IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 6916 of 2012 With SPECIAL CIVIL APPLICATION No. 6915 of 2012 For Approval and Signature:
HONOURABLE MR.JUSTICE V. M. SAHAI HONOURABLE MR.JUSTICE N.V. ANJARIA =========================================
========================================= M/S GSPL INDIA GASNET LIMITED - Petitioner(s) Versus UNION OF INDIA & 1 - Respondent(s) ========================================= Appearance :
Mr. Sujit Ghosh with Mr.D.K.Rana and MR Maulik G Nanavati for the Petitioner.
MR YN Ravani for the Respondents.
========================================= CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE N.V. ANJARIA Date : 22 /08/2012 CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE V. M. SAHAI)
1. Rule. Service of Rule is waived by Mr. Y. N. Ravani, learned counsel appearing for the respondents. Since affidavits have been exchanged, with the consent of the learned counsel for the parties, we have taken up both the writ petition for final hearing.
2. The petitioners M/s. GSPL India Transco Ltd. Gandhinagar, Ahmedabad and M/s. GSPL India Gasnet Ltd., Gandhinagar, Ahmedabad are subsidiary companies of Gujarat State Petronet Ltd. which is a subsidiary company of Gujarat State Petroleum Corporation Ltd. The petitioners are Government Companies under the provisions of the Companies Act, 1956 and have obtained service tax registration from the Commissioner of Central Excise, Ahmedabad (for short the Commissioner).
3. The petitioners propose to provide service that would be taxable under the category of "Transport of goods through pipeline or other conduit service" under section 65(105)(zzz) of the Finance Act,1994. (for short the Finance Act). For providing service, the petitioners are required to lay pipeline for which they would be procuring pipes, get the pipes installed and commissioned along the identified route so as to connect the source to the destination. In this regard, the petitioners propose to grant various turnkey Engineering Procurement and Construction Contracts (for short the EPC Contracts) to EPC contractors. The contracts would involve supply of pipelines as well as installation and commissioning of the pipes to bring into existence the desired pipeline connecting the sources to the destination. The petitioners would also require service of other contractors for inspection, consulting, engineering etc. which would be required to being into existence the pipeline.
4. Under the contract, composite price would be agreed between the parties, however, the same would be divided into two key components, namely, price and supply of goods and price for provision of service.
5. Under the EPC contracts, the petitioners propose to procure the pipes from the EPC Contractors under a "bill to ship to" arrangement whereby the pipes purchased by EPC contractors from pipe manufacturers would be directly shipped by such manufacturers to the petitioners' project site under the cover of appropriate statutory documents/invoice. Upon receipt of the pipes at the project site, the petitioners would issue the same to the EPC Contractors free of costs under bailment for provision of the services of installation and commissioning by putting together the pipes and bringing into existence the desired pipeline along the identified route. The service by the EPC contractors would essentially consist of putting together the individual pipes issued free of cost by the petitioner by welding/using nuts and bolts/other means and bringing into existence a pipeline along the identified route. Once the services of laying the pipelines would be completed by the EPC Contractors/other construction contractors and other service providers, the petitioners would use the pipeline for transporting the gas to its proposed customers, on the basis of the contract entered into between the petitioners and its proposed customers.
6. The petitioners propose to avail the CENVAT credit of service tax paid by it to the contractors under the taxable category of 'commercial and industrial construction services' or 'erection, commissioning and installation services' or 'works contract services' used for bringing into existence the desired pipeline in accordance with the provision of the CENVAT Credit Rules, 2004 and utilising the same for discharging its output service tax liability.
7. That the petitioners filed separate applications on 16.12.2011 under section 96C of the Finance Act before Authority for Advance Rulings (Central Excise, Customs and Service Tax) [for short the AAR] and sought to obtain advance ruling from AAR on the following question:
"Whether the petitioner is eligible to avail CENVAT Credit of the service tax that would be paid to the EPC Contractor/other construction contractors and other service providers (except for service tax paid vis-a-vis construction services for the civil works package for building the pipeline substations) against the petitioner's output service tax liability under the taxable service category of "transport of goods through pipeline or conduit".
