Sri Avantika Contractors I Limited, vs Appellate Authority For Advance Ruling ... on 6 August, 2024

Legal Analysis: Sri Avantika Contractors I Limited vs. Appellate Authority For Advance Ruling**

1. Outcome
The Writ Petition is allowed. The Order-in-Appeal No.AAAR/04/2022 dated 16.07.2022 passed by the Appellate Authority for Advance Ruling (GST), and consequently, the Advance Ruling dated 05.08.2021, are set aside. The respondents are directed to reimburse the amount of GST, interest, and penalty (if any) deposited by the petitioner in respect of the construction services provided in Maldives within 90 days.

2. Core Issue
The core issue was whether the 'works contract service' for the construction of a Police Academy in Addu city, Maldives, executed by an Indian company (Petitioner) for another Indian company (NBCCL, Respondent No.2), which was appointed by the Government of India, is liable for Goods and Services Tax (GST) under Indian GST laws. This involved the interpretation of:
* Whether the establishments of the Petitioner and NBCCL in Maldives constituted 'fixed establishments' under the IGST Act.
* The 'location of the supplier' and 'location of the recipient' of services.
* The 'place of supply' for services directly related to immovable property located outside India.

3. Key Facts
* The Government of India (GoI) and the Government of Maldives entered into an MoU for the construction of the Institute of Security and Law Enforcement Studies (ISLES) in Addu city, Maldives, funded by the GoI.
* GoI appointed National Buildings Construction Corporation Ltd. (NBCCL), an Indian company (Respondent No.2), as the 'Executing Agency'.
* NBCCL awarded the construction contract for ISLES to Sri Avantika Contractors (I) Limited, an Indian company (Petitioner).
* The entire construction work for ISLES was carried out in Addu city, Maldives.
* Both the Petitioner and NBCCL established 'site offices' or 'fixed establishments' in Maldives for the execution and supervision of the project over several years, engaging a sizeable number of personnel.
* The Petitioner underwent 're-registration' in Maldives as required by Maldivian company law to operate there.
* Consideration for the works contract was paid by NBCCL (located in New Delhi) to the Petitioner (registered in Hyderabad) in Indian Rupees.
* The Petitioner initially filed GST returns declaring the supplies as 'zero-rated'.
* NBCCL obtained a legal opinion stating that the project was not taxable under Indian Service Tax/GST laws.
* The Petitioner sought an Advance Ruling, which determined the services were taxable under Indian GST.
* The Appellate Authority for Advance Ruling (AAAR) affirmed this decision, leading to the present Writ Petition.
* Contractual clauses between GoI-NBCCL and NBCCL-Petitioner stipulated reimbursement of any taxes, duties, or levies imposed by Indian or Maldivian Governments.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (Sri Avantika Contractors I Limited):

  • Indian GST laws are territorial and do not apply to services entirely executed outside India.
  • The Petitioner's and NBCCL's establishments in Maldives are 'fixed establishments' under Section 2(7) of the IGST Act, characterized by permanence and resources.
  • The 're-registration' in Maldives did not create a separate legal entity, but merely allowed the Indian company to operate locally.
  • Applying Sections 2(14)(b) and 2(15)(b) of the IGST Act, the 'location of the recipient' and 'location of the supplier' of the services are the respective 'fixed establishments' in Maldives.
  • Section 8 (Explanations 1 & 2) of the IGST Act supports treating establishments in India and outside India as distinct for GST purposes.
  • Section 13(4) of the IGST Act, which specifically governs place of supply for services directly related to immovable property where the supplier or recipient is outside India, dictates that the place of supply is where the property is located (Maldives).
  • Even if tax were applicable, contractual terms mandate reimbursement by GoI to NBCCL and then to the Petitioner.
  • Filing 'zero-rated returns' was an error during the initial confusion of GST implementation and does not create an estoppel against claiming the correct legal position.

• Revenue (Appellate Authority for Advance Ruling/CBIC):

  • The Petitioner (supplier) and NBCCL (recipient) are both Indian entities, registered in India (Hyderabad and New Delhi respectively).
  • The agreement to perform the contract was made in India, making the 'location of the supplier' and 'location of the recipient' in India under Sections 2(14)(a) and 2(15)(a) of the IGST Act.
  • The Petitioner's re-registered entity in Maldives is a separate legal person/entity, distinct from the Indian company, and thus the Maldivian establishment is not a 'fixed establishment' of the Indian company under Section 2(7).
  • No payment was received in convertible foreign exchange, a prerequisite for 'export of services' (zero-rated supply).
  • Section 12(3)(a) of the IGST Act, read with its proviso, applies. Since the location of both supplier and recipient is in India, and the immovable property is outside India, the place of supply is the location of the recipient (New Delhi).
  • The scope of judicial review under Article 226 is limited; the court should not re-evaluate facts unless there's a flaw in the decision-making process or perversity.

• Respondent No.2 (NBCCL):

  • Agreed with the Petitioner that the works contract services are not taxable under Indian GST laws and that the impugned orders are legally flawed, particularly regarding the interpretation of Sections 8 and 13(4) of the IGST Act.
  • Acknowledged establishing a 'fixed establishment' in Maldives.
  • However, contended that the Petitioner's claim for reimbursement of tax is a contractual obligation and should be pursued under civil law, not through a Writ Petition.

