TMI Blog2021 (4) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... ions liable to pay GST on the balance, and is this not recoverable from Saifee Developers? - Saifee Developers construct is actually self-defeating. It accepts that on 14th June 2018 it opted to treat the entire amount as a purchase price. The wrangle is about the number of flats. That is immaterial for my purposes. Whether it is one huge flat or a hundred smaller flats will make no difference to the applicability of GST or to the concept of time of supply of services under Section 13. Once the nature of the transaction is determined, then the Section begins to operate. Notably, Section 13(2) uses earliest not once, but twice. The first time is in the main sub-section (2). It is repeated in Explanation (ii). The emphasis, therefore, is clearly to peg the time of supply of services to the logically earliest possible date: when the service was provided or when the payment was received in Section 13(2)(b); and, if a question of date of payment arises, then the earlier of the entry in the books of account or date of receipt of payment - Shanklesha Constructions entry in its books is after the date of receipt of payment. The earlier of the two must apply. It is nobody s case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST ). The order of 28th February 2020 noted, recorded and accepted that statement made on instructions by counsel then engaged by Saifee Developers. B. SUMMARY OVERVIEW 6. I have heard Mr Andhyarujina for Saifee Developers and Mr Khandeparkar for Shanklesha Constructions at length. I have considered the rival submissions, including on interpretation of Section 13 of the Central Goods and Services Tax Act 2017 ( GST Act ). 7. The sole issue is whether or not Saifee Developers is liable to pay GST on what has metamorphosed (from its earlier manifestation as a joint venture agreement) into an agreement for the sale of flats in a project being undertaken by Shanklesha Constructions. There is some discord about the number of flats this new agreement contemplates, but that is of no consequence. According to Mr Andhyarujina, on a correct interpretation of the GST Act, and particularly Section 13 of that Act, as no service has as yet been rendered - the flats not having been delivered - in the peculiar facts of this case, Saifee Developers is not required to pay any GST at all to Shanklesha Constructions. He does not dispute that, in law, the liability to pay GST into reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020 order), I permitted him full latitude in presenting his case on the interpretation of the relevant provisions of the GST Act. In my judgment, the view that Mr Andhyarujina canvasses on interpretation does not commend itself. It seems to me to be wholly against the plain meaning and language of the section in question, and possibly fraught with all manner of unintended consequences. 11. The dismissal of the Review Petition necessarily means, in my view, that the Interim Application must be allowed. Mr Khandeparkar is correct when he says that the only response to his Interim Application on behalf of Shanklesha Constructions is the Review Petition. I have made the Shanklesha Constructions Interim Application absolute, with one qualification. 12. My reasons follow. I begin with the two orders in question. Then there is a short summary of the facts necessary for this order. The key dates are undisputed, and the facts are not many. Next, I consider the rival submissions, including on interpretation of the relevant provisions of the GST Act. The last section has the conclusion and the operative order. C. THE TWO ORDERS IN QUESTION 13. I begin by reproducing the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se disputes between the partners pending arbitral proceeding. He submits that in case the injunction as inter se between the partners is vacated, in that event the petitioner should be kept informed of the vacating of the injunction so that the petitioner can have those 10 flats. It would not be unreasonable if such request as made by Mr. Tamboli, learned counsel for the petitioner is granted. Respondent shall accordingly inform the petitioner in case the injunction is vacated. It is clarified that this direction is made so that the parties make an endeavour to resolve the disputes between the parties considering the undisputed facts on record. 21] At this stage, Mr. Tamboli would submit that in view of the objection of the respondents that the MOU is not sufficiently stamped, his clients would take immediate steps to make payment of the stamp duty within a period of two weeks from today. (Emphasis added) 15. The two statements by Saifee Developers to which Shanklesha Constructions says it must be held are (i) the commitment to pay the GST; and (ii) the payment of stamp duty under the Agreement in question. 16. Shanklesha Constructions appealed. This resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all. This objection is sought to be placed within the frame of Section 19(2) of the Indian Partnership Act 1932. 5. I have only noted these submissions so that there is no ambiguity about the questions that will have to be addressed when that Arbitration Application is taken up. 6. In the Arbitration Petition under Section 9, there are three important orders. The first is the order of GS Kulkarni J of 15th July 2019. At that time, an objection was taken even on the Section 9 Petition in regard to sufficiency of stamping. GS Kulkarni J made an order saying that the question would not arise in the Section 9 Petition. That matter was carried in appeal. The appeal was disposed of on 13th August 2019. The Appeal Court only suspended GS Kulkarni J s directions in regard to a disclosure that he had ordered. 