Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Service Tax Appellate Tribunal, Chandigarh: Coram of Ashok Jindal (Judicial Member) and CJ Mathew (Technical Member) addressed whether the assessee will be liable to reverse CENVAT credit on the amount written off as bad debts.

Two appeals were filed against the impugned orders confirming the demand for reversal of CENVAT credit on the amount written off as bad debts and on advertisement & sales promotion services.

Factual Background

Appellant was engaged in providing banking and other financial services, credit card, debit card etc. and business support services, further, the appellant received various input services for providing their output services and availed CENVAT credit thereon.

It was stated that, in some cases, the appellant could not recover certain payments from their customers and wrote them off as bad debts in their financial records.

To launch a co-brand credit card, the appellant entered into a co-brand credit card agreement with Indian Railway Catering and Tourism Corporation Limited (IRCTC). Appellant paid fixed charges to IRCTC for every subscriber of credit card and in turn, IRCTC agreed to promote the credit card by modifying its website, through press advertisements and related collaterals.

IRCTC raised invoices on the appellant for the said purpose and the appellant availed the CENVAT credit of service tax paid thereon.

Two show-cause notices were issued for the reversal of CENVAT credit availed on input services attributable to the amount written off as irrecoverable dues; reversal of CENVAT credit where service tax was paid under reverse charge basis; reversal of CENVAT credit availed on the advertisement, catering and event management services.

Impugned orders were passed by confirming the demands holding that the amount written off as bad debts, the appellant was not entitled to avail CENVAT credit of input services attributable to the amounts written off and denial of CENVAT credit on input services received from IRCTC by classifying them as catering services.

Appellant approached the tribunal against the above-stated orders.

What was the dispute?

The appellant had written off certain amounts for consideration of services, they had not received.

Analysis and Discussion

Rule 3 of the CENVAT Credit Rules, 2004 deals with the situation for entitlement of the CENVAT credit, which prescribes that a provider of the output service shall be allowed to take CENVAT credit of any input service received by the provider of output service on or after 10th day of September, 2004.

The services on which appellant had taken CENVAT credit were ‘input services’ in terms of Rule 2(I) of the CENVAT credit Rules, 2004 and was a provider of output service.

Hence, in terms of Rule 3 of the CENVAT Credit Rules, Tribunal held that the appellant was entitled to avail CENVAT Credit on input services in question.

CENVAT Credit Rules or Finance Act there was no provision for reversal of CENVAT credit for the services provided for which no consideration for service provided was received by an assessee.

Therefore, the appellant had correctly availed the CENVAT Credit on input services although the amount of non-recoverable taxable service had been written off by the appellant for the period prior to 1-4-2011.

Appellant had admitted that they paid service tax on all the taxable services provided by them after 1-4-2011 at the time of provision of service. Hence the appellant cannot be liable for reversal of CENVAT Credit for the services provided after 1-4-2011 on which the service tax was paid.

Denial of CENVAT credit on Invoices issued by IRCTC

Coram found that the description of the service provided by IRCTC was SBI co-brand registered as “SBI” and the said invoice did not prescribe that IRCTC had provided any ‘catering service’ to the appellant.

Concluding the matter, Tribunal held that the appellant was entitled to CENVAT Credit in the services provided by IRCTC as advertisement services.

The impugned orders were set aside in view of the above. [SBI Cards and Payments Services (P) Ltd. v. Commr. Of Service Tax, 2022 SCC OnLine CESTAT 18, decided on 4-1-2022]


Advocates before the Tribunal:

Present for the Appellant: Sh. B.L. Narasimhan, Ms. Krati Singh, Ms. Priyanka Singla, Advocates

Present for the Respondent: Sh. H. S. Brar, A.R.

Case BriefsHigh Courts

Delhi High Court: Sanjeev Narula, J., refused to interfere in the interim arbitral award whereby the sole arbitrator had allowed certain claims of the respondent in arbitration proceedings against the appellant-IRCTC.

IRCTC sought the setting aside of the interim arbitral award, whereby Sole Arbitrator had allowed certain claims of the Respondent in arbitration proceedings.

