinclination to part with the land acquired on account of a variety of grounds, such as senti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The second issue relates to the payment of solatium @ 30% under Section 23 (2) of the Act. Solatium is "money comfort" quantified by the statute and given as a conciliatory measure for the compulsory acquisition of land of the citizen, by a welfare State such as India. [Narain Das Jain v. Agra Nagar Mahapalika, (1991) 4 SCC 212] Thus the statutory amount of solatium is intended to compensate the owner for his disinclination to part with his property. (xxxiv) It is pertinent to state that the relevant portion of the CBIC Circular No. 178/10/2022-GST dated 03.08.2022 is as under: 6. This goes to show that the service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement. A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the minimum agreed period and similar other issues arising out of clause (e) of section 66E of the Finance Act, 1994. Reference has also been invited to Circular No. 178/10/2022-GST dated 3rd August, 2022 regarding applicability of GST on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law, and its applicability to service tax related issues. 2. It may be seen that "Agreeing to the obligation to refrain from an a or to tolerate an act or a situation, or to do an act" is a Declared Service as per clause (e) of section 66E of the Finance Act, 1994. A service conceived in an agreement where one person agrees to an obligation to refrain from an act or to tolerate an act or to do an act, would be a 'declared service' under section 66E(e) read with section 65B(44) and would be leviable to service tax. 3. The description of the declared service in question, namely, agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is similar in GST. "Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" has been specifically decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or transaction needs to be levied treating it as service by way of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. Contents of Circular No. 178/10/2022-GST dated 3rd August, 2022, may also be referred to in this regard. 7. Difficulty experienced, if any, in implementing the circular should be brought to the notice of the Board. Hindi version will follow. (xxxvi) The aforesaid circulars make it clear that service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement; a contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act; such contractual arrangement must be an independent arrangement in its own right and there should be necessary and sufficient nexus between the supply (i.e., agreement to do or to abstain from doing something) and the consideration; it follows there from that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired under Entry 5 (e) of Schedule II which will have no application nor cover the solatium received by the petitioners. (xxxix) The Larger Bench of the CESTAT in the case of Commissioner of Service Tax, Chennai vs. Repco Home Finance Ltd., - 2020 (42) GSTL 104, while considering whether foreclosure charges could be brought within the ambit of agreeing to an obligation to do or refrain from an act, made a distinction between conditions to the contract and obligations and held as under: 23. The Supreme Court in Commissioner of Service Tax v. M/s. Bhayana Builders [2018 (2) TMI 1325 = 2018 (10) G.S.T.L. 118 (S.C.)], while deciding the appeal filed by the Department against the aforesaid decision of the Tribunal, also explained the scope of Section 67 of the Act, both before and after the amendment, in the following words : "The amount charged should be for "for such service provided" : Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable service shall be the gross amount charged by the service provider "for such service" and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider." 25. It would also be pertinent to refer to the judgment of the European Court of Justice (First Chamber) in Case C-277/2005, in Societe Thermaled'Eugenic-les-Bains v. Ministere de I'Economie, des Finances et de Industry. Under Article 2(1) of the Sixth Directive, 'the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such' is subjected to VAT. Article 6(1) of the Sixth Directive provides that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of their obligations. Instead of defining their obligations in detail, they may nevertheless refer to the various instruments of civil law. 29. Thus the parties may make contractual provision - applicable in the event of non-performance - for compensation or a penalty for delay, for the lodging of security or a deposit. Although such mechanisms are all intended to strengthen the contractual obligations of the parties and although some of their functions are identical, they each have their own particular characteristics. xxxxxxx xxxxxxx xxxxxxx 32. Whereas, in situations where performance of the contract follows its normal course, the deposit is applied towards the price of the services supplied by the hotelier and is therefore subject to VAT, the retention of the deposit at issue in the main proceedings is, by contrast, triggered by the client's exercise of the cancellation option made available to him and serves to compensate the hotelier following the cancellation. Such compensation does not constitute the fee for a service and forms no part of the taxable amount for VAT purposes (see, to that effect, as regards interest applied on account of late payment, Case 222/81 B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable services provided or to be provided. Since this definition is inclusive it will not be out of place to refer to the definition of "consideration" as given in section 2(d) of the Indian Contract Act, 1872 as follows - xxxxx xxxxx xxxxx In simple terms, "consideration" means everything received or recoverable in return for a provision of service which includes monetary payment and any consideration of non-monetary nature or deferred consideration as well as recharges between establishments located in a non-taxable territory on one hand and taxable territory on the other hand." (emphasis supplied) 31. It would, therefore, be appropriate to examine the definition of "consideration" in Section 2(d) of the Contract Act, as the Contract Act deals with all kinds of contracts and pre-dates the Finance Act. The definition of "consideration" is as follows :- "2(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise." 32. What needs to be noted from the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he would have been if the contract had been performed. The former protects "restitution" or "reliance interest", while the latter protects "expectation interest". The paragraphs dealing with the aspect are reproduced : "Remedies for breach of contract are discussed in Chapter 21; but one fundamental point relating to them must be made at this stage. Such remedies might attempt to do one of two things. First, they might attempt to put the injured party into the position in which he would have been if the contract had never been made. This would require the party in breach to restore anything that he had received under the contract, and also to compensate the injured party for any loss that he had suffered by acting in reliance on the contract. Such remedies are said to protect the injured party's restitution and reliance interest. But remedies for breach of contract go beyond the pursuit of these objectives. Their distinguishing feature is that they seek to put the injured party into the position in which he would have been if the contract had been performed. If, for example a seller agrees to sell goods for less than they are worth, and then fails to deliver them, he must compens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1311]. The writ petitioner had borrowed a loan from the Karnataka State Financial Corporation but before the period of loan could expire made an application for foreclosure of the loan. The Corporation, however, demanded premium on the advance payment/foreclosure amount which demand was challenged in the writ petition. The High Court, after noticing that the contract contained a clause giving discretion to the Corporation to impose premium on the balance amount of loan, observed that granting of loans is a business of the Corporation and if the loan is prepaid, the Corporation may have to suffer loss. It is to overcome this situation that premium is charged. The observations are as follows; "13......................Therefore, the granting of loans or advances is one of the business of the Corporation. As stated above, the Corporation borrows funds from the financial institution at the prevailing rate of interest. If an account is prepaid/foreclosure when the interest rates are falling, the Corporation may have to suffer loss. To overcome this situation, if a premium is charged on the outstanding loan being prepaid, the same cannot be found fault with. I am of the considered vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers is exigible/amenable to levy of GST as contended by the respondents whose contentions cannot be accepted on this ground also. 10. In view of the aforesaid discussion, point Nos.1 and 2 formulated above are answered in favour of the petitioners by holding that the compensation paid in favour of the petitioners towards acquisition of their lands by the State/KIADB under the Head 'Solatium' is not exigible/ amenable to levy of GST under the provisions of CGST/KGST Act, 2017 and that the impugned Notices, Orders etc., issued / passed by the respondents in all these petitions deserve to be quashed. 11. In the result, I pass the following:- ORDER (i) W.P. No. 2552/2024, W.P. No.17524/2024, W.P. No.10838/2024, W.P. No.4571/2024 and W.P. No.5858/2024 are hereby allowed. (ii) It is hereby declared that the compensation paid in favour of the petitioners towards acquisition of their lands by the State/KIADB under the Head 'Solatium' is not exigible/ amenable to levy of GST under the provisions of CGST/KGST Act, 2017. (iii) The impugned Notices at Annexures-A and A1 both dated 30.10.2023 issued in W.P. No. 2552/2024 and all consequential proceedings are hereby quashed. (iv) The impu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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