Case Law Details
Manappuram Finance Limited Vs Union of India (Kerala High Court)
Kerala HC Sets Aside GST Advance Ruling for Failure to Decide Whether Land Conversion Fee Is ‘Supply’; Kerala HC Remands GST Case After Advance Ruling Authority Ignored Key Section 7 Issue; Kerala HC Quashes Advance Ruling for Not Examining Taxability of Section 27A Payments; Kerala HC Says GST Authorities Must Decide Both ‘Supply’ and Exemption Issues in Land Fee Dispute.
The petitioner company challenged the orders passed by the Kerala Authority for Advance Ruling and the Appellate Authority for Advance Ruling regarding GST implications on payments made to the Government of Kerala under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2008. The issue concerned whether reverse charge liability under Notification No.13/2017-CT (Rate) dated 28.06.2017 applied to payments made for changing land classification from wetland to ordinary land in village office records and for obtaining permission to construct an office complex for business purposes.
The petitioner argued that the Advance Ruling Authority framed two issues: whether there was a supply of service under Section 7 of the CGST Act, 2017, and whether there was consideration for such service. However, according to the petitioner, the authorities failed to properly examine whether the fee paid under Section 27A itself constituted a “supply” within the meaning of Section 7(1) of the CGST Act. Instead, the authorities proceeded to hold that the activity did not qualify for exemption from supply.
The respondents contended that only activities falling within Articles 243G and 243W of the Constitution would be excluded from the scope of supply or service under the notification, and therefore the charges paid under Section 27A were not exempt.
The Kerala High Court observed that the dispute involved two distinct issues: first, whether the fee paid under Section 27A fell within Section 7(1) of the CGST Act as a taxable supply, and second, whether the notification issued under Section 7(2) exempted such activity. The Court noted that both the Advance Ruling Authority and the Appellate Authority addressed only the exemption aspect and failed to determine whether the activity itself constituted a supply under Section 7(1).
Holding that both issues required proper consideration, the High Court set aside the impugned orders and remitted the matter to the Kerala Authority for Advance Ruling for fresh adjudication after granting opportunity to all parties. The Court clarified that it had not expressed any opinion on the merits of the dispute and directed that all issues be reconsidered afresh in accordance with law.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner – which is stated to be a company – challenges Ext.P3 order issued by the 3rd respondent – Kerala Authority for Advance Ruling; as also Ext.P5 Appellate order issued by the 4th respondent – Appellate Authority for Advance Ruling, Kerala, on various grounds.
2. Sri. R. Jaikrishna – learned counsel for the petitioner, pointed out that the question that his client posed, through Ext.P2 application for an advance ruling, was “whether reverse charge liability under Notification No.13/2017-CT (Rate) dated 28.06.2017 is attracted on the payment made to the Government of Kerala under Section 27A of Kerala Conservation of Paddy Land and Wetland Act 2018 for change of description of land from wetland to ordinary land in Government of Kerala Village office records and for permission for construction of office complex for the purpose of business.” (sic). He pointed out that the 3rd respondent – Kerala Authority for Advance Ruling, framed the following issues, as evident from Ext.P3:
(i) Whether there was any supply of service within the meaning of Section 7 of CGST Act 2017; and
(ii) Whether there was any consideration for rendering the service by the service provider.
3. Sri. R. Jaikrishna, however, complained that the 3rd respondent – Authority, did not consider whether the fees paid by his client, under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2008 (‘Act’ for short), would comprise ‘supply’, to thus fall within the meaning of Section 7 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’); but went on to then hold that such activity cannot be treated as “not falling under supply of goods or supply of services.” He contended that the holdings of the Advance Ruling Authority are in error; but that, even though his client challenged it before the 4th respondent – Appellate Authority, the opinion rendered was the same, as evident from Ext.P5. He explained that his client, therefore, has no other option, but to approach this Court through this Writ Petition.
4. Sri. P. R. Sreejith – learned Standing Counsel for respondents 4 and 5, in refutation, submitted that the holdings of the Authorities as reflected in Exts.P3 and P5 are without error because, going by the notification in question, only those activities which come squarely within the ambit of Articles 243G and 243W of the Constitution of India, are exempted from being treated as ‘supply’ or ‘sale’; and that therefore, the payment of charges under Section 27A of the ‘Act’ would certainly stand excluded.
5. Smt. Thushara James – learned Senior Government Pleader and Sri.Renjish S. Menon – learned Central Government Counsel, adopted the afore submissions of Sri. P. R. Sreejith; affirming that the impugned orders are without error.
6. We face a practical impediment in deciding this matter on its merits at the first instance, for the reasons we will presently state.
7. No doubt, the question encompasses two issues, as has also been found by the Kerala Authority for Advance Ruling, as reflected in Ext.P3, extracted supra.
8. The argument of the appellant is also two fold, namely, that the fee paid under Section 27A of the ‘Act’ does not fall within the purlieus of Section 7(1) of the ‘CGST Act’; and alternatively, that, even if it were so, the notification issued under Section 7(2) thereof would render it exempt.
9. No doubt, both Exts.P3 and P5 orders answer the second limb affirmatively, saying that it is only those activities which fall within the sweep of Articles 243G and 243W of the Constitution of India that can be treated to be not a ‘supply’ or not a ‘service’; however, the question whether the activity falls within the umbra of Section 7(1) of the ‘CGST Act’ has not been answered.
10. We have little doubt that, while the question was answered, both the afore limbs ought to have been granted due consideration and opinion on them recorded. In answering the question posed, the opinion on these two are virtually composite, rather than disjoint; and if it is found that the first limb is worthy, then obviously, the answer would have been different. However, this was never considered either by the 3rd respondent or the 4th respondent.
11. We are, therefore, constrained to remit the matter to the 3rd respondent – Kerala Authority for Advance Ruling, who will reconsider Ext.P2 application in terms of law, adverting to both the issues raised, which are reflected in paragraph No.4.2 of Ext.P3.
In summation, we allow this Writ Petition and set aside Exts.P3 and P5; with a consequential direction to the 3rd respondent – Kerala Authority for Advance Ruling, to reconsider Ext.P2 application of the petitioner, adverting to our observations above and after affording necessary opportunities to both sides; thus culminating in an appropriate fresh order, answering both the limbs of the contentions and the issues noticed, as expeditiously as is possible.
Needless to say, we have not entered into the merits of any of the rival contentions, nor have we spoken approvingly or otherwise on the findings already entered in Exts.P3 and P5; and reiteratingly clarify that all issues shall be considered afresh in terms of our afore directions.
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