The AAR by letter dated 25.1.2012 informed the petitioners that the matter has been fixed on 3.2.2012 for hearing on admissibility of the application and forwarded the comments dated 29.12.2011 received from the Commissioner, wherein the Commissioner had raised an objection to the maintainability of the application filed by the petitioner on the ground that an identical issue raised by petitioners holding company was pending before the Customs, Excise and Service Tax Appellate Tribunal, (for short the CESTAT). The Commissioner on 31.1.2012 also submitted additional comments. The petitioners filed a rejoinder on 3.2.2012 to the preliminary comments of the Commissioner. In response to the queries made by the AAR the petitioners filed additional submissions on 8.2.2012 wherein they submitted that the matter was not pending before the CESTAT in the petitioners' own case as required by the proviso to section 96D(2) of the Finance Act.
8. The AAR exercising its discretionary power by order dated 30.3.2012 rejected the application filed by the petitioners under Section 96C as not maintainable on the ground that an identical issue was pending before the CESTAT in the case of the petitioners' holding company on account of which, if the contention of the petitioners is accepted then it would lead to incongruous situation. In the opinion of AAR, any order passed by it could lead to incompatible decision by different authorities on an identical transaction and identical issue.
9. Both the writ petitions have been filed by the petitioners under Article 226 and 227 of the Constitution challenging the order dated 30.3.2012 passed by AAR. Since the writ petitions raise common question of law and the facts are similar, therefore, we have taken up the writ petitions together.
10. We have heard Mr. Sujit Ghosh, the learned counsel assisted by Mr. R. D. Rana and Mr. Maulik. G. Nanavati, appearing for the petitioners and Mr. Y. N. Ravani, learned counsel appearing for the respondents at length.
11. The learned counsel for the petitioners has urged that the AAR has committed an error of fact in assuming that the issue pending before the CESTAT in case of the petitioners holding company and the question raised by the petitioners in the application under section 96C of the Finance Act were identical. He urged that the holding company has raised a question before the CESTAT that whether the service received fell within the definition of 'input service' under CENVAT Rules 2004 prior to legislative changes introduced by the Union Budget 2011. This question was raised by the holding company in view of the fact that the definition of 'input service' underwent substantial amendment. Whereas the petitioners have raised a question before the AAR as to whether the service received by the petitioners are 'input service' in terms of the amended definition of 'input service' after the amendment made by the Union Budget 2011. He vehemently urged that the AAR has wrongly presumed that the question raised by the holding company before the CESTAT and by the petitioners before the AAR were identical though the transaction details of the matter pending before the CESTAT were not available with the AAR. Merely because the nature of the proposed business of the petitioners was similar to that of the holding company, an inference cannot be drawn that the proposed transaction of the petitioners would be identical to that undertaken by the holding company. In absence of transaction details of the holding company, the AAR committed an error in holding that the transaction of the holding company and transaction of the petitioners company were identical as the petitioners has not yet entered into any transaction till date. He further urged that the AAR that the applications filed by the petitioners were maintainable as the petitioners were subsidiary to subsidiary company of a Government Company. The learned counsel lastly urged that the AAR had no discretionary power under section 96D(2) of the Finance Act, and the word “may” should be read as “shall” otherwise the proviso to the sub-section would become redundant. Once the bar of the first proviso was not applicable to the applications of the petitioners, the AAR was bound to decide the applications which could not be dismissed under the assumed discretionary power by the AAR. On the other hand, the learned counsel for the revenue has raised a preliminary objection that order of AAR can only be challenged directly before the Apex Court in a Special Leave Petition and not before this court in writ petitions. He further urged that the impugned order passed by AAR under its discretion cannot be challenged or interfered with. He has supported the impugned order of the AAR.
PRELIMINARY OBJECTION
12. We may consider the preliminary objection raised by the learned counsel for the respondent. Mr.Ravani, the learned counsel appearing for the revenue has fervently urged that these writ petitions are not maintainable and the order of AAR could only be challenged directly before the Apex Court in a Special Leave Petition and consequently, the writ petitions are to be dismissed for lack of jurisdiction. This argument of Mr.Ravani is devoid of any merit. The Apex Court in Columbia Sportswear Company v. Director of Income Tax, Bangalore, 2012 (7) SCALE 53 in paragraph 10 had held as under:
“We have, therefore, no doubt in our mind that the Authority is a body exercising judicial power conferred on it by Chapter XIX-B and is a tribunal within the meaning of the expression in Article 136 and 227 of the Constitution.”
