2025 (5) TMI 553 - HC - GST

GST on advertising services provided to foreign clients - Intermediary service - CBIC Circular No. 230/24/2024-GST dated 10th September 2024 and No. 199/11/2023-GST dated 17th July 2023 read with Circular No. 210/4/2024-GST dated 26th June 2024 - HELD THAT - Having regard to CBIC Circular No. 230/24/2024-GST dated 10th September 2024 and the violation of the principles of natural justice in respect of the Employee Stock Option Plan issue it is found appropriate to set aside the Impugned Order and remand the case for a de-novo consideration. Accordingly the impugned order dated 26th August 2024 is quashed and set aside. Matter restored back.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are as follows:

(i) Whether the tax demand raised against the petitioner in respect of export transactions amounting to Rs. 18,91,89,054 is sustainable in light of the CBIC Circular No. 230/24/2024-GST dated 10th September 2024, which was not available at the time the original order was passed.

(ii) Whether the tax liability imposed on the petitioner concerning the Employee Stock Option Plan (ESOP), amounting to Rs. 87,91,435, is justified, particularly considering the petitioner's claim that only the value of allotted shares was paid without additional consideration and the services pertain to a different State (Haryana) rather than Maharashtra.

(iii) Whether the petitioner was denied the principles of natural justice in the adjudication process, specifically regarding the failure of the authorities to require or consider supporting documents for the ESOP issue.

(iv) Whether the petitioner's claim for eligibility of full Input Tax Credit (ITC) and deeming the supply value as 'Nil' under Rule 28 of the Central Goods and Services Tax Rules, 2017, and Circular No. 199/11/2023-GST dated 17th July 2023, was properly considered by the adjudicating authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Tax Demand on Export Transactions

Relevant Legal Framework and Precedents: The CBIC Circular No. 230/24/2024-GST dated 10th September 2024 provides clarifications on tax demands related to export transactions. Additionally, the Court referred to its earlier order dated 11th December 2024 in a similar writ petition, where a similar demand was quashed and remanded for reconsideration in light of this Circular.

Court's Interpretation and Reasoning: The Court noted that the impugned order was rendered without the benefit of the aforementioned Circular. The Circular clarified the treatment of export transactions for GST purposes, which materially affects the tax demand raised. The Court observed that for the subsequent period, the proper officer had already dropped the demand on this issue, indicating recognition of the Circular's applicability.

Key Evidence and Findings: The petitioner relied on the Circular and the subsequent order dropping the demand to argue that the tax demand on export transactions was unsustainable. The Court acknowledged the absence of the Circular during the original adjudication and the petitioner's reliance on the same.

Application of Law to Facts: Given the Circular's clarifications and the subsequent dropping of demands for the later period, the Court found it appropriate to allow the petitioner to place these materials before the adjudicating authority for fresh consideration.

Treatment of Competing Arguments: The Court did not decide on the merits of the competing contentions but allowed the parties to present their arguments afresh in light of the Circular.

Conclusions: The Court set aside the impugned order on this issue and remanded the matter for reconsideration incorporating the Circular's guidance.

Issue (ii): Tax Liability on Employee Stock Option Plan (ESOP)

Relevant Legal Framework and Precedents: The tax treatment of ESOPs under GST law, including valuation principles and place of supply rules, are relevant. The petitioner invoked Rule 28 of the Central Goods and Services Tax Rules, 2017, and Circular No. 199/11/2023-GST dated 17th July 2023, which provide guidance on valuation and ITC eligibility.

Court's Interpretation and Reasoning: The Court observed that the petitioner's claim that only the value of allotted shares was paid, without additional consideration, was recorded in the impugned order but disregarded due to lack of supporting documentation. The Court found fault with the adjudicating authority for not putting the petitioner on notice to produce such documents, which amounted to a breach of natural justice.

Key Evidence and Findings: The petitioner contended that the services related to ESOP pertain to the State of Haryana, not Maharashtra, which has implications for the place of supply and tax liability. The Court noted that the adjudicating authority failed to consider this aspect adequately.

Application of Law to Facts: The Court emphasized that the petitioner must be given an opportunity to produce documents and make submissions on the valuation and place of supply issues. The failure to do so compromised the fairness of the adjudication.

Treatment of Competing Arguments: The Court refrained from deciding the substantive tax liability but highlighted the procedural irregularity and the need for fresh consideration.

Conclusions: The Court set aside the impugned order on this ground and directed a de novo adjudication, ensuring the petitioner's right to be heard and to produce evidence.

Issue (iii): Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice require that a party be given a fair opportunity to present its case, including the right to be heard and the right to produce evidence.

Court's Interpretation and Reasoning: The Court found that the adjudicating authority failed to put the petitioner on notice to produce specific documents related to the ESOP issue. This omission violated the principles of natural justice.

Key Evidence and Findings: The petitioner's submissions on the valuation and place of supply were not adequately considered, and no opportunity was afforded to remedy the alleged evidentiary deficiency.

Application of Law to Facts: The Court held that such procedural lapses undermine the fairness of the proceedings and warrant setting aside the order and remanding the matter for fresh adjudication.

Treatment of Competing Arguments: The Court did not delve into the merits but focused on procedural fairness.

Conclusions: The Court concluded that the violation of natural justice was a sufficient ground to remand the matter for reconsideration.

Issue (iv): Eligibility for Full Input Tax Credit (ITC) and Valuation under Rule 28

Relevant Legal Framework and Precedents: Rule 28 of the Central Goods and Services Tax Rules, 2017, and Circular No. 199/11/2023-GST dated 17th July 2023, govern the valuation of supplies and eligibility for ITC, particularly in the context of ESOPs.

Court's Interpretation and Reasoning: The Court noted that the petitioner's claim for full ITC and deeming the supply value as 'Nil' was not addressed by the adjudicating authority in the impugned order.

Key Evidence and Findings: The petitioner's submissions on this point were recorded but not considered, indicating an omission in the adjudication process.

Application of Law to Facts: The Court found that this omission further justified remanding the matter for fresh consideration where all relevant claims and defenses must be properly addressed.

Treatment of Competing Arguments: The Court left the merits open for the adjudicating authority to consider afresh.

Conclusions: The Court directed the authority to consider the petitioner's claims regarding ITC and valuation during the de novo proceedings.

3. SIGNIFICANT HOLDINGS

The Court held:

"Noting this Court order dated 11th December 2024 in Writ Petition (L) No. 33734 of 2024, and having regard to CBIC Circular No. 230/24/2024-GST dated 10th September 2024, and the violation of the principles of natural justice in respect of the Employee Stock Option Plan issue, we find it appropriate to set aside the Impugned Order, and remand the case for a de-novo consideration."

"The 2nd Respondent