Delhi High Court - Orders
(77) Kutch Railway Company Limited vs Union Of India & Ors on 21 March, 2024
Author: Sachin Datta
Bench: Sachin Datta
$~77, 78, 79, 80
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 655/2024
(77) KUTCH RAILWAY COMPANY LIMITED ..... Petitioner
Through: Mr. Arvind Datar, Sr. Adv., Mr.
Tarun Gulati, Sr. Adv. and Mr. Vivek
Sharma, Ms. Saumya Mehrotra and
Mr. Devansh Garg, Advs.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Akshay Amritanshu, Sr. Panel
Counsel along with Mr. Samyak Jain
and Mr. Ayush Raj, Advs.
+ W.P.(C) 761/2024
(78) BHARUCH DAHEJ RAILWAY COMPANY LIMITED.... Petitioner
Through: Mr. Arvind Datar, Sr. Adv., Mr.
Tarun Gulati, Sr. Adv. and Mr. Vivek
Sharma, Ms. Saumya Mehrotra and
Mr. Devansh Garg, Advs.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Akshay Amritanshu, Sr. Panel
Counsel along with Mr. Samyak Jain
and Mr. Ayush Raj, Advs.
+ W.P.(C) 762/2024
(79) ANGUL SUKINDA RAILWAY LIMITED ..... Petitioner
Through: Mr. Arvind Datar, Sr. Adv., Mr.
Tarun Gulati, Sr. Adv. and Mr. Vivek
Sharma, Ms. Saumya Mehrotra and
Mr. Devansh Garg, Advs.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Akshay Amritanshu, Sr. Panel
Counsel along with Mr. Samyak Jain
and Mr. Ayush Raj, Advs.
W.P.(C) 655/2024 & Connected Matters Page 1 of 13
This is a digitally signed order.
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 28/03/2024 at 20:56:49
Mr. Subhash Tanwar, CGSC along
with Mr. Sandeep Mishra and Mr.
Ashish Choudhary, Advs. for UOI.
+ W.P.(C) 763/2024
(80) HARIDASPUR PARADIP RAILWAY COMPANY LTD.
..... Petitioner
Through: Mr. Arvind Datar, Sr. Adv., Mr.
Tarun Gulati, Sr. Adv. and Mr. Vivek
Sharma, Ms. Saumya Mehrotra and
Mr. Devansh Garg, Advs.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Akshay Amritanshu, Sr. Panel
Counsel along with Mr. Samyak Jain
and Mr. Ayush Raj, Advs
CORAM:
HON'BLE MR. JUSTICE SACHIN DATTA
ORDER
% 21.03.2024 CM APPLs.15534/2024 (seeking condonation of delay of 07 days in filing counter-affidavit) and 15539/2024 (seeking condonation of delay of 07 days in filing reply to CM-2982/2024) in W.P.(C) 655/2024 CM APPLs.13485/2024 (seeking condonation of delay of 01 day in filing counter-affidavit) and 13481/2024 (seeking condonation of delay of 01 day in filing reply to CM-3333/2024) in W.P.(C) 761/2024 CM APPLs.15480/2024 (seeking condonation of delay of 07 days in filing reply to the CM-3336/2024) and 16871/2024 (seeking condonation of delay of 07 days in filing reply to the petition) in W.P.(C) 762/2024 CM APPLs.15518/2024 (seeking condonation of delay of 07 days in filing counter-affidavit) and 15536/2024 (seeking condonation of delay of 07 days in filing reply to CM-3339/2024) in W.P.(C) 763/2024
1. For the reasons stated in the applications, the same are allowed.
W.P.(C) 655/2024 & Connected Matters Page 2 of 13This is a digitally signed order.
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 28/03/2024 at 20:56:49
2. The applications stand disposed of.
CM APPL.2982/2024 (Stay) in W.P.(C) 655/2024 CM APPL.3333/2024 (Stay)inW.P.(C) 761/2024 CM APPL.3336/2024 (Stay) in W.P.(C) 762/2024 CM APPL.3339/2024 (Stay) in W.P.(C) 763/2024
3. The present petition has been filed by the petitioners assailing the letter No.2017/Infra/18/2 dated 21.09.2023, issued by the respondent no.5, RBA No.37/2023, dated 30.11.2023 [No.2017/AC-II/1/19/SPVs(part)], issued by the respondent no.4. and letter No. TA/AII/RCA /KRCL/Corr./88/2021 dated 05.12.2023, issued by the respondent no.6.