In the aforesaid decision the Apex Court was considering the question whether the advance ruling pronounced by the Authority for Advance Rulings (Income Tax) constituted under Chapter XIX-B of the Income Tax Act, 1961, could be challenged under Article 226/227 of the Constitution before the High Court or under Article 136 before the Supreme Court and whether the authority is a court or tribunal. The Apex Court had held in paragraph 12 as under:
“… Therefore, to hold that an advance ruling of the authority should not be permitted to be challenged before the High Court under Articles 226 and/or 227 of the Constitution would be to negate a part of the basic structure of the Constitution. …”
The Apex Court further held that advance ruling pronounced by the Authority for Advance Rulings should be heard by a Division Bench hearing income tax matters. Therefore, we do not find any substance in the preliminary objection raised by the learned counsel for the respondents. We are of the veritable opinion that the writ petitions filed by the petitioners are maintainable and the preliminary objection is rejected.
FIRST QUESTION
13. The first question which arises for consideration in these writ petitions is whether a subsidiary to subsidiary company of a Government Company would also be a Government Company. If yes, then a further question arises that whether such subsidiary to subsidiary company could maintain an application under section 96C of the Finance Act? Before the AAR, the Commissioner had raised an objection that the petitioners being a subsidiary to subsidiary company of a Government Company did not fall within the definition of the "applicant" in terms of section 96A of the Finance Act and, therefore, the petitioners were not entitled to obtain advance ruling from AAR and the applications filed by them under section 96C were not maintainable. The AAR in its impugned order had considered the objection and reply given by the petitioners but the AAR refused to decide the question as to whether a subsidiary to subsidiary company of a Government Company would also be a Government Company and it could maintain an application under section 96C of the Finance Act. The AAR rejected the applications filed by the petitioners holding that it had the discretion under section 96D(2) of the Finance Act to allow or disallow an application for an ultimate ruling under section 96D(4) of the Finance Act, relying on the decision of Authority for Advance Rulings constituted under the Income Tax Act,1961, In Re. Microsoft Operations Pte. Ltd. [2009] 310 ITR 408 (AAR). We propose to deal with this decision and the discretionary power of the Authority for Advance Rulings a little later. For deciding the first question it is necessary to extract section 96A of the Finance Act as under:
Definition:
96A. In this Chapter, unless the context otherwise requires,-
(a) " advance ruling" means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided, by the applicant;
[(b) "applicant" means,-
(i) (a) a non-resident setting up a joint venture in Indian in collaboration with a non-resident or a resident; or
(b) a resident setting up a joint venture in India in collaboration with a non-resident; or
(c) a wholly owned subsidiary Indian company, of which the holding company is a foreign company, who or which, as the case may be, proposes to undertake any business activity in India;
(ii) a joint venture in India; or
(iii) a resident falling within any such class or category of persons, as the Central Government may, by notification in the Official Gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under sub-section (1) of section 96C.] [Explanation:- For the purposes of this clause, "joint venture in India"means a contractual arrangement whereby two or more persons undertake an economic activity which is subject to joint control and one or more of the participants or partners or equity holders in a non- resident having substantial interest in such arrangement;]
(c) "application" means an application made to the Authority under sub-section (1) of section 96C;
(d) "Authority"means the Authority for Advance Rulings, constituted under sub-section (1), or authorised by the Central Government under sub-section (2A) of section 28F of the Customs Act, 1962 (52 of 1962);]
(e) "non-resident","Indian company" and "foreign company" have the meanings respectively assigned to them in clauses (30), (26) and (23A) of section 2 of the Income-tax Act, 1961 (43 of 1961);
(f) words and expressions used but not defined in this Chapter and defined in the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder shall apply, so far as may be, in relation to service tax as they apply in relation to duty of excise.
13.1. Sub-clause (iii) of clause (b) of section 96A defines the applicant to be a resident falling within any such class or category of persons as the Central Government, may by notification in the Official Gazette specify in this behalf. The Central Government had issued a notification specifying public sector companies as class of persons. Notification No.27/2009-ST dated 20.8.2009 is extracted below:
"NTF.No.27/2009-ST dated 20.8.2009.
Central Government hereby specifies any public sector company as class of persons.
GSR. In exercise of the powers conferred by sub-clause (iii) of clause (b) of section 96A of the Finance Act,1994(32 of 1994), the Central Government hereby specifies any public sector company as class of persons for the purposes of the said clause.
Explanation:- For the purpose of this notification, a "public sector company" shall have the same meaning as is assigned to it in clause (36A) of section 2 of the Income-tax Act,1961(43 of 1961)."