7. In the meantime, when the matter was before me on 13th December 2019, I considered an Interim Application filed by the Respondent represented by Mr Khandeparkar. There was a question of payment of GST and in paragraph 6 of that order I said this: 6. So far as prayer clause (c) is concerned, this is for a direction to the original Petitioners to pay to the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transparently handled and that the Petitioner will be kept apprised of all these developments. If there is any refund, Mr Tamboly s clients must be assured of receiving a pro-rated reimbursement to the extent of that refund as well. Mr Tamboly has for his part indicated quite clearly what are the safeguards that are required because, as he puts it, his client is making payment of an amount towards tax that, according to the Petitioner, is firstly not due and secondly, under an Agreement between the Parties, was the responsibility of the Respondents represented by Mr Khandeparkar. I am not addressing the merits of this contention at all. I am only endeavouring to neutralise the question of GST so that this does not become an additional externality or destabilising factor in the disputes between the two parties which are entirely contractual and with which the revenue is in no way concerned. Mr Khandeparkar states that a resolution in this fashion - i.e. a without prejudice payment to his clients by Mr Tamboly s clients of the amount of GST in dispute, a simultaneous payment to revenue by Mr Khandeparkar s clients, and the foregoing mutual assurances on affidavit - will effectively r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by Government of India, Ministry of Finance. This outstanding GST amount with the applicable interest at the relevant time has been communicated to the Petitioner on various occasions and these Respondents have also provided their Chartered Accounts certificate for the same. Hereto annexed and marked as Exhibits A and B are copies of the aforesaid GST circular / notification dated 28th June 2017 and Chartered Accountant s certificate certifying that the aforesaid amount is due and payable as on 31st January 2020. 3. I say that these Respondents agree to accept the aforesaid amount of GST plus interest thereon without prejudice to the rights of the Petitioner on merits of the matter. Subject to receipt of the entire aforesaid amount of ₹ 2,225,54,238/- (Rupees Two Crore Twenty Five Lakhs Fifty Thousand Two Hundred and Thirty Eight Only) or such additional amount as may be required to be paid by the Petitioner on account of further delay in payment on and after 31st January 2020, I agree and undertake: a. To pay the entire amount of GST and interest due on thee said ₹ 15 crores as paid by the Petitioner to these Respondents to the GST authorities; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of the amount, the Respondents will make payment of the entire amount to the GST authorities; (b) that they will within 48 hours of receiving the relevant challan forward a copy to the Advocates for the Petitioners; (c) all the conditions and undertakings in paragraph 3 of the Affidavit extracted above will immediately begin to operate. 8. In view of these statements, upon the Petitioners making payment of the balance amount of GST and accrued interest- (a) the Respondents will register the 15 flats mentioned in paragraph 17(ii) at Exhibit G to the Affidavit in Reply and listed at page 122 of the paper book in favour of the Petitioners. (b) The stamp duty is to be paid in accordance with the agreement between the parties. (c) Upon those flats being registered and the stamp duty being paid any original documents being held by the Petitioners will be returned to the Respondents. (d) If there is any difficulty in this regard liberty to the parties to apply either to the Court or to the arbitrator in an appropriate application under Section 17. 9. It goes without saying that all contentions including whether the GST is at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of real estate development, claims it invested ₹ 15 crores in Shanklesha Constructions development project at village Shahad, Taluka Kalyan, District Thane under an undated Memorandum of Understanding ( MoU ). The project is called Sai Nirvana . Saifee Developers claims that the MoU gave it the choice of either (i) joining the Shanklesha Constructions partnership with a 25% share in the profits and losses; or (ii) taking an allotment of 40,000 sq ft saleable area in the Sai Nirvana project. Saifee Developers says the MoU was executed on 29th May 2015. The dispute is that Saifee Developers says it is entitled to 44 flats in all, comprising this 40,000 sq ft saleable area. Shanklesha Constructions disputes the number of flats. It is not in dispute that 25 flat sale agreements are executed, and 10 of these are registered. Shanklesha Constructions says an annexure to the MoU, on which Saifee Developers relies, is fabricated. 