5. Court’s Reasoning
The High Court meticulously analyzed the statutory provisions and the facts, concluding:
* 'Fixed Establishment' and 'Separate Legal Entity': The court found that both the Petitioner and NBCCL did establish 'fixed establishments' in Maldives, satisfying the criteria under Section 2(7) of the IGST Act. It clarified that 'registered place' in Section 2(7) refers to registration under Indian laws, not foreign re-registration. The 're-registration' of the Petitioner in Maldives was a statutory requirement to commence business, not the creation of a separate legal entity. Treating it as a separate entity would imply no contract existed with the Indian company for project execution, which is factually incorrect.
* Location of Supplier and Recipient: The Appellate Authority erred in holding that where services were supplied/received was 'immaterial'. The court held that Sections 2(14)(b) and 2(15)(b) of the IGST Act are applicable. Since the services were received by NBCCL's fixed establishment in Maldives and supplied from the Petitioner's fixed establishment in Maldives, their respective fixed establishments in Maldives determine their 'locations' for the purpose of these services. This means the location of supplier and recipient for these services are outside India.
* Impact of Section 8 Explanations: The court noted that Explanations 1 and 2 of Section 8 of the IGST Act, which treat an establishment in India and another outside India as 'distinct persons' and consider a branch/agency as an 'establishment', were overlooked by the authorities. These explanations reinforce the concept of the Maldivian establishments being distinct from the Indian registered offices.
* Place of Supply – Section 13(4) vs. Proviso to Section 12(3):
* The court found that Section 13(4) of the IGST Act is the specific and governing provision for services related to immovable property where the location of the supplier or recipient is outside India. It unambiguously states that the 'place of supply' is where the immovable property is located, i.e., Maldives.
* Even if the proviso to Section 12(3) (which deals with cases where supplier/recipient are in India but property is outside India) were considered, the court reasoned that the 'location of the recipient' would still refer to NBCCL's fixed establishment in Maldives (as per Section 2(14)(b)). Therefore, under either interpretation, the place of supply is outside India.
* Taxability: Since the 'place of supply' of the works contract service is in Maldives (outside India), the provisions for levy and collection of GST under Section 9 of the CGST Act (intra-state supply) or Section 5 of the IGST Act (inter-state supply) are not applicable.
* Judicial Review: The court found sufficient grounds for judicial interference under Article 226, as the Appellate Authority's decision was based on (i) failure to consider relevant statutory provisions (Sections 8 and 13 of IGST Act), (ii) erroneous interpretation of other key definitions (Sections 2(7), 2(14), 2(15) of IGST Act), and (iii) reaching a conclusion that no reasonable person could.
* Zero-Rated Returns: The argument regarding the Petitioner's filing of 'zero-rated returns' was rejected on two grounds: (i) it was not a reason cited in the impugned orders, and (ii) an erroneous return does not create estoppel against the law, especially considering the early stages of GST implementation.
* Merger Doctrine: The court confirmed that challenging the Appellate Authority's order implicitly covers the Advance Ruling due to the doctrine of merger.
* Reimbursement: The court directed reimbursement as a consequential relief to setting aside the invalid tax demands.

6. Statutory References
* Constitution of India: Article 12, Article 226
* Central Goods and Services Act, 2017 (CGST Act):
* Section 2(50) - 'Fixed establishment' (pari materia to IGST)
* Section 2(56) - 'India'
* Section 2(70) - 'Location of the recipient of services' (pari materia to IGST)
* Section 2(71) - 'Location of the supplier of services' (pari materia to IGST)
* Section 2(84) - 'Person' (including 2(84)(n) - artificial juridical person)
* Section 2(93) - 'Recipient'
* Section 2(105) - 'Supplier'
* Section 2(119) - 'Works contract'
* Section 9 - Levy and Collection of CGST
* Integrated Goods and Services Tax Act, 2017 (IGST Act):
* Section 2(6) - 'Export of services'
* Section 2(7) - 'Fixed establishment'
* Section 2(14) - 'Location of the recipient of services' [Clauses (a) and (b)]
* Section 2(15) - 'Location of the supplier of services' [Clauses (a) and (b)]
* Section 8 - 'Intra-State Supply' (with Explanations 1 and 2)
* Section 10 - (Referred in Section 8)
* Section 12 - 'Place of supply of services where location of supplier and recipient is in India' [Sub-section (1), (3)(a) and Proviso to (3)]
* Section 13 - 'Place of supply of services where location of supplier or location of recipient is outside India' [Sub-section (1), (3), (4)]
* Section 16 - 'Zero-rated supply'
* Section 73, Section 74 - (Reference to in-house mechanism)
* Companies Act, 2013 (India): Section 2 (definitions of 'company', 'foreign company')
* Companies Act of Republic of Maldives (Law No.: 10/96): Section 94(a)

7. Precedents Cited
1. Abhishek Kumar v. NBCCL, 2017 SCC OnLine Jhar 290
2. ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd., (2004) 3 SCC 553
3. Gas Authority of India Ltd. Indian Petrochemicals Corporation Ltd., (2023) 3 SCC 629
4. The Appropriate Authority v. Sudha Patil, (1998) 8 SCC 237
5. Isotex Corporation (P.) Limited v. Union of India, (2024) 162 taxmann.com 276 (Gujarat)
6. Jotun India (P.) Limited v. Union of India, (2023) 147 taxmann.com 212 (Bombay)
7. Mohinder Singh Gill v. The Chief Election Commissioner, 1978 (1) SCC 405
8. Jayaswal Neco Ltd. v. Commissioner of Central Excise, 2015 (322) E.L.T 587 (SC)
9. Sundaram Pillai v. Pattabiraman, (1985) 1 SCC 591
10. Swadeshi Match AB v. Securities and Exchange Board of India, (2004) 11 SCC 641
11. Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector & ETIO, (2007) 5 SCC 447