GST IS PAYABLE ON RAILWAY LICENCE FEE CHARGED

[Mr. M. GOVINDARAJAN]

Parking services

Railway Department allows its space in front of the station for parking cars, vehicles of the passengers.  The said parking has been let in contract.  The contractors get the contract from the Railway by paying a licence fee and collect charges from the end consumers for parking their vehicles in the premises. 

Registration by contractors

In this regard, the Railway issued a press note on 17.11.2017  the ‘parking lot services’ fall under HSN code No. 996743 and liable to pay GST @ 18% on the parking charges paid.  The Railway advised the contractors to take registration with the GST Department and levy GST @ 18% on parking charges received from the end customers and deposit the same to the exchequer of the Central Government.

The Railway further directed the contractors to pay GST @ 18% on the licence fee and remit the tax to Railway along with the Railway fee.  

Writ petitions

Against the above said order the contractors filed writ petitions before High Court, Madras. [M. SRINIVASAN, R. SUBBURAJ, ASHOK ANNAL, R. VISHNU VERSUS UNION OF INDIA, RAILWAY BOARD, FINANCIAL ADVISER & CHIEF ACCOUNTS OFFICER, THE SENIOR DIVISIONAL COMMERCIAL MANAGER AND OTHERS - 2021 (5) TMI 39 - MADRAS HIGH COURT]. The writ petitioners are contractors who were granted licence to run parking areas for vehicles in the Railway premises by Southern Railway.  The agreements made with the Railway were duly signed by the contracts.  The contractors agreed to pay the following-

• Licence fee of ₹ 2,75,000/-;
• Enhanced licence fee of 10% every year;
• All cesses, rates, water charges, taxes and other charges or taxes in respect of the said premises or proportion of all cesses, rates, water charges, taxes and other charges of taxes of the said premises;

The cess and other charges will be payable annually with the first installment while the licence fee will be payable in quarterly installments.

The licence period expired for some writ petitioners.  The said writ petitioners sought for the refund of deposit amount which has been refused by the Railway on the ground that they have not paid the GST on licence fee.  Therefore they filed the writ petitions seeking refund of deposit made with the Railways earlier. 

The writ petitioners submitted the following before the High Court-

• The Statute does not contemplate such payment of 18% CGST/SGST.
• When there is no provision to collect the GST from the contractors on the licence fee then the terms and conditions of the agreement became null and void and therefore the conditions imposed in the agreement would not be binding on the contractors.
• Section 32(2) of the Act provides that no registered person shall collect tax except in accordance with the provisions of the Act and rules made there under.
• The demand made by the Railway is in violation of the provisions of the CGST Act and therefore the writ petitions are to be allowed.
• Presuming that the Railways are entitled to collect GST under reverse charge mechanism, then also they can do it only in the case of services supplied by the Central Government by way of renting of an immovable property under Notification dated 25.01.2018.
• As per the agreement it is renting of an immovable property, which is not falling under the scope of GST Act and therefore the writ petitioners are not liable to pay GST as demanded by the Railway.
• What is not contemplated under the provisions of the Act cannot be permitted to be exercised.
• When there is specific bar under section 32, there is no reason to make a demand for recovery of GST from the writ petitioners.
• The said demand is unauthorized in view of the following judgments-

• MANNALAL KHETAN VERSUS KEDAR NATH KHETAN [1976 (11) TMI 135 - SUPREME COURT]
• C PAULOSE, M/S SPARKWAY ENTERPRISE VERSUS CCE [2011 (1) TMI 11 - SUPREME COURT]
• AIRPORT AUTHORITY OF INDIA VERSUS COMMISSIONER OF SERVICE TAX, DELHI AND COMMISSIONER OF SERVICE TAX, DELHI VERSUS AIRPORT AUTHORITY OF INDIA [2015 (1) TMI 1049 - CESTAT NEW DELHI]

• The Railway treated the parking as rented out of property and therefore the same would not fall under the provisions of CGST Act and the writ petitioners are not liable to pay tax.

The Southern Railway objected to the contentions of the petitioners and submitted the following before the High Court-

• All the agreements and pre contract proposals were signed by the writ petitioners agreeing to pay the taxes as applicable under CGST Act.
• Once the contract is signed it is not on the part of the contract to turn around saying that the contractor is not liable to pay GST.
• The Southern Railway has to pay GST on the licence fee collected from the contractors and the contractors are liable to pay the GST on the charges received from the end customers.
• There is no reason whatsoever to grant exemption as far as these contractors are concerned and the grounds raised for exemption is not contemplated and the writ petitioners are not attempting to mis-interpret the provisions of CGST Act and therefore the writ petitioners are liable to be dismissed.
• The provisions of CGST Act are unambiguous.
• The term ‘supply’ includes licence, rental, lease or disposal made.
• The scope of supply contemplated under the Act is wider enough to cover the services rendered both by the Railways to the contractors and the contractors to the end customers.

The High Court considered the submissions put forth by the parties to these writ petitions.  The High Court observed that the liability regarding tax regime is concerned, the Courts are expected to adopt strict interpretation of law.  Liberal interpretation is impermissible, which can be adopted only in certain welfare legislations.  As far as the tax laws are concerned, it is to be borne in mind that strict interpretation of provisions are to be adopted, so as to recover taxes from the assessees by following the procedures contemplated.

The High Court further observed that in the present case, the liability of the licensees is well enumerated with reference to Section 7 and Schedule II to the Act.  When the liability is unambiguous and the nature of services are also falling within the scope of Section 7 read with Schedule II, then there is no reason to consider the claim of the writ petitioners to invoke section 32.   When the collection of tax is in consonance with the provisions of the Act, the provisions of section 32 cannot be invoked. 

The High Court held that the judgments relied on the petitioners were decided prior to the implementation of GST and these cases would not be of any avail to the cases of the present petitioners.  The writ petitioners have agreed to pay tax taxes even during pre contract when the proposals were released and therefore, now they cannot turn around and seek exoneration from payment of service tax as applicable.

The High Court held that the provisions of CGST Act are unambiguous and explicitly provided under this Act, there is no scope for entertaining the grounds as raised in the present writ petitioners and all the writ petitions are devoid of merits and accordingly stands dismissed.