K.J. Mathew VS State Of Kerala

The petitioner, a tax assessee with GSTN 32AEMP3886J1Z1, is engaged in supplying manpower to various establishments based on their requisitions. The third respondent, a subsidiary of Hindustan Paper Corporation Limited, is undergoing winding-up proceedings, with the fourth respondent appointed as the Liquidator.

In 2015, the petitioner entered into agreements with the third respondent for the upkeep of various plants, covering 42 and 20 items of services respectively. While the petitioner remitted tax for the 42 items as per the agreement terms, they did not do so for the 20 items. These agreements were periodically extended.

When GST was introduced in 2017, the third respondent issued separate work orders to the petitioner for the two types of services. For the 42-item service, a work order was issued from 01.07.2017 to 31.03.2018, and a similar order was issued for the 20-item service. Subsequently, new work contracts (Exhibits P1 and P2) were issued for both categories of services from 01.07.2018 to 31.03.2019.

Exhibit P1 specifies the petitioner’s liability to pay GST for the 42 items, which they complied with. However, Exhibit P2, pertaining to the 20 items, does not stipulate GST liability for the petitioner. According to the contract terms, the petitioner, as the service provider, is not responsible for GST payment for the 20 items; instead, it’s the obligation of the third respondent, as the service recipient, to remit GST for these services in accordance with the contract terms.

Thus, the petitioner asserts that they are not liable to pay GST for the 20 items of services as per the contract terms, and it is the responsibility of the third respondent to fulfill this obligation.

The petitioner, operating under the genuine belief that the third and fourth respondents were fully compliant with the terms of their work contracts, was taken aback when the fifth respondent issued Notices P3 and P4 under Section 122 of the State Goods and Services Act, demanding penalties for the fiscal years 2017-2018 and 2018-2019.

These notices were issued despite the understanding that the third and fourth respondents were responsible for remitting GST for the services listed in Exhibit P2, as per the terms of the work contract. However, the fifth respondent asserted that without clarification from a court of law, they couldn’t exempt the petitioner from the demands outlined in P3 and P4.

The petitioner’s primary arguments are as follows:

(a) Exhibit P1, covering 42 services, mandates the petitioner to bear all taxes and duties, including GST, whereas Exhibit P2, for 20 services, doesn’t include such a clause. Thus, while the petitioner is obligated to pay GST under P1, they aren’t under P2.

(b) Referring to the Supreme Court ruling in Rashtriya Ispat Nigam Limited v. M/s Dewan Chand Ram Saran, the petitioner contends that contractual agreements can shift the burden of indirect taxes, such as GST, from the service provider to the recipient. Since P1 includes a clause for tax burden, it shifts this responsibility to the petitioner, but P2 lacks such a provision.

(c) Section 51(2) of the Central Goods and Services Tax Act, 2017, stipulates that the deductor (service recipient), which in this case is the third respondent, is obligated to remit GST to the government. Therefore, Notices P3 and P4 issued to the petitioner, the service provider, disregarding the terms of the contracts, are unjustifiable and illegal.

(d) Citing the Supreme Court’s ruling in Assistant Commissioner, Ekm v. Hindustan Urban Infrastructure Ltd. and Others, the petitioner argues that the liquidator, as a dealer under the provisions of the General Sales Tax Act, cannot evade liability for GST applicable to the third respondent company.

The petitioner has approached the court with several prayers in the writ petition, seeking relief from the notices (Exhibits P3 and P4) issued to them. These prayers include quashing the notices, declaring that the petitioner is not liable to pay Goods and Service Tax (GST) as demanded in the notices, directing the concerned authorities to drop coercive steps related to the notices, and compelling the third and fourth respondents to remit the GST as demanded in the notices. Additionally, the petitioner requests any other reliefs deemed fit by the court.

During the hearing, arguments were presented by the petitioner’s counsel, the Government Pleader representing respondents 1 and 5, counsel for the third respondent, and the Assistant Solicitor General representing the Union of India. Notice to the fourth respondent was dispensed with due to the nature of the orders proposed.

The court directed the fifth respondent, who issued the impugned notices, to provide instructions. In response, the Government Pleader informed the court that the notices are preliminary and decisions have not been finalized. The petitioner was advised to file written objections and submissions without delay, following which the matter would be decided after affording a reasonable opportunity for the petitioner to be heard.

The petitioner’s counsel suggested that coercive steps for enforcing the notices be suspended until a final decision is made. However, the Government Pleader argued that such a suggestion was based on a misconception, as the notices are still at a preliminary stage and no enforcement steps have been initiated.

The crux of the petitioner’s argument revolves around the terms and conditions of the work contract (Exhibit P2), which allegedly exempt the petitioner from GST liability for 20 specified services. They contend that, according to the contract, the third respondent, as the service recipient, is legally obligated to remit the GST for these services.

The petitioner’s counsel, Sri M.P. Prajeesh, heavily relies on a Supreme Court judgment, Rashtriya Ispat Nigam Ltd v. M/s. Dewan Chand Ram Saran [2012 (5) SCC 306], which establishes that a statutory assessee can enter into agreements to shift the burden of indirect taxes, such as service tax, to another party. This judgment highlights that service tax, being an indirect tax, can be passed on to other parties through contractual agreements. Additionally, counsel refers to another Supreme Court case, Asst. Commissioner, Ernakulam v. Hindustan Urban Infrastructure Ltd. [2015 (3) SCC 745], where it was ruled that a liquidator of a company under liquidation is considered a dealer under the provisions of the General Sales Tax Act. Therefore, the petitioner argues that the liquidator, the fourth respondent in this case, cannot escape liability for paying GST applicable to the third respondent company.

However, the court opines that it is not necessary to delve into the merits of these contentions at this stage. The learned Government Pleader rightly points out that the petitioner has not yet responded to the notices (Exts. P3 and P4). The court emphasizes that it is incumbent upon the petitioner to promptly submit their written objections or submissions in response to the notices within two weeks from the date of receiving the certified copy of the judgment.

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