Summary of Facts

Respondent, a private railway catering service provider empanelled with IRCTC and entitled to be considered for allotment of temporary licenses on category ‘A’ trains. on 07th September, 2016, IRCTC published a limited tender inviting bids from empanelled parties for providing on-board catering services in respect of Train No. 12951- 52/12953-54 (Rajdhani/August Kranti Express) for six months.

On being the highest bidder, respondent was awarded a temporary license.

What was the dispute?

Welcome drink served to the passengers was provided by IRCTC. Later, IRCTC decided that:

  • service provider to provide welcome drink to passengers at no extra-charge receivable by it, and if unwilling to do so, it could opt to exit the temporary license;
  • where service provider was providing meals to passengers on account of short supply by IRCTC, it would be reimbursed production charges @ Rs. 84/- (inclusive of taxes) per passenger for lunch/dinner for 2nd and 3rd A.C. passengers.
  • where additional meals were being served due to late running of train for more than 2 hours, service provider would be reimbursed @ Rs. 26.40 + service tax, per passenger.

For the above-stated policy decision, DC raised the following concerns:

  • DC reasoned that welcome drink was not included in the tender document;
  • expressed reservation with regard to reimbursement of charges on account of late running of trains for more than 2 hours.
  • emphasised that having made a substantial investment in setting up a base kitchen and infrastructure, it was unwilling to exit from the contract.

Later, on 13-2-2017, respondent intimated that it would provide the welcome drink in case the same would not be provided by IRCTC, but it would be charging for services as well as production charges for the same. In the event of train being late, charge of Rs 30 would be applied along with service tax for additional meal.

From 5-03-2017, the above-said service commenced. Further, in the month of April, IRCTC sought an unconditional acceptance of the policy decision from respondent and unless unconditional acceptance would be tendered, it would be presumed that respondent are not interested in extension of the license.

Further, it was added that, for a certain period when respondent did not provide the welcome drink and IRCTC had to provide the same, the charges in that respect would be adjusted against the bills raised by respondent.

Respondent raised an issue with regard to the above-stated, asserting that it was not liable for the charges. It further raised the issue of non-payment of service tax on service charge for food and drink for the period from 19th December 2016 to 04th March 2017, as well as other charges allegedly payable to it.

Respondent unconditionally accepted the policy decision and a 6-month extension of license was granted.

Respondent invoked arbitration with regard to deductions made on account of welcome drink as well as other issues. Hence, a petition was filed under Section 11 of the Arbitration and Conciliation Act.

What all were the claims?

  • Claim towards non-payment for a welcome drink: DC contended that the welcome drink did not form part of the tender document. It should not be liable to serve the same or reimburse the expenses incurred by IRCTC for serving the same from 19th December, 2016 to 04th March, 2017.
  • Reimbursement of GST on production charges/supply of meals with effect from 1st July 2017.
  • Claim towards wastage of food due to cancellation/non-turning- up of passengers.

Two claims of respondent were allowed: (i) payment with respect to welcome drink; and (ii) reimbursement of GST on production charges.

IRCTC filed an objection against the impugned award before District Judge at Patiala House Court Complex, Delhi, however, the claim calculated by IRCTC exceeded its pecuniary jurisdiction as per the provision of Section 12(2) of the Commercial Courts Acts, 2015.

Analysis, Law and Decision

Whether welcome drink formed a part of initial period of contract?

As per the tender document which refers to CC No. 32 of 14 states the Clause 2.1 requires the service provider to deliver free of cost catering to passengers.

Arbitrator meticulously examined the tender conditions, circulars issued by Railway Board, IRCTC’s policy, contractual provisions and testimonies of the witnesses and went on to answer the question in negative.

CC No. 32 of 14 dated 6-08-2014 laid down rates of composite contract for the service provider and noting the admitted position that catering services under the tender were invited through the mode of partial unbundling of services, the learned Arbitrator noted that respondent was required to provide quotations for the sector-wise services mentioned in Annexures, which had no direct or specific reference to the condition of providing a welcome drink. In the said circumstances, it was concluded that the bid was not invited for the service of provision of welcome drink, and thus no charge was quoted towards the same.