4. It is submitted that the said letters are wholly arbitrary, impinge upon the fundamental rights of the petitioners to carry on their business, and the same are also in the teeth of the elementary tenants of Goods and Services Tax (GST Laws).
5. The factual background of the matters is that a Memorandum of Understanding was signed between the Ministry of Railways and Rail Vikas Nigam Limited (RVNL) on 16.10.2003 for creating project specific Special Purpose Vehicles (SPVs). The petitioners in these matters are such SPVs. Concession Agreements were signed between the respondents and each of the petitioners in these matters, for development, financing, construction, operation and maintenance of certain railway lines.
6. In terms of the Concession Agreement/s, the funding of the project was substantially provided by the petitioner/s through equity raised from shareholders, as also through debts raised from banks/ financial institutions. The Concession Agreement/s contemplates payment of apportioned revenue share/ user charges to the petitioner/s, out of the freight transportation W.P.(C) 655/2024 & Connected Matters Page 3 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:49 charges collected from the ultimate customers using the concerned railway lines.
7. An Operation and Management Agreement (O&M) was also signed between the petitioners and the respondents, in terms of which, certain O&M charges were levied upon the petitioners, which were adjusted from the user charges payable to the petitioners as per Inter-Railway Financial Adjustment Rules (IRFA Rules). Admittedly, there was no service tax charged qua the transactions between the petitioners and the respondents.
8. With the coming into force of the GST Laws, the office of the respondent nos.1 and 2 sought GST exemption from the respondent no.3. However, the said request has not yet been acceded to.
9. It is the petitioners' case that by way of the impugned letters, the respondent nos.4, 5 and 6 are seeking to abuse their position to make gains in the guise of GST, at the expense of the petitioners.
10. The letter dated 21.09.2023, issued by the Ministry of Railways (Railway Board) reads as under:
"GOVERNMENT OF INDIA MINISTRY OF RAILWAYS (RAILWAY BOARD) No. 2017/Infra/18/2 Dated: 21.09.2023 Managing Director/ CEO, PRCL, HMRDC, Kutch Railway, Krishnapatnam Railway BDRCL, HPRCL, ASRL, CERL MCRL, JCRL Sub: Provision of CST on SPY's Apportioned Earnings and O&M cost w.e.f. FY 2023-24.
Ref: Ministry of Finance Office Memorandum dated 04.01.2023.
Kindly refer to above Office Memorandum dated 04.01.2023 issued by Ministry of W.P.(C) 655/2024 & Connected Matters Page 4 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:49 Finance on GST Council decision.
In this regard, you are advised that:
(i) From current FY (2023-24) onwards, IR would transfer apportioned revenue to SPVs inclusive of GST.
(ii) For period prior to 2023-24, the matter is still under consideration in consultation with Ministry of Finance.
(iii) It is brought to your notice that Clause 23.2 .1 of the Model Concession Agreement already provides for, "It is expressly agreed by the Parties that the User Fes shall be inclusive of all taxes and duties, it is further agreed that the Concessionaire shall pay all taxes and duties in accordance with Applicable Laws."
This is issued in concurrence with Finance (Commercial & Accounts) Directorate of Railway Board.
Sd/-
(PriyaRanjanParhi) Executive Director (Infra)-l , Railway Board Ph. No. 011-23782539 e-mail [email protected] Copy: General Managers/WR, SWR SCR, ECoR, SECR & ECR."
11. The letter dated 30.11.2023, which is the gravamen of the controversy between the parties, reads as under:
"GOVERNMENT OF INDIA MINISTRY OF RAILWAYS (RAILWAY BOARD) RBA NO.37/2023 GST CIRCULAR no. 14/2023 No. 20171AC-II/1/19/SPV(sipra) New Delhi dated 30.11.2023 General Manager, WR, SWR, SCR, ECoR, SECR & ECR Sub:- Guidelines for issuing GST invoices for O&M charges against SPVs and accounting of GST invoices from SPVs for User charges.
