GST Payable on License fees from contractors for vehicle parking on Railway premises

M. Srinivasan Vs Union of India (Madras High Court)

Conclusion: Southern Railways had to pay the GST Tax with reference to the license fee collected from the contractors and the contractors were liable to pay the service tax with reference to the parking fee collected from the customers, who all were end users. Thus, both the Railways as well as the contractors were bound to pay, if they were falling within the ceiling contemplated under the provisions of the CGST Act. However, exemption would be applicable only in respect of the services provided by the contractors to the customers/end users and in such cases, the contractors were not liable to pay taxes directly to the GST Department.  This being the clarification only with reference to the exempted services under the provisions of the CGST Act, the non-exempted cases, could not seek any exoneration.

Held: Assessees were Contractors, who were granted license to run parking areas for vehicles in the Railway premises by the Southern Railway. However, in respect of expired license, Southern Railways was not refunding the deposit amount and therefore, they were constrained to move the present writ petitions. The deposits were not refunded on the ground that they were liable to pay CGST/SGST at 18% as per the terms and conditions of the agreement. The demand was made by Southern Railway to pay 18% of GST in respect of  license fee granted to Private Contractors to run parking of vehicles. Assessees mainly contended that the Statute did not contemplate such payment of 18% CGST/SGST. When there was no provision to collect the GST from the contractors on the license 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. In this regard, assessees relied on Section 32  and sub-clause (2) to Section 32 stipulates that “no registered person shall collect tax except in accordance with the provision of this Act or the Rules made thereunder. In the present case, even before the introduction of the present CGST Act, the Contractors were paying the taxes based on the erstwhile Act, mainly Service Tax Act. After the implementation of the CGST Act, when there is prohibition of unauthorised collection of tax, the demand now made by the Southern Railways is in violation of the provisions of the CGST Act and therefore, the writ petitions were to be allowed. It was made very clear that the Southern Railways was bound to pay service tax on the license fee collected from the contractors for whom license was granted to run vehicle parking in the premises of the Southern Railways and such contractors, who all were the licensees, were bound to register their names under the CGST Act and on such registration, they were bound to pay service tax for the parking fee collected from the end users. Thus, there were two services involved in the entire transactions and the first service was from the Railway to the contractors and the second service was from the contractors to the customers/ end users. As far as the exempted services under the provisions of the Act, were concerned provided by the contractors to the customers/end users, in such an event, the contractors were not liable to pay tax to the GST Department. However in respect of the license fee, the Railway was liable to pay service tax to GST by collecting from the contractors on the license fee. However, exemption would be applicable only in respect of the services provided by the contractors to the customers/end users and in such cases, the contractors were not liable to pay taxes directly to the GST Department. This being the clarification only with reference to the exempted services under the provisions of the CGST Act, the non-exempted cases, could not seek any exoneration. Whether such services rendered by assessees were exempted or not, was to be verified by the Competent Authorities of the GST Department and accordingly suitable orders might be passed.

FULL TEXT OF THE JUDGMENT/ORDER of MADRAS HIGH COURT

These writ petitions were filed questioning the demand made by the Southern Railway to pay 18% of GST in respect of the license fee granted to the Private Contractors to run parking of vehicles.

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