The Telangana High Court while setting aside the advance ruling of the Appellate Authority of Advance Ruling (AAR) has held that construction of institute of security and law enforcement studies in Maldives does not fall within GST net in India.
The court found that Taxation fundamentally operates as a legal principle, structured by a comprehensive set of laws, regulations, and statutory provisions that establish the processes for calculating, levying, and allocating taxes. These legal instruments, enacted by legislative bodies, aim to ensure fairness, equity, and the effective financing of public services. They are crafted to prevent tax evasion, stimulate economic progress, and equitably distribute the tax obligation. However, the application of tax law is not a mere application of set rules. The determination of taxes involves a deep dive into the factual aspects of each taxpayer’s circumstances. The practical details of each case including income streams, allowable deductions, business operations, and investment activities are critical in applying the legal framework. Each taxpayer’s circumstances are distinct, necessitating a careful approach to determine tax obligations based on factual elements.
Facts
The Government of India (GoI) entered into a Memorandum of Understanding (MoU) with the Government of Maldives for constructing a Police Academy funded by the GoI. In turn, the GoI appointed National Buildings Construction Corporation Ltd., (NBCCL) to execute the construction of the Police Academy by itself or through a contractor. NBCCL awarded the contract to the petitioner.
In order to complete the work at Republic of Maldives (Maldives), the NBCCL set up an office and in turn the petitioner also set up their office at Addu city, Maldives. The Authorised Dealer Bank, which is acting on behalf of the Reserve Bank of India approved the establishment of a branch office of petitioners in Maldives.
The petitioner contended that it exported various goods to its Maldives office. The turnover of such goods was declared under the GST as ‘zero rate supplies’. The petitioner treated the consideration received towards ‘works contract service of construction’ which was completely executed in the territory of Maldives through their Maldives establishment as outside the scope of GST laws of India. Respondent did not pay GST on the construction to the petitioner and also opined that supplies rendered outside India are beyond the purview of GST.
The petitioner RELIED on agreement to show that NBCCL has awarded contract to the petitioner for setting up of the Institute of Security and Law Enforcement Studies (ISLES) at Addu city, Maldives. Clause 1.1 of the agreement clearly shows that construction was to be carried out in Addu city, Maldives. The Ministry of External Affairs, GoI, New Delhi, issued certificate dated 14.07.2016, which makes it clear that NBCCL working under the aegis of Ministry of Urban Development has been appointed by the Ministry of External Affairs, GoI, New Delhi, as ‘Executing Agency’ for construction of ISLES at Addu city, Maldives. The petitioner has been duly awarded contract by NBCCL on behalf of Ministry of External Affairs, GoI, New Delhi, for implementation of said project. In turn, the petitioner got ‘Certificate of Re-registration’ dated 22.02.2017 , which was issued by the Registrar of Companies, Ministry of Economic Development, Republic of Maldives. The petitioner also entered into a rental agreement in order to have a ‘fixed establishment’ in Maldives. The petitioner during the time of construction of said building got employment approval from the Maldives Government in Addu city for its number of employees.
Issue Raised
The bone of contention is that both the AAAR and AAR while passing the order dated 05.08.2021 and OIA dated 16.07.20222 have not considered Section 2 (14) and 2 (15) of the IGST Act in correct perspective and also failed to consider Explanations 1 and 2 of Section 8 and Section 13 (1) & (4). The authorities erred in interpreting proviso to sub-section (3) of Section 12. A combined reading of Section 2 (14) (b), 2 (15) (b), Section 8 (Explanations 1 and 2), proviso to Section 12(3) and Section 13 leaves no room for any doubt that GST law cannot be made applicable beyond the territory of India and in relation to a ‘works contract service’ provided by the petitioner through his ‘fixed establishment’ at Addu city, Maldives. The ‘location’ of the petitioner/supplier for present purpose must be the location of ‘fixed establishment’ at Addu city and not at the registered office at Hyderabad (Telangana).
Arguments
The department contended that as per Section 2 (105) of the CGST Act, the petitioner is a ‘supplier’. Similarly, Section 2 (93) of the CGST Act, which defines ‘recipient’, makes it clear that where a consideration is payable for supply of goods or services or both, the person who is liable to pay that consideration is the ‘recipient’. The consideration was payable by NBCCL, which is located and registered in New Delhi, India. Section 2 (70) of the CGST Act is pari materia to Section 2 (14) of the IGST Act, which describes ‘location of the recipient of services’. As per Clause (a) of Section 2 (14) of the IGST Act, where a supply is received at place of business for which the registration has been obtained, shall be the location of such place of business. Based on the definition, it is urged that in the present case, the supply, agreement to perform is received at the place of business for which registration has been obtained by NBCCL at New Delhi, India. Hence, New Delhi will be the location for recipient of services. The petitioner and respondent No.2 did not have any ‘fixed establishment’ in Maldives as per Section 2 (50) of the CGST Act.
The department argued that Section 16 of the IGST Act deals with ‘zero rated supply’ and Clause (a) is about export of goods or services or both. Section 2 (6) of the IGST Act talks about ‘export of services’. Supply of any such services takes place when the supply of services is located in India. To bolster this submission, clauses (i) and (iv) of Sub-section 6 of Section 2 of the IGST Act were referred. Since the petitioner has filed their returns by declaring the said services rendered as ‘zero rated supply’ (exports), the petitioner’s contention that they were located in Maldives for the purpose of CGST and IGST cannot be accepted. The petitioner has not received any payment in convertible foreign exchange and for this reason alone, the present Writ Petition deserves to be dismissed.
The petitioner contended that merely because the petitioner erroneously filed ‘zero rated returns’, it will not operate as ‘estoppel’ against the petitioner. More-so, when the petitioner filed its ‘zero rated returns’, GST laws just came into being and there was lot of confusion amongst the tax payers about its provisions. In this backdrop, the aforesaid ground deserves to be discarded.
Conclusion
The court held that the Appellate Authority has taken a view which no reasonable man well-versed with the subject can take upon reading the relevant provisions of the Acts.
Case Details
Case Title: Sri Avantika Contractors (I) Limited V/S Appellate Authority for Advance Ruling (GST) and others.
Citation: WRIT PETITION No.8405 of 2023
Judges: Justice Namavarapu Rajeshwar Rao
Court: Telangana High Court
Date of Order / Judgment: 06/08/2024