Ref:- ED(Infra)-l 's letter No. 20171Infra/18/2/dated 21.09.2023 W.P.(C) 655/2024 & Connected Matters Page 5 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:49 ****** Railway Board vide above referred letter has advised to SPVs that in terms of Ministry of Finance Office Memorandum dated 04.01.2023, it would transfer apportioned revenue to SPVs inclusive of GST starting from FY 2023-2024. There are two transactions involved.
a. O&M charges payable by SPVs to Railways. b. User charges payable by Railways to SPVs.
2. As on date IR is required to raise Tax invoices on its customer under forward charge mechanism. Therefore, all O&M charges recoverable from SPVs on Forward charge Mechanism will attract GST @ 18%. Similarly, SPVs share of apportioned revenue would include as element of 18% GST as clarified by Board vide letter ibid.
Following accounting processes are Indicated for immediate Implementation.
a) Spy will raise GST compliant Invoice on IR in respect of Apportioned Revenue, which would include GST @ 18%. For example, apportioned revenue payable to a SPVs is Rs. 1001-, the concerned SPVs shall raise GST Invoice on the concerned Railway for Rs. 84.75 plus GST @ 18% of Rs. 15.25. Concerned Zonal Railway shall account for this Invoice in IPAS and will use appropriate Input Tax Credit Flags 'T4' or 'C2' as the case may be.
Accounting Entries shall be as follows:
Expenditure Head ----- Dr. Rs. 84.75 Misc. Advance (GST) ----- Dr. Rs. 15.25 (T4 or C2-Flag) Misc. Advance (GST) ------ Cr. Rs. 100/- Deposit Misc (SPV) --------------------------- Cr. Rs. 100/-
b) Concerned Zonal Railway shall issue GST compliant Tax Invoice on the SPVs for O&M Charges. For example, if Rs. 10/- is recoverable from the SPVs, then IR shall issue GST Invoice with base value of Rs. 10/- plus GST @18% of Rs. 1.80 totaling to Rs. 11.80. Concerned Zonal Railway shall use the CRIS GST Manual utility system to generate Tax Invoice and report the same in the GST Returns.
Accounting Entries shall be as follows:
Deposit misc. (SPV) Dr. Rs. 11.80 Deposit Misc. (Outward GST Liability) ----- Cr. Rs. 1.80 Relevant Expenditure Head ------ Cr. Rs. 10.00
c) Basis above, net payment is to be made to SPV which works out to Rs. 88.20 (Rs. 100 Apportioned Revenue - O&M charges of Rs. 11.80.W.P.(C) 655/2024 & Connected Matters Page 6 of 13
This is a digitally signed order.
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 28/03/2024 at 20:56:50 Accounting entries shall be as follows::
Deposit misc. (SPV) ---- Dr. Rs. 88.20 (by clearing Rs. 100 (a' above) and Rs. 11.80 ('b' above).
Cheques and Bills ---------- Cr. Rs. 88.20
d) Outward GST liability of Rs. 1.80 as illustrated at (b) above gets offset by Input Tax Credit as brought out at (a) above, while discharging the GST liability by the Principal Railways every month.
3. It is clarified that:
• Rate of GST on O&M charges is 18% • Invoicing for O&M charges is to be done within 7 days of working out of Apportioned earnings for SPV.
2017/AC-II/1/19/SPVs (Part) 1/30&2227/2023 a. Payment to SPVs may be made only after SPV issues GST compliant Tax invoice and after adjusting the O&M charges to be recovered from SPVs.
b. Other Taxed and duties recoveries by IR viz. TDS etc. shall be complied with as per statutory requirement.
This issue with the approval of competent authority.
Signed by VipulTripathi Date 30-11-2023 19:30:14 (VipulTripathi) Director/ Accounts Railway Board EmailID:[email protected] Ph. No. 8920027770"
12. The letter dated 05.12.2023 calls upon the petitioners to raise invoices in terms of the aforesaid letter dated 30.11.2023. The same reads as under:
"Western Railway FA & CAO's Office Churchgate - Mumbai W.P.(C) 655/2024 & Connected Matters Page 7 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:50 No. TA/AII/RCA/KRCL/Corr./18/2021 Dated: 05.12.2023 To, Managing Director, Kutch Railway Company Ltd.
