Reddy Enterprises vs The State Of Ap
2023 Latest Caselaw 1672 AP

     THE HON'BLE SRI JUSTICE U. DURGA PRASAD RAO
                                 AND
THE HON'BLE SRI JUSTICE V. GOPALA KRISHNA RAO

                        W.P.No.1433 of 2023

ORDER: (Per Hon'ble Sri Justice U. Durga Prasad Rao)

       The challenge in this writ petition is to the proceedings dated

10.11.2022 vide reference No.ZD370922009810G under Section

74(5) of APGST Act, 2017 directing the petitioner to pay

Rs.56,95,19,461/- towards differential tax, interest and penalty for

evasion of the due tax as illegal and arbitrary.

2.     Petitioner's case briefly is thus:

       (a) Petitioner is a proprietary concern engaged in

outsourcing employees to A.P. State Beverages Corporation/4th

respondent and A.P. Mineral Development Corporation/5th

respondent in various categories. The petitioner obtained GST

registration and has been filing monthly returns as stipulated in

GSTR 3B and paying the tax.

(b) Petitioner entered into agreements with respondents 4

and 5 to outsource the employees of various categories. In addition

to the remuneration towards wages, the contractee has inter alia

agreed to pay the specified amounts as contribution towards EPF,

ESI in terms of G.O.Ms.No.151 (Fin-HR-I) Planning & Policy,

dated 08.08.2016. In addition to above mandatory payment, the

contractee has agreed to pay service charges to the petitioner @

2.17%.

(c) As per Section 9 of the APGST Act, the petitioner is

liable to pay GST on receipt of the service charges alone. The

petitioner is no way concerned with any other payment. The

petitioner collects EPF and ESI from the Government and pays to

the respective authorities. While so, the dispute is on account of

Form GST DRC-01A which was issued under Section 74(5) of

APGST Act as per which, the GST was calculated on the entire

value or payment received by the petitioner, though the liability of

the petitioner under GST law is only on the service charges being

paid and received by the petitioner.

(d) The petitioner is only an agent of respondents 4 and 5 for

outsourcing of manpower for which, as an agent, the petitioner gets

service charges at an agreed percentage. Hence the 3rd respondent

has no legal foundation to impose tax, interest and penalty U/s

74(5) of the APGST Act. The impugned order is shorn of details.

The petitioner has submitted a representation dated 19.09.2022

stating that taxable value reported in GSTR-3B returns relate to the

service charges paid to her and over and above the said service

charges, there is no tax liability under APGST Act, 2017.

(e) The 3rd respondent issued show cause notice along with

the statement of dues in DRC-01 on 23.09.2022, for which the

petitioner submitted response dated 22.10.2022 contending that the

levy of GST for provision of services may be restricted only to the

consideration for the services provided and payments made to the

employees outsourced to respondents 4 and 5 towards wages, ESI

and EPF shall not form part of taxable turnover. However, the 3rd

respondent passed impugned Assessment Order. Hence the writ

petition.

3. Briefly the averments in the counter filed by 3rd respondent

are thus:

(a) Admittedly, the petitioner is engaged in the business of

Man power supply services to respondents 4 & 5 and others. The

3rd respondent passed the Assessment Order dated 10.11.2022

under Section 74 of the APGST Act, 2017 levying tax of

Rs.23,79,26,090/-, penalty equal to tax, and interest of

Rs.5,36,10,496/- which is being impugned in the present writ

petition. The contention of the petitioner that the 3rd respondent

levied tax on amounts received by the petitioner other than service

charges and imposed interest and penalty equivalent to the tax

without any legal foundation is incorrect.

(b) The petitioner is a registered tax payer vide GSTN

37AKAPM1969NIZM and filed stipulated monthly returns in

GSTR 3B reporting therein the taxable value and paying tax

accordingly. The petitioner entered into agreement with the

respondents 4 and 5 for providing services of outsourcing of

employees in various categories and admittedly he is receiving

total amount including service charges, EPF, ESI as per the

guidelines laid down in G.O.Ms.No.151 dated 08.08.2016.