13.2. Since the notification dated 20.8.2009 talks about section 2(36A) of the Income tax Act, 1961, therefore, it is necessary to extract the section which reads as under:
"2(36A) of Income-tax Act,1961:
Public sector company" means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in Section 617 of the Companies Act,1956 (1 of 1956)"
Thus, this section of the Income Tax Act, 1961 links it to the Companies Act, 1956 (for short the Companies Act). Section 617 of the Companies Act is extracted below:
"For the purposes of this Act, Government company means any company in which not less than fifty one per cent of the paid up share capital is held by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary of a Government company as thus defined."
13.3. Section 4 of the Companies Act, explains the meaning of 'holding company' and "subsidiary". Section 4(1) of the Companies Act, along with the statutory illustration is extracted below:
"Section 4(1):
(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if,-
(a) that other controls the composition of its Board or directors; or
(b) that others-
(i) where the first mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting right in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company;
(ii) where the first-mentioned company is any other company, holds more than half in nominal value of its equity share capital
(c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary.
Illustration:
Company B is a subsidiary of Company A and Company C is a subsidiary of Company B. Company C is a subsidiary of Company A, by virtue of clause (c) above. If Company D is a subsidiary of Company A, Company D will be a subsidiary of Company B and consequently also of Company A, by virtue of clause (c) above' and so on.
13.4. In the affidavit in reply filed by the respondents it had been stated that the petitioners are twice removed subsidiary of subsidiary of a Government Company, in which the Government of Gujarat has share holding, therefore, the petitioners will not qualify as Government Company under section 617 of the Companies Act. It is also stated that there is a common management, having common sources of finance and the petitioners are artificially created companies with the intention to circumvent the taxing provisions. The holding company and the subsidiary company have to be treated as one. Under section 96A(b) of the Finance Act only wholly owned subsidiary of a Government Company would be eligible and the petitioners being a twice removed subsidiary of subsidiary would not be eligible to obtain advance ruling from the AAR. It is stated that circular no.98/01/2008-ST dated 4.1.2008 had clarified taxable service. While filing the affidavit in reply, the respondents had overlooked the fact that the Commissioner in his comment dated 29.12.2011 in paragraph 2(i) had stated that the petitioners were Government Companies and were valid applicants within the meaning of section 96A(b)(iii) of the Finance Act.
13.5. In the affidavit in rejoinder the petitioners have stated that tax evasion or tax avoidance was never the reason for creating separate legal entities. The area of operations of holding company and that of the petitioner companies are distinct and separate. The holding company is engaged in transportation of gas only within the State of Gujarat, whereas the petitioner companies were created for implementing free cross country pipelines projects awarded to the petitioners pursuant to an open tender floated by Petroleum and Natural Gas Regulative Board. The advance ruling given by AAR will be binding only between petitioners and the tax authorities in view of section 96E of the Finance Act, and will not help the cause of the holding company. It has also been stated that by virtue of section 617 of the Companies Act, the petitioner being a subsidiary company had been given status of Government Company. However, for the purpose of filing the applications before the AAR the petitioners are separate tax payers and separate legal entities. The petitioners have every legal right to maintain the application before the AAR for obtaining advance ruling. And the petitioners were eligible applicants before the AAR being qualified as Government Company under section 617 of the Companies Act.
13.6. When a company is registered and a certificate of incorporation is issued by the Registrar, the company becomes a separate legal entity. Section 4 of the Companies Act lays down that a company is a subsidiary of another if such other company (a) controls the composition of its Board of Directors; or (b) holds half of the nominal value of its equity shares; or (c) if it is a subsidiary of any company which is subsidiary of other company. The respondents have stated that the petitioners are twice removed subsidiary of subsidiary of a government company. The expression, “twice removed” is, normally, used to describe relationship and it means that there is a two-generation gap. Subsidiary of subsidiary of a principal holding company are known as step-down subsidiary. The statutory illustration to section 4(1)(c) clearly explains it. If we apply the statutory illustration to the facts of this case we find that the Gujarat State Petroleum Corporation Ltd. (for short the GSPC) is the principal holding company and its subsidiary company is the Gujarat State Petronet Ltd. (for short the GSPL), and the petitioners will be step-down subsidiary of Gujarat State Petroleum Corporation Ltd. The step-down subsidiary means subsidiaries of direct subsidiary.