2nd floor, Indra Palace H-Block, Connaught Circus New Delhi- l 10001 [email protected] Sub: Instructions regarding guidelines for issuing GST invoices for O&M Charges against SPVs and accounting of GST invoices from SPVs User Charges Ref: Railway Board's Letter No. 2017/AC-II/1/19/SPVs (part) dt. 30.11.2023 **** Please find herewith a copy of Railway Board's letter under reference regarding detailed guidelines issue of Tax Invoices for the payment of User Fee/Share of freight and recovery of O&M Charges etc. for the financial year 2023-24, Apportionment Matrix of freight share for the month of October 2023 received from CRIS-NDLS is also sent herewith in soft copy through e-mail.
You are therefore requested to please submit the Tax Invoice for payment of User Fee/Share of freight as per para 2(a), so that payment can be arranged accordingly.
MANUSI SIGH DY. CAO (TA) CCO"
13. Learned senior counsel for the petitioners submits that the aforesaid letters are in the teeth of Sections 9, 15, 49(9) of the Central Goods and Services Tax Act, 2017 (CGSC Act), and also contrary to the letter dated 05.11.2023, addressed by the Minister of Railways to the Ministry of Finance, whereby it has been categorically stated that calculations of apportioned revenue/user charges that are required to be paid by the respondents to the petitioner SPVs have to be computed exclusive of GST. It is further contended that the aforesaid letters are wholly arbitrary, and result in insidious discrimination inasmuch as for the purpose of O&M charges that are required to be collected by the Indian Railways from the petitioner SPVs, the calculation has been made exclusive of GST, whereas a W.P.(C) 655/2024 & Connected Matters Page 8 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:50 completely different yardstick has been adopted in relation to the apportioned revenue/user charges that are required to be collected by the petitioner SPVs from the Indian Railways.
14. In the counter-affidavit, filed on behalf of the respondents, the impugned letters have been sought to be justified on the basis that :
(i) The Ministry of Railways is merely implementing the decision rendered by the GST counsel as set out in the O&M dated 04.01.2023.
(ii) That in terms of the Clause 23.2 of the Model Concession Agreement, the user fee to which the petitioner SPVs are entitled, is to be inclusive of all taxes and duties.
(iii) It is further submitted that there is an arbitration clause in the Concession Agreement between the parties and disputes regarding apportionment of revenue/recovery of O&M charges can be resolved by way of invocation of the arbitration agreement between the parties.
15. Having considered the respective contentions of the parties, and on a prima facie conspectus, the petitioners have made out a case for grant of an interim stay of the impugned communications. The reasons are enumerated hereunder.
16. A perusal of the O&M dated 04.01.2023, which is cited by the respondents as one of the reasons for issuing the aforesaid impugned communications dated 21.09.2023 and 30.09.2023, reveals that the same merely says that the apportioned revenue payable to the SPVs by the Indian Railways as also the O&M costs, charged by the Indian Railways from the SPVs constitutes a "taxable supply". The said office memorandum reads as under:
"F No. 190354/613/2022-TRU W.P.(C) 655/2024 & Connected Matters Page 9 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:50 Government of India Ministry of Finance Department of Revenue (Tax Research Unit) *** Room No. 146G, North Block Dated: 4th January, 2023 Office Memorandum Subject: Proposal for exemption of SPVs/Concession under PPP Scheme- Reg.
The undersigned is directed to refer to Reference No. Infra/PPP/1 dated 10.06.2022 from Ministry of Railways requesting clarification on taxability of revenue apportioned by Indian Railways to Special Purpose Vehicles (SPVs) and O&M costs charged by Indian Railways (IR) from SPVs.
2. The issue was placed before the 48th GST Council meeting held on 17th December, 2022. As recommended by the Council, it is hereby clarified that IR and the SPV are distinct persons. Supply of services by SPV to IR by way of allowing IR to use infrastructure built and owned by them during the concession period against consideration in the form of pro rata share of revenue is a taxable supply. Similarly, services of maintenance supplied by IR to SPV is a taxable supply.