22. For the present purposes, the next relevant date is 14th June 2018. This is the date on which the 2nd Respondent sent an email to Saifee Developers and others inter alia setting out these two options; saying that, on that day, Saifee Develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elates to an interpretation of law and hence slightly different considerations very possibly arise. F. SECTION 13 OF THE GST ACT 31. The GST Act came into force with effect from 8th July 2017. Thus, it was not in force when Saifee Developers paid ₹ 15 crores to Shanklesha Constructions. But it was in force when Saifee Developers exercised its option on 14th June 2018, electing to treat this amount of ₹ 15 crores as being towards the purchase of flats. There is no dispute that GST is payable on flat purchase agreements. The question is, when does that incidence of GST fall? 32. The sale of a flat or an apartment is, it is admitted, a service within the meaning of the law. 33. Section 13 of the GST Act, as amended, reads: 13. Time of supply of services (1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section. (2) The time of supply of services shall be the earliest of the following dates, namely:- (a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under section 31 or the date of receipt of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), the time of supply shall- (a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or (b) in any other case, be the date on which the tax is paid. (6) The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value. (Emphasis added) 34. We are concerned with Section 13(2)(b) and Explanation (ii). Specifically, the question is when is the date of receipt of payment where no tax invoice is issued under Section 31? Explanation (ii) tells us that the date of receipt of payment is the earlier of (i) the date on which the payment is entered in the books of account of the supplier or (ii) the date on which the payment is credited to the supplier s bank account. 35. As we have seen, the entire amount of ₹ 15 crores was paid between January and June 2015, before the GST Act came into force on 8th July 2017. Saifee Developers exercised its option on 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was made, it was not for a sale of flats, and the GST Act was not in operation. 40. There are, as Mr Khandeparkar points out, two answers to this. One is at the factual level, and it is easily met: by showing the amount in the suppliers, i.e., Shanklesha Constructions books as towards the sale of flats. For this, he points to Exhibit E to an additional affidavit dated 5th January 2021. This is a ledger account from 1st April 2012 to 27th November 2020 in the Shanklesha Constructions books of the Saifee Developers account. As of 31st March 2019, this shows the entire amount of ₹ 13.50 crores as towards the sale of flats, and the balance amount of ₹ 1.50 crores from Ali Asgar, on behalf of Saifee Developers, also for that purpose. By 31st March 2019, this could not possibly have been towards any capital account towards a partnership - Saifee Developers had already exercised its option to treat this as a sale of flats on 14th July 2018, after the GST Act came into force. This is also borne out by Shanklesha Constructions Income Tax returns for the Assessment Year 2019 20 (Financial Year 2018 2019), at Exhibit A , page 563 621 of a further affidavit dated 29t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reasonably. In this case, the legislature has indeed acted reasonably and taxed the service provided by training and coaching centre and classes. (Emphasis added) 45. In S Sundaram Pillai v VR Pattabiraman, (1985) 1 SCC 591. the Supreme Court explained the object of a statutory explanation thus: 53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is- (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July 2017. Therefore, it stands to reason that the amount already paid would have to be treated as liable to GST the moment the GST Act began to operate. The 2018 option had to relate back to the date of payment; but on that date, there was no GST. Consequently, the GST regime would apply to this transaction from the date that Act came into force. 50. Saifee Developers construct is actually self-defeating. It accepts that on 14th June 2018 it opted to treat the entire amount as a purchase price. The wrangle is about the number of flats. That is immaterial for my purposes. Whether it is one huge flat or a hundred smaller flats will make no difference to the applicability of GST or to the concept of time of supply of services under Section 13. Once the nature of the transaction is determined, then the Section begins to operate. 51. Notably, Section 13(2) uses earliest not once, but twice. The first time is in the main sub-section (2). It is repeated in Explanation (ii). The emphasis, therefore, is clearly to peg the time of supply of services to the logically earliest possible date: when the service was provided or when the payment was received in Section 13(2)(b); and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tamp duty is to be paid in accordance with the agreement between the parties. (c) Upon those flats being registered and the stamp duty being paid any original documents being held by the Petitioners will be returned to the Respondents. (d) If there is any difficulty in this regard liberty to the parties to apply either to the Court or to the arbitrator in an appropriate application under Section 17. 59. Evidently, if paragraph 17(ii) of the 15th July 2019 order is vacated, this portion of paragraph 8(a) of the 28th February 2020 order cannot survive; for the later order continues the previous one, this time on the statement made by Saifee Developers to pay the GST in 12 weeks. Since Saifee Developers has not made that payment, there is no question of it being allowed to enjoy continued protections including (a) registration of 15 flats or (b) keeping any area free of encumbrances, etc. 60. I placed the matter for a clarification yesterday, 30th March 2021. Mr Khandeparkar on instructions stated that if Saifee Developers makes payment of the GST due (and interest up to date plus penalty if any) within 15 days, i.e., by 15th April 2021, Shanklesha Constructions will ..... X X X X Extracts X X X X X X X X Extracts X X X X
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