Arbitrator gave a finding that there was no contractual stipulation in the tender document that specifically put the obligation on respondent to provide welcome drink and the said finding was held to be sound, credible and comprehensive by the High Court.

 Binding Effect of Respondent’s ‘unconditional acceptance’

the policy decision dated 07-02-2017 became a part of the contract between the parties has rightly been disallowed by the learned Arbitrator, by holding the same to be a fresh policy decision brought in by IRCTC post entering into the licensing agreement with DC. IRCTC could not give any justification for bearing the burden for the initial period between 19-12-2016 to 4-03-2017, despite it’s alleged understanding to the contrary. Its continued supply of welcome drink without expressly affirming that the contractual obligation for the job lay on DC, reaffirms the uncertainty of contractual obligations.

On the basis of the conduct and the testimony of witnesses, the Arbitrator rightly held that the actions of IRCTC exhibit ambiguity about DC’s contractually stipulated obligations, which were then redressed by way of the ex post facto policy decision.

GST

The GST laws has replaced the erstwhile indirect taxation regime.

Respondent had explained that since the trains were moving through several states and each state had a different rate of tax under State VAT laws, it was not feasible to account for the same, therefore production charges were paid inclusive of taxes.

Besides, no Input Tax Credit was available to IRCTC for VAT.

However, the position underwent a change with the introduction of GST laws.

GST is available as Input Tax Credit for paying the outgoing tax liability. With restructuring of indirect tax system, railways introduced CC No. 44/17 which specifically provides for GST on catering services in the subject trains. The bifurcation of production charges was done under the afore-noted circular and it was advised that GST is to be reimbursed to the service provider on submission of proof of deposit.

the said circular specifies the revised catering apportionment charges for the trains in question where catering charges are built-in to the ticket fare. The table thereunder shows ‘catering charges disbursed to the service provider’ both with and without 18% GST in separate columns.

 Hence, IRCTC’s contention that claim of service tax on production charges was identical and since the same had been given up, the claim of GST would not survive.

Further, it was added that,

Applicability of service tax on production charges is a different plea intertwined with determination of factual position of whether there is an incidence of service in the activity of production or if the nature of service could be held as a composite supply.

GST is clearly attracted on supply of food. 

The claim of service tax over and above the amounts agreed to, was premised on a different footing and cannot be read at par with the claim of GST.

Arbitrator has given a finding that GST has been deposited by DC and proof thereof had been furnished to IRCTC. Court found no fault in interpretation of terms of contract.

Hence no ground for interference was made out. [Indian Railway Catering & Tourism Corporation Ltd. v. Deepak & Co., 2021 SCC OnLine Del 3609, decided on 5-07-2021]


Advocates before the Court:

For the Petitioner: Mr Nikhil Majithia and Mr Piyush Gautam, Advocates

For the Respondent: Mr Naresh Thanai and Ms Khushboo Singh, Advocates


About Justice Sanjeev Narula

Born on 24th August, 1970. Studied at St. Mary’s Presentation Convent School, Jammu. Graduated in B.Sc.(Computer Science) from Kirorimal College, University of Delhi. He acquired Degree in Law in 1994 from Law Faculty, University of Jammu and got enrolled with Bar Council of Delhi in 1995.

Practiced primarily before the Delhi High Court and also before the Supreme Court of India, District Courts of Delhi and various judicial forums in Delhi. Advised and represented clients in litigation relating to Civil, Commercial, Corporate, Criminal, Customs, Indirect taxes, Service, Banking & Finance, Land &Property, Arbitration, Indirect Taxes, GST, Intellectual Property, Constitutional, Cyber, E-Commerce, Consumer and Family Laws.

He was appointed as Central Government Standing Counsel; Senior Standing Counsel (Customs and Indirect Taxes) and Standing Counsel for Central Information Commission (CIC) for the Delhi High Court, positions he retained until he was appointed as a Judge.

Appointed as Permanent Judge of Delhi High Court on 22nd October 2018.


