Delhi High Court - Orders
Thales India Private Limited vs Additional Commissioner Of Cgst, ... on 2 December, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Dharmesh Sharma
$~70
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 16611/2024 & CM APPL. 70221/2024 (Stay)
THALES INDIA PRIVATE LIMITED .....Petitioner
Through: Mr. Rupesh Kumar, Sr. Adv.
with Mr. Jitin Singhal and Mr.
Pravesh Bahuguna, Adv.
versus
ADDITIONAL COMMISSIONER OF CGST, AUDIT-II,
DELHI & ANR. .....Respondents
Through: Mr. R. Ramachandran, Sr.
Standing Counsel.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE DHARMESH SHARMA
ORDER
% 02.12.2024 CM APPL. 70222/2024 (Ex.) Allowed, subject to all just exceptions.
The application is disposed of.
W.P.(C) 16611/2024 & CM APPL. 70221/2024 (Stay)
1. Notice.
2. We take note of the challenge which stands raised to the impugned Show Cause Notice1 dated 31 May 2024 and in terms of which the respondents have sought to question the liability which would arise upon the writ petitioner in connection with the supply of seconded employees.
3. We take note of the judgment rendered by us on Metal 1 SCN W.P.(C) 16611/2024 This is a digitally signed order. Page 1 of 4 The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/12/2024 at 00:08:28 Corporation Pvt. Ltd. vs. Union of India 2 and where while dealing with an identical controversy, we had held as follows:-
" 5. It is averred that the Supreme Court in CCE & Service Tax vs. Northern Operating Systems (P) Ltd. had held that transactions in which an overseas entity had seconded employees to an Indian entity and then charged the employees' salaries borne by the Indian company in the form of reimbursement, the same would qualify as manpower supply by the overseas group company to the Indian subsidiary. It is this decision which appears to have triggered the respondents into action and the various SCNs coming to be consequently issued.
xxx xxx xxx
10. The question thus stands restricted to the value to be ascribed to the supply of goods and services and which is regulated by Rule 28 of the Central Goods and Services Tax Rules, 2017. That rule is reproduced hereinbelow:
"Rule 28 - Value of supply of goods or services or both between distinct or related persons, other than through an agent The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:
PROVIDED that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person:
PROVIDED FURTHER that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services."
11. However, and as was noticed by us in our order of 03 October 2024, it is Circular No. 210/4/2024-GST of the CBIC which seeks to place all disputes beyond contestation. We had in our previous order taken note of the clarification rendered in Para 3.7 and which stands extracted hereinabove. As per Para 3.7 of that Circular, the CBIC clarifies that where no invoice is raised by the 2 [2024 SCC OnLine Del 7499] W.P.(C) 16611/2024 This is a digitally signed order. Page 2 of 4 The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 14/12/2024 at 00:08:28 related domestic entity in respect of services rendered by its foreign affiliate, the value of such services would be "deemed" to have been declared as 'Nil' and that 'Nil' value liable to be treated as the market value for the purposes of the Second Proviso to Rule 28.
12. Undisputedly, although payments, as asserted in the counter affidavit, were made, no invoices came to be raised by the writ petitioners entities in connection with the services provided by their related foreign entities. It is in the aforesaid backdrop that learned counsels had drawn our attention to the prescriptions contained in Para 3.7 of the Circular. It would perhaps be impossible for any of the respondents to assert that once the value of such services were to be treated or accepted to be 'Nil', any further tax implication under the Act would arise.
13. While the correctness of the position as advocated in terms of that Circular and whether it would be consistent with the statutory provisions or may be viewed as being contentious or contrary to the intent of the Second Proviso to Rule 28 itself, we are today constrained to proceed further on the basis thereof. We so observe since it may possibly be asserted that the Circular is founded on the tenuous thread of parties choosing to either generate an invoice or simply avoiding to do so. However, in the present matters, it is not for this Court to be boggled by or question the wisdom of the CBIC as the Circular in any case binds the respondents.
14. In the facts of the present writ petitions, it is conceded that no invoices were generated. In view of the above and in light of the explicit terms of the Circular, the value of the service rendered would have to be treated as 'Nil'. This would lead one to the inescapable conclusion of no perceivable or plausible tax liability possibly being created. Consequently, we are of the considered opinion that the proceedings initiated in terms of the impugned SCNs' and their continuance would be futile and impractical. The impugned SCNs are essentially rendered impotent and would serve no practical purpose.
15. In view of the above, we allow the instant writ petitions and quash the impugned SCNs dated 29 September 2023 [W.P.(C) 14945/2023], 28 September 2023 [W.P.(C) 2039/2024], 27 September 2023 [W.P.(C) 4834/2024], 28 September 2023 [W.P.(C) 4979/2024] and 31 May 2024 [W.P.(C) 9801/2024] to the extent as clarified in Para 19 below.
16. We further quash the consequential impugned Orders-in- Original dated 29 December 2023 in W.P.(C) 4834/2024 and 30 December 2023 in W.P.(C) 4979/2024.
17. Insofar as W.P.(C) 4834/2024, we note that a final Order-in- Original came to be passed on 29 December 2023. The petitioner, Sony India Private Limited, had of its own violation and undisputedly, discharged the tax liability proceeding on the basis of Rule 28 and a perceived obligation to pay tax under the Act. The Order-in-Original however imposes a liability of interest and penalty W.P.(C) 16611/2024 This is a digitally signed order. Page 3 of 4 The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/12/2024 at 00:08:29 upon that writ petitioner by invoking Section 15 along with Section 73 of the Act, read with Section 73(9). It is also undisputed before us that Sony India Private Limited had not only paid the tax but had also taken credit on a reverse charge basis.
18. In our considered opinion, once the position to govern all assessees pan-India came to be clarified by the CBIC, the continuation of penalty proceedings or for that matter the imposition of interest would not sustain. In light of the stand taken by the CBIC, the petitioner, Sony India Private Limited, would have stood absolved of all tax liabilities and implications flowing from the Act.
19. All the writ petitions thus stand disposed of on the aforesaid terms. Though needless to state, we hereby clarify that the present order shall be confined to the issue of seconded employees alone. All other issues which are raised in the impugned SCNs' shall be open to be adjudicated by the respondents. We clarify that we have not expressed any opinion insofar as the other issues which form part of the impugned SCNs' are concerned. All rights and contentions of respective parties in that respect are kept open."
4. However, since Mr. Ramachandran, learned counsel appearing for the respondents, prays for time to obtain instructions, let the writ petition be called again on 07.01.2025.
5. In the meanwhile, we restrain the respondent from taking further steps pursuant to the impugned SCN dated 31 May 2024.
YASHWANT VARMA, J.
DHARMESH SHARMA, J.
DECEMBER 02, 2024/ DR W.P.(C) 16611/2024 This is a digitally signed order. Page 4 of 4 The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/12/2024 at 00:08:29