Delhi High Court - Orders
Rattan India Power Ltd vs Union Of India & Anr on 19 February, 2021
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw, Sanjeev Narula
$~3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 1391/2021
RATTAN INDIA POWER LTD ..... Petitioner
Through: Mr. Tarun Gulati, Sr. Adv. with Mr.
Manish Mishra and Ms. Ameya
Vikram Mishra, Advs.
Versus
UNION OF INDIA & ANR. ..... Respondents
Through: Mr. Chetan Sharma, ASG with Mr.
Kirtiman Singh, Mr. Amit Gupta, Mr.
Vinay Yadav, Mr. Akshay Gadeock,
Mr. Sahaj Garg and Mr. R. Venkat
Prabhat, Adv. for UOI.
Ms. Sonu Bhatnagar, Ms. Mallika
Joshi, Ms. Venus Mehrotra, Ms.
Anushree Narain and Mr. Vaibhav
Joshi, Advs. for R-2.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
HON'BLE MR. JUSTICE SANJEEV NARULA
ORDER
% 19.02.2021 [VIA VIDEO CONFERENCING]
1. The petition, (i) impugns the levy of Goods and Services Tax (GST) on penalty in the form of "liquidated damages" imposed for non- performance under a contract between the petitioner and the respondent No.2 of sale of coal by the respondent No.2 to the petitioner; (ii) impugns Clause 5(e) of Schedule II of the Central Goods and Services Tax Act, 2017 (CGST Act) as ultra-vires of Articles 14, 246A and 265 of the Constitution W.P.(C) 1391/2021 Page 1 of 3 of India and Section 7 of the CGST Act; (iii) seeks declaration of the Exemption Notification dated 28th June, 2017 and the Frequently Asked Questions (FAQ) issued by Central Board of Indirect Taxes and Customs (CBIC) as ultra-vires Articles 14, 246A and 265 of the Constitution of India and Section 7 of the CGST Act; and, (iv) seeks mandamus directing the respondents No.1&2 to refund the amount of GST levied and recovered unlawfully and without authority of law on penalty.
2. It is the case of the petitioner, (a) that under the agreement dated 22nd December, 2012 between the petitioner and the respondent No.2, the petitioner is liable for payment of compensation/penalty for short offtake/lifting of the coal in any particular year; (ii) that the respondent No.2, in enforcement of the said clause, has recovered the penalty along with GST thereon from the petitioner; and, (iii) that since there was no sale/supply of goods, no invoice of sale of goods for the penalty amount has been issued by the respondent No.2 to the petitioner and in the absence whereof, the petitioner is also unable to avail of the Input Tax Credit for the amount, resulting in the petitioner being burdened with payment of GST on goods i.e. coal, which were not purchased.
3. We have perused clause 4.6 in the agreement between the petitioner and the respondent No.2 and find the same to be using the words 'compensation/penalty'. Prima facie it appears that the CGST Act does not permit levy of GST on such penalty and without any sale of goods having taken place.
4. The counsel for the respondent No.2 appearing on advance notice has drawn our attention to the definition of 'supply' in Section 7 and to the definition of 'supply of services' in clause 5(e) of Schedule II to the CGST W.P.(C) 1391/2021 Page 2 of 3 Act to contend that the agreement of payment of penalty constitutes an agreement to refrain from an act or to tolerate an act or a situation or to do an act. It is her argument that though the supply/sale of coal by the respondent No.2 to the petitioner constitutes sale of goods but the penalty clause is to prevent the cancellation of the agreement and which constitutes a supply of services and not sale of goods.
5. We find that in Schedule II, while defining 'sale of goods', no provision as in Clause 5(e) thereof for sale or services exists.
6. We have also perused Clause 16, the termination clause in the agreement and prima facie it appears that the payment of penalty is not relevant for termination.
7. The matter requires consideration.
8. Issue notice.
9. Notice is accepted by the counsel for the respondents.
10. Counter affidavit be filed within six weeks.
11. Rejoinder thereto, if any be filed within six weeks thereafter.
12. List on 28th July, 2021.
RAJIV SAHAI ENDLAW, J.
SANJEEV NARULA, J.
FEBRUARY 19, 2021 'bs'..
W.P.(C) 1391/2021 Page 3 of 3