Source: Delhi High Court Website

COVID 19Hot Off The PressNews

Indian Railways plans to gradually restart passenger train operations from 12th May, 2020, initially with 15 pairs of trains (30 return journeys). These trains will be run as special trains from New Delhi Station connecting Dibrugarh, Agartala, Howrah, Patna, Bilaspur, Ranchi, Bhubaneswar, Secunderabad, Bengaluru, Chennai, Thiruvananthapuram, Madgaon, Mumbai Central, Ahmedabad and Jammu Tawi.

Thereafter, Indian Railways shall start more special services on new routes, based on the available coaches after reserving 20,000 coaches for COVID-19 care centres and adequate number of coaches being reserved to enable operation of up to 300 trains everyday as “Shramik Special” for stranded migrants.

Booking for reservation in these trains will start at 4 pm on 11th May and will be available only on the IRCTC website (https://www.irctc.co.in/). Ticket booking counters at the railway stations shall remain closed and no counter  tickets (including platform tickets) shall be issued. Only passengers with valid confirmed tickets will be allowed to enter the railway stations.  It will be mandatory for the passengers to wear face cover and undergo screening at departure and only asymptomatic passengers will be allowed to board the train. Further details including train schedule will be issued separately in due course.


Ministry of Railways

Tribunals/Commissions/Regulatory Bodies

Competition Commission of India: In its majority order, the competition watchdog ruled that allegations of abuse of dominant position in the relevant market of “transportation of passengers through railways across India including the ancillary segments like ticketing, catering on board, platform facilities etc. provided by Indian Railways” are misconceived and baseless. In the present case various informants alleged inter alia unfair, discriminatory and arbitrary practice by the Railway and IRCTC in Passenger Reservation System (PRS) by imposing service-charges on e-ticketing and not refunding it on cancellation, by charging additionally on booking through agents, by making the passengers pay gateway transactions charge, by charging higher price on tatkal and premium quota etc. The Commission observed that, it is not compulsory for passengers to book tickets via internet; the option of manual PRS counters for booking. E-ticking is an addition facility offered by IRCTC which is a value added service.  As a condition precedent to using its services, IRCTC requires prospective customers to agree to  pay this service charge before registering with IRCTC. Therefore, any customer wishing to avoid the payment of service charges may not register himself with IRCTC, thereby, making it amply clear that a customer does have the option to book tickets (through manual PRS counters) without paying any service charges. The additional charge on booking through agents may be avoided in the same manner. The Commission further observed that service charge on e-tickets and agents’ ticket is not unfair inasmuch as the same are realized to meet administrative costs and other logistic and development costs incurred to the IRCTC and agents.

The Commission ruled that charge on gateway transaction is not levied by the Railway but by the banks of the passengers as per the RBI guidelines, thus is not abusive. CCI declared non-refund of service charge justified for operational cost incurred by IRCTC. Tatkal scheme and charges are not unfair as they are part of Railway budget approved by the Parliament. Tatkal charge is found justified for compensating huge lose incurred by the Railways.

The Commission amongst other rejected the allegation of abuse by tying in compulsory provision of food in the premium trains. The Commission also rejected the allegation of creating monopoly of food courts at the large railway stations. Not allowing private players providing meals through e-catering is justifiable action under the provisions of the Railways Act, 1989.

The majority order of 4 out of 5 members of CCI opined that no case of contravention of the provisions of section 4 of the Act is established against the Indian Railways and IRCTC. However, the majority viewed that charging of service charge for the use of e-ticking may affect the consumers’ interests, and efficiency and promotion of technologically advanced e-ticketing there the concerned authority may do away with service charges and other unnecessary restrictions on booking of e-tickets which may not affect its revenues in any significant manner.

In his sole minority opinion, M. S. Sahoo, Member, was of opinion that that Railways have imposed unfair price in sale of tickets in electronic mode compared to that in brick-mortar mode (manual PRS) , while the former mode is cheaper and conserves resources, and thereby violated the provisions of section 4(2)(a)(ii) of the Competition Act, 2002. In his opinion the Railways and IRCTC have also restricted the use of technology in rendering services relating to sale of passenger tickets to the prejudice of customers, and thereby violated the provisions of section 4(2)(b)(ii) of the Act. Sharad Kumar Jhunjunwala v. Union of India, Ministry of Railways, (2014) CCI 33, decided on 10.08.2015