However, the said G.O. has nothing to do with the GST payable by

the petitioner for computation of taxable value of the supply. In

this regard, the contention of the petitioner that under Section 9 of

the APGST Act, the GST is limited to the service charges alone

received by the petitioner and the amounts received towards EPF,

ESI etc. cannot be included is not correct. On the other hand, as

per Section 15(2) of the AGPST Act, 2017, the value of supply

includes taxes, duties, cesses, fees and charges levied under any

law for the time being in force other than the APGST Act, 2017

and CGST Act. Further, as per Section 2(31), the term

"consideration" in relation to the supply of goods or services or

both includes, any payment made or to be made whether in money

or otherwise, in respect of, in response to, or for the inducement of,

the supply of goods or services or both, whether by a recipient or

by any other person but shall not include any subsidy given by the

Central or State Government. In view of above legal position, the

payment received for supply of taxable service shall be treated as

"consideration" and GST shall be charged on the total

consideration. The above provisions do not specifically mention

that the GST shall be charged on service charges alone. The

payment of employee's or employer's share in EPF and ESI is a

statutory obligation cast upon the petitioner under the EPF Act and

ESI Act, but such liability will not have any bearing on the

computation of taxable supply under the APGST Act.

(c) In addition to above, a perusal of invoices raised by the

petitioner shows that the petitioner has charged GST on the total

value of the supply and has not restricted the GST to his services

charge portion alone.

(d) The contention of the petitioner that the tax liability plus

interest and penalty were fixed without any legal foundation is

baseless. The Adjudicating Authority issued intimation of tax

liability in DRC 01A on 29.07.2022 and show cause notice in DRC

01 was issued on 23.09.2022 fixing personal hearing dates on

02.09.2022 and 06.10.2022. Thus, the Adjudicating Authority has

followed due procedure as contemplated under the provisions of

the Act and principles of natural justice while finalizing the orders

in DRC 07. The vast difference between turnover reported in

GSTR 3B and turnover assessed in DRC 07 was due to the

turnovers adopted for assessment as per books of accounts

maintained by the petitioner and information received from

respective departments. The variation in taxable turnovers was

tabulated month-wise in DRC 01 itself. Hence, the contention that

there was no legal foundation for fixation of the tax liability is not

correct.

(e) The contention of the petitioner that the wages provided

to the employees and statutory payments of EPF and ESI, etc., will

not fall within the ambit of the GST is not correct. In the context

of the APGST Act, 2017, the petitioner is the service provider and

the recipients are the Government corporations and as such there is

no employer and employee relation between the petitioner and

respective corporations. The salaries, wages are being provided by

the petitioner herself and EPF, ESI etc are also paid by her. The

supply being taxed is supply of manpower services by the

petitioner to various corporations. In the course of providing the

services, the petitioner may incur various expenditures like salaries

and other related obligations. However, the supply made by the

petitioner does not fall under the ambit of employee-employer

relationship as mentioned in Schedule III of the Act and is not

eligible for any exemption.

(f) The petitioner has raised invoices to the service recipients

and charged full tax @ 18% GST on each invoice. The contention

of the petitioner that they have reported gross considerations

inadvertently in GSTR 1 is not correct. On the other hand, it shows

the understanding of the petitioner that the total consideration

received is liable to GST, as the short payment of tax was

determined as per the provisions of Section 74. The said provision

carries with it the applicable penalty and interest. Accordingly, the

tax penalty and interest are proposed and are confirmed by

following due procedure. The petitioner while charging GST @

18% on total invoice value, but at the same time paying tax on

lesser value only to the extent of service charges is a clear violation

of the law leading to unjust enrichment and therefore, the petitioner

cannot turn round and claim that the impugned order is illegal.