(Smita Roy) Technical Officer (TRU-II) To:
Infra-I, Railway Board Ministry of Railway (The Executive Director)"
17. The petitioners are right in contending that the said office memorandum nowhere mandates/directs that the user charges payable to the SPVs by the Indian Railways must be deemed to be inclusive of GST. As such, there is no nexus between the Office Memorandum dated 04.01.2023, issued by the Ministry of Finance and the decision/direction of the Ministry of Railways that the apportioned revenue entitlement of the petitioner SPVs would be inclusive of GST.
18. Further, reliance on 23.2.1 of the Model Concession Agreement for W.P.(C) 655/2024 & Connected Matters Page 10 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:51 the purpose of deeming that the apportioned revenue entitlement/user fee payable to the petitioners would be inclusive of GST, is misconceived for the reason that the said Model Concession Agreement is dated 2012, whereas the concerned Concession Agreement/s with the petitioner SPVs were executed much prior thereto; the said Concession Agreements do not contain any provision pari materia with Clause 23.2.1, as referred to in the impugned letter No.2017/Infra/18/2 dated 21.09.2023.
19. Further, a reading of the impugned RBA No.37/2023, dated 30.11.2023 reveals that there is a clear dichotomy/inconsistency in the treatment accorded to the revenue entitlement of the SPVs under the Concession Agreement/s vis-à-vis the O&M charges payable by the petitioner SPVs to the railways. There is no basis, either in contract or under the GST Laws for such differential treatment.
20. Learned senior counsel for the petitioners is right in relying upon Section 9, 15, 49 (9) of the CGST, 2017 to contend that the GST is leviable on supply of goods/services on the value determined under Section 15; further under Section 15 of the CGST Act, 2017 the value of supply of goods and services is the transaction value. Prima facie, it is in contravention of the statutory prescription to deem the transaction value as being inclusive of GST. This not only results in arbitrary shifting of the GST burden from the Indian Railways to the petitioners but also results in arbitrary reduction of the transaction value itself.
21. The situation becomes worst confounded on account of the fact that when it comes to O&M charges that are required to be collected by the Indian Railways from the petitioner (SPVs), the calculation is sought to be made on the basis that the said charges are exclusive of GST. As mentioned, W.P.(C) 655/2024 & Connected Matters Page 11 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:51 there is no rationale for this contradictory approach.
22. The respondents have not been able to point out any provision in the Concession Agreement between the parties which suggests that there is a contractual bargain to the effect that the apportioned revenue/user fee entitlement of the petitioner SPVs shall be inclusive of all taxes and duties.
23. Thus, I find merit in the contentions on behalf of the petitioners that the impugned letters dated 21.09.2023 and 30.11.2023 are wholly without authority of law, contrary to the framework of the GST Laws and also inconsistent with the contract between the parties.
24. Further, it is incorrect for the respondents to contend that the exigibility of GST on the taxable value of supply/services under the framework of the Inter State Goods and Services Tax Act, 2017 (IGST, 2017) can be a subject matter of determination in inter-se arbitration proceedings between the parties, especially when there is no contractual provision which suggests that the burden of GST is to be borne in a manner different from that contemplated under the statute.
25. In the circumstances, the petitioners have made out a case for grant of an interim injunction. Consequently, it is directed that till disposal of the present petition, the operation of the impugned letters dated 21.09.2023 and 30.11.2023 shall remain stayed.
26. The parties shall be obliged to raise invoices, taking into account the provisions and implications of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) and bear the burden of taxes accordingly.
27. The applications stand disposed of.
W.P.(C) 655/2024 W.P.(C) 761/2024 W.P.(C) 655/2024 & Connected Matters Page 12 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:51 W.P.(C) 762/2024 W.P.(C) 763/2024 List for final hearing on 20.05.2024.
SACHIN DATTA, J MARCH 21, 2024/cl W.P.(C) 655/2024 & Connected Matters Page 13 of 13 This is a digitally signed order.
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 28/03/2024 at 20:56:52