13.7. In the affidavit in reply it is not disputed by the respondents that the petitioners are Government Companies. However, from the statutory illustration and section 4(1)(c) read with section 617 of the Companies Act, 1956, it is clearly established that the petitioners are Government Companies being subsidiaries of Gujarat State Petronet Ltd. The holding company and each subsidiary company are separate and distinct legal entities and every company has an independent right to file an application before the AAR for pronouncement of an advance ruling on the questions raised in the applications. Section 96A(b)(ii) and (iii) support the case of the petitioners that a joint venture company could be an applicant. Further a resident falling within the class of mentioned in sub-clause (iii) could also maintain an application. The petitioners fall within the ambit of section 96A(b)(iii), therefore, we hold that the petitioners being a step-down subsidiary company of a Government Company are covered within the definition of the "applicant" in terms of section 96A(b) of the Finance Act. The applications filed by the petitioners before the AAR under section 96C were maintainable.
SECOND QUESTION
14. We may now take up the second question whether the AAR had been conferred with any discretionary power to either allow or reject the application on the ground other than those prescribed by the proviso to sub-section (2) of section 96D of the Finance Act or the AAR should have decided the applications filed before it under section 96C if the embargo contained in the proviso to section 96D(2) were absent? The learned counsel for the petitioners had urged that section 96D(2) read along with its proviso establishes that the AAR may after examining the application and records called for, by order, either allow or reject the application. The proviso carves out an exception that AAR may not allow the application in two situations. First, where in applicant's own case, the question raised in the application is already pending before any Central Excise Officer, the Appellate Tribunal or any Court. The second circumstance in which the AAR may reject the application is where the question raised in the application is same as in a matter already decided by the Appellate Tribunal or any Court. There is no third situation or circumstance provided by the proviso under which the AAR could reject the application under section 96D(2). He urged that the AAR has no absolute discretionary power. He vehemently urged that the AAR had not been conferred with any discretionary power by the legislature to refuse to exercise powers in absence of embargo created by the proviso to section 96D(2).
14.1. The Authority for Advance Ruling (Central Excise, Customs and Service Tax) had been constituted and a new concept of advance ruling had been introduced by the legislature, initially, for the benefit of non-residents. In view of section 96A(b) of the Finance Act, now a resident can also apply for obtaining advance ruling. The advance ruling would enable a non-resident or a resident to obtain in advance, a binding view from the Authority under the Act on issues which could arise in determining his tax liability. The Finance Act in Chapter V and VA on Service Tax, provides a complete mechanism and procedure for advance ruling. The object of the scheme as spelt out is, avoidance of litigation and promoting better relationship. In the era of globalization of business, the purpose for creating the authority was expeditious disposal and determination of question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided by the applicant for which the authority is required to give advance ruling. The AAR has been created to promote better compliance with the provisions of the Customs Act, Service Tax and Central Excise, Act, on the lines of a similar Authority already working under the Income Tax Act, 1961.
14.2. It would be beneficial to extract the procedure under section 96D, to be followed by AAR on the receipt of an application under section 96C. Section 96D(1) to (7) of the Finance Act along with its proviso is reproduced as under:
"Procedure on receipt of application 96D(1) On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the Commissioner of Central Excise and if necessary, call upon him to furnish the relevant records, Provided that where any records have been called by the authority in any case, such records shall, as soon as possible, be returned to the Commissioner of Central Excise.
(1) The Authority may, after examining the application and records called for, by order, either allow or reject the application:
Provided that the Authority shall not allow the application where the question raised in the application is,-
(a) already pending in the applicant's case before any Central Excise Officer, the Appellate Tribunal or any Court;
(b) the same as in a matter already decided by the Appellate Tribunal or any Court:
Provided further that no application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard:
Provided also that where the application is rejected, reasons for such rejection shall be given in the order.
(2) A copy of every order made under sub-section (2) shall be sent to the applicant and to the Commissioner of Central Excise.
(3) Where an application is allowed under sub-section (2), the Authority shall, after examining such further material as may be placed before it by the applicant or obtained by the Authority, pronounce its advance ruling on the question specified in the application.
(4) On request received from the applicant, the Authority shall before pronouncing its advance ruling, provide an opportunity to the applicant of being heard either in person or through a duly authorised representative.
Explanation:-For the purpose of this sub-section, "authorised representative" has the meaning assigned to it in sub-section (2) of section 35Q of the Central Excise Act, 1944 (1 of 1944).
(5) The Authority shall pronounce its advance ruling in writing within 90 days of the receipt of application.
(6) A copy of the advance ruling pronounced by the Authority, duty signed by the Members and certified in the prescribed manner shall be sent to the applicant and to the Commissioner of Central Excise as soon as may be, after such pronouncement."