Hence, the writ petition may be dismissed.

4. Heard arguments of learned Senior Counsel Sri

M.V.K.Murthy representing Sri M.V.J.K. Kumar, learned counsel

for the petitioner and learned Government Pleader for Commercial

Taxes-I representing 3rd respondent.

5. Learned Senior Counsel Sri M.V.K.Murthy, argued at length

that the components i.e., wages, ESI and EPF, will not form part of

the value of the taxable supply of the services for the reason, the

wages were paid to the respective employees and the amounts were

paid towards ESI and EPF to discharge the statutory obligation and

the petitioner has not retained those amounts with her and therefore

they do not form part of the consideration received by the

petitioner for the services rendered to the recipients i.e.,

respondents 4 and 5. He would vehemently argue that the net

service charges collected by the petitioner alone form part of the

consideration which is exigeble to GST. He would also argue that

since the petitioner is an agent on behalf of respondents 4 and 5,

the amounts covered by wages, ESI and EPF were paid by the

petitioner as an agent of respondents 4 and 5 and hence those

amounts cannot be added to the service charges received by the

petitioner. Learned senior counsel would strenuously argue that in

the reply dated 22.10.2022 submitted to the show cause notice the

petitioner has clearly raised the above objection and contended that

the authority has no legal sanctity to assess the petitioner to tax.

However, the 3rd respondent without considering the objections of

the petitioner in a right perspective and without affording an

opportunity of hearing, passed the impugned order. Learned

counsel would submit that the petitioner is an old lady aged 75

years and she could not respond immediately through her

authorized representative to submit arguments on behalf of the

petitioner. Learned counsel thus prayed to set aside the impugned

order dated 10.11.2022 and remit the matter to the 3rd respondent to

hear the petitioner's objections and pass appropriate order afresh.

6. Per contra, learned Government Pleader while opposing the

writ petition would firstly contend that the writ petition is not

maintainable and liable to be dismissed in limini as the petitioner

has efficacious and alternative remedy to file appeal against the

impugned Assessment Order. Nextly, he argued that as per Section

15(2) of A.P.G.S.T.Act, the components like wages, statutory taxes

etc., shall form part of value of taxable supply and therefore it is

preposterous for the petitioner to contend that only the net amount

i.e., Service Charges paid to the petitioner alone is liable for GST.

Learned Government Pleader vehemently argued that in fact the

petitioner has collected GST on the total amount received by her

from respondents 4 and 5, which is evident from the explanation

dated 22.10.2022 submitted by her. However, she paid the GST

only on the net Service Charges received by her by retaining major

portion of the GST collected from respondents 4 and 5. Hence the

petitioner is guilty of undue and enrichment. In that view, the writ

petition is not maintainable. He further argued that petitioner

cannot contend that she is a mere agent of respondents 4 and 5 and

that the wages, EPF, ESI etc., were paid by her to their employees

on their behalf and therefore those amounts cannot be taken into

consideration to compute the value of taxable supply. Conversely

he would argue that there is no employer employee relationship

between respondents 4 and 5 on one hand and petitioner and her

manpower. He would emphasise that it is a case of pure supply of

services of manpower by the petitioner on receiving the monitory

consideration. Therefore, the entire value of the services shall be

treated as a taxable supply. It is altogether a different aspect that,

from out of the consideration received by the petitioner, she has to

meet the expenses like wages, statutory deductions like ESI and

EPF. He thus prayed to dismiss the petition.

7. The point for consideration is, whether there are merits in the

Writ Petition to allow?

