Services provided by the Government to business entities including by way of grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment of consideration in the form of fee, royalty etc. are taxable under GST. Same was the position under Service Tax regime also with effect from 1st April, 2016. Tax is required to be paid by the business entities on such services under reverse charge.
However, GST Council in its 26th meeting held on 10.03.2018, recommended that GST was not leviable on license fee and application fee, by whatever name it is called, payable for alcoholic liquor for human consumption and that this would apply mutatis mutandis to the demand raised by Service Tax/Excise authorities on license fee for alcoholic liquor for human consumption in the pre-GST era, i.e. for the period from 01-04-2016 to 30-06-2017.
Grant of liquor licences by State Government against payment of consideration in the form of licence fee, application fee etc. was a taxable service under Service Tax, therefore to implement GST Council’s recommendation, Central Government decided to exempt service provided or agreed to be provided by way of grant of liquor licence by the State Government, against consideration in the form of licence fee or application fee, by whatever name called, during the period from 01.04.2016 to 30.06.2017. Clause No. 117 of Finance Act, 2019 made the necessary amendment in this regard.
Thus, by virtue of the above amendment, any such fee by whatever name called became refundable if refund was sought by the assessee within a period of six months from the date of enactment, i.e. from 01.08.2019.
In one of the recent Cestat order dated 01.02.2022, in the case of Rambagh Palace Hotel Pvt. Ltd. v. Commissioner, Central Excise & CGST, Jaipur-1 (2022) 2 TMI 1074 (Cestat, New Delhi), assessee was allowed refund of Service Tax paid under reverse charge mechanism on license fee paid for grant of license to the State Government. The Tribunal observed / asserted / held as follows :
1) The payment of service tax was held to not to be the liability of the appellant any more in terms of the amendment introduced by Finance Act, 2019 provided that the levy pertains to the period from 01.04.2016 to 30th June, 2017.
2) The refund claim to which appellant become entitled pursuant to the introduction of retrospective amendment was filed within the stipulated time period of 6 months of coming into effect the Finance Act of 2019.
3) Apparently and admittedly, present case was not the case of alleged duty evasion. Rather the payment of service tax for the Financial Year 2017-18 admittedly was made by the appellant though subsequently, but with respect to the liability that accrued during the period mentioned in clause 116 of Finance Act, 2019 which came into effect from 01.08.2019.
4) There was utmost compliance of all statutory provisions on part of the appellant. There appears no evasion of duty. Question of malafide intent on part of the appellant, in the given circumstances, also did not appear. More so, Department did not issue any Show Cause Notice at the relevant time proposing imposition of penalty or for proposing the duty demand against the appellant. The impugned refund has also been filed in utmost compliance of the provisions of law i.e. the amendment by Finance Act, 2019.
5) The impugned refund would not have ever been applied had there not been an amendment in Finance Act, 2019, that too with the retrospective effect. The said amendment since came two years later, also the duty was not paid at the appropriate time but payments was made later after it was pointed by the audit team, that too, under reverse charge mechanism. Hence, from no stretch of imagination, it can be presumed that the burden of said payment would have been passed on to the customers.
6) The only reason for such presumption is that the aforesaid amount has been shown as an expense in profit and loss account by the appellant. Since the payment was made under RCM there appears no error on part of appellant when the said payment is shown as expense in the profit and loss account.
7) Maffatlal Industries (1997) 89 ELT 247 (SC) case was distinguished.
8) Thus, it was held refund was rightly sanctioned by the original adjudicating authority and the refund does not get hit by the principle of unjust enrichment. The appeal was, therefore, allowed.
Decisions of GST Council
Further, GST Council in its 37th meeting held on 20.09.2019 further recommended that the decision of the 26th GST Council meeting be implemented by notifying service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee or by whatever name it is called, by State Government as neither a supply of goods nor a supply of service. Therefore, in exercise of powers conferred under sub-section 2 (b) of section 7 of CGST Act, 2017, Notification No. 25/2019-Central Tax (Rate) dated 30th September, 2019 has been issued.
GST Council further decided in the 37th meeting held on 20.09.2019, to clarify that this special dispensation applies only to supply of service by way of grant of liquor licenses by the State Governments as an agreement between the Centre and States and has no applicability or precedence value in relation to grant of other licenses and privileges for a fee in other situations, where GST is payable.
Retrospective Amendment made by Finance Bill, 2022 in CGST / IGST / UTGST [Clause 117, 120 and 123 of Finance Bill, 2022]
The summary of these amendments is as follows:
- Clause 117 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 746(E), dated the 30th September, 2019 with effect from the 1st day of July, 2017.
- Clause 120 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 745(E), dated the 30th September,2019 with effect from the 1st day of July,2017.
- Clause 123 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 747(E), dated the 30th September, 2019 with effect from the 1st day of July, 2017.
- Thus, Notification No. 25/2019-CT (Rate) dated 30.09.2019 shall have retrospective effect from 01.07.2017. The said Notification No. 25/2019-CT (Rate) dated 30.09.2019 declares that “services by way of grant of alcoholic liquor license against consideration in the form of license fee or application fee or by whatever name it is called” shall neither be treated as supply of goods or supply of services.
- Similar retrospective amendment has been proposed in respect of Notification 24/2019-IT(Rate) dated 30.09.2019, vide clause 120 of the Finance Bill.
- Similar retrospective amendment has been proposed in respect of Notification 25/2019-UTT (Rate) dated 30.09.2019, vide clause 123 of the Finance Bill.
- However, no refund shall be made of all such taxes which have been collected but which would not have been so collected, had the notification been in force during relevant period. The tax already paid shall not be refunded (as if it may always be considered as a cost incurred for being honest taxpayer).
- It implies that tax collected / paid between 01.07.2017 and 30.09.2019 will not be refunded now, i.e., those who have paid will not get refund but those who did not paid till now need not pay such tax.
The above amendments goes on to imply that no GST was ever leviable on supply of services by way of grant of grant of alcoholic liquor licence against any consideration in the form of licence fee or application fee or by whatever name it is called as such supply shall w.e.f. 07.07.2017 never be treated as supply of goods or supply of services.
In other words, the aforesaid notifications shall be deemed to have been, for all purposes, come into force on and from the 1st day of July, 2017, i.e, no GST on services of grant of liquor license by State Governments.
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