8. POINT: We gave our anxious consideration to the above

respective submissions. Admittedly the 3rd respondent issued show

cause notice dated 23.09.2022 U/s 74(1) of A.P.G.S.T. Act, 2017

fixing the tax due with interest and penalty of Rs.52,48,58,430/-

and instructed the petitioner to submit reply within 15 days of

receipt of notice. It is a further admitted fact that, as against the

show cause notice, the petitioner filed her objections dated

22.10.2022 contending that GST is taxable only on the Services to

recipients but not on the ESI, EPF and wages etc. In the said

objections, the petitioner also mentioned that the earlier letter

submitted by her on 19.09.2022 may be treated as withdrawn. Now

the grievance of the petitioner is that without considering the

objections dated 22.10.2022 and without providing an opportunity

of hearing to the petitioner, the 3rd respondent passed the impugned

Assessment Order dated 10.11.2022 fixing the tax liability,

thereby, the petitioner who is an old aged lady of 75 years lost her

valuable opportunity to put forth her case. The respondent denied

the aforesaid contention and argued that due opportunity was given

to the petitioner and thereafter only the impugned order was

passed.

9. In this context, we perused the impugned order dated

10.11.2022, wherein it is mentioned, as against the show cause

notice dated 23.09.2022, the petitioner submitted a letter of

objection dated 22.10.2022 raising her objection that the tax

proposed on the wages, ESI and EPF etc., should be excluded from

the taxable turnover. In the impugned order, it is further stated that

the objection of the petitioner cannot be considered in view of

Section 15(2) of A.P.G.S.T. Act, 2017. It is further mentioned that

the petitioner was provided opportunity of hearing on 06.10.2022,

11.10.2022, 24.10.2022 and 09.12.2022. For the notice date

01.11.2022, the petitioner filed a letter seeking one week time to

attend due her ill health. Again in respect of the scheduled hearing

dated 24.10.2022, the petitioner filed a letter dated 22.10.2022.

Subsequently also the petitioner filed a letter stating that due to ill

health she was unable to attend personally and that she filed a Writ

Petition before the High Court of Andhra Pradesh questioning the

best judgment orders passed by the Jurisdictional Authority for the

tax period from May 2021 to September 2021. Thereupon, as per

the communication received from the Joint Commissioner (ST)

Vijayawada-II Division, leaving the tax period of May 2021 to

September 2021, the assessment is confined under the present

impugned order for the remaining period i.e., April 2021 and from

October 2021 to March 2022. Accordingly, the impugned

Assessment Order was passed fixing a total tax liability including

interest and penalty at Rs.56,95,19,461/-.

10. In our considered view, no doubt the 3rd respondent has

extended some opportunity to the petitioner for personal hearing.

However, the fact remains that the petitioner could not avail the

said opportunity in view of her old age as she being aged 75 years

and also due to her ill health. Having regard to a high tax amount

plus interest and penalty proposed to be laid and nature of the

contention raised by the petitioner, the 3rd respondent ought to have

extended some more opportunity to the petitioner for personal

hearing. Therefore, without going into the merits of petitioner's

case, we are of the considered opinion that a direction shall be

issued to the 3rd respondent to afford a personal hearing to the

petitioner and pass Assessment Order afresh in accordance with

law on suitable terms.

11. Accordingly, without reference to the merits of the

petitioner's case, the impugned Assessment Order dated

10.11.2022 passed by the 3rd respondent is set aside on the

condition of petitioner depositing 50% of tax component of

Rs.23,79,26,090/- as mentioned in the impugned order dated

10.11.2022 within six (6) weeks from the date of receipt of a copy

of this order and upon such deposit, the 3rd respondent shall fix a

date for personal hearing of the petitioner with regard to her

objections to the proposed assessment and after hearing the

petitioner, pass an appropriate Assessment Order in accordance

with the governing law and rules expeditiously. In case, the

petitioner fails to make the deposit as mentioned supra, this order

shall be deemed cancel.

Accordingly, this Writ Petition is disposed of. No costs.

As a sequel, interlocutory applications pending, if any, shall

stand closed.

_________________________ U. DURGA PRASAD RAO, J

___________________________ V. GOPALA KRISHNA RAO,J

MVA/KRK/NNN 24.03.2023