14.4. In the case in hand, we find that the AAR had rejected the application of the petitioner filed under section 96C of the Finance Act on the ground that the AAR has discretionary power under section 96D(2) to reject the application on unspecified grounds. For exercising discretionary power, the AAR had relied on the decision dated 27.2.2009 rendered by the Authority for Advance Rulings (Income Tax) constituted under the Income Tax Act, 1961, In Re. Microsoft Operations Pte. Ltd. [2009] 310 ITR 408 (AAR). In this decision, while considering the provisions of section 245R(2) of the Income Tax Act, 1961, the Authority had interpreted the words “may allow or reject” and has come to a conclusion that since the section uses permissible language which admits the element of discretion to the statutory body while passing an order under section 245R(2), therefore, the discretion is implicit in the provision and an application can be rejected by the Authority under its discretionary power. The relevant observations made by the Authority for Advance Rulings (Income Tax) in paragraph 25 are extracted below:
"…However, it does not follow that the application is bound to be admitted and heard on merits once the factors set out in the proviso do not come in the way of admission. Still, the Authority has the discretion to reject the application, of course, on germane and weighty considerations. That discretion has to be exercised judiciously keeping in view the spirit and purpose of the provisions concerning advance ruling. The discretion may be invoked in exceptional cases but power to reject on the grounds not expressly spelt out by the statute cannot be ruled out. In other words, the proviso to Section 245R(2) does not have the effect of taking away the discretion to reject the application on other unspecified grounds. However, as said earlier, the exercise of discretion must be canalised on proper lines. Avoiding abuse of legal process, incompatible decisions concerning the same parties and anomalous situation are relevant considerations that guide the exercise of discretionary power to reject the application. …"
14.5. For better understanding the aforesaid decision it is necessary to reproduce section 245R(2) of the Income Tax Act, 1961, as below:
"Section 245R. PROCEDURE ON RECEIPT OF APPLICATION.
(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:
Provided that the Authority shall not allow the application where the question raised in the application;-
(i) is already pending before any income tax authority or Appellate Tribunal [except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of section 245N] or any court;
(ii) involves determination of fair market value of any property;
(iii) relates to a transaction or issue which is designed prima facie for the avoidance of income tax [except in the case of resident applicant falling in sub-clause (iii) of clause (b) of section 245N]:
Provided further that no application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard;
Provided also that where the application is rejected, reasons for such rejection shall be given in the order.
14.6. If we read section 245R(2) with section 96D(2) in juxtaposition we find that section 245R(2) uses the expression, “that the Authority shall not allow the application where the question raised in the application is already pending before any income tax authority or Appellate Tribunal. Whereas section 96D(2) uses the expression, “that the Authority shall not allow the application where the question raised in the application is already pending in the applicant's case before any Central Excise Officer, the Appellate Tribunal or any Court; the same as in a matter already decided by the Appellate Tribunal or any Court”. We find that in both the sections use different words. Under section 96D(2) proviso (a) the important words used are, “in the applicant’s case”, which clearly explains that if in the applicants own case any matter is pending or had been decided then the AAR could dismiss the application. Whereas under section 245R(2) of the Income Tax Act, 1961, the words, “in the applicant’s case” now does not exist in the statute, which means that if in any identical or similar matter the question had been raised by any person before any income tax authority or Appellate Tribunal [except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of section 245N] or any court then such question cannot be decided by the Authority for Advance Rulings (Income Tax). However, the Authority for Advance Rulings (Income Tax), in A.A.R.858-861 of 2009 L. S. Cables v. Director of Income Tax-1 (International Taxation) New Delhi, decided on 4.6.2010, had considered that the words, “in the applicant’s case were deleted by the Finance Act, 2000, from section 245R(2) of the Income Tax Act, 1961. But the Authority for Advance Rulings (Income Tax) in L. S. Cables (supra) went on to hold that inspite of the deletion it can still be construed that the question already pending is relatable to the same or identical transaction between the same parties as the ruling is binding on the applicant and the department only in respect of the transaction in relation to which the ruling had been sought. The Authority for Advance Rulings (Income Tax) rejected the argument of Revenue on the ground that the legislature never envisaged a situation that roving inquiries would have to be made whether any question is pending anywhere in the country at the assessment or appellate stage and whether the contracts are of similar nature having similar terms. However, the provisions of section 245R(2) of the Income Tax Act, 1961 is not pari materia with section 96D(2) of the Finance Act, and as they stand, are different.
14.7. We are in complete agreement with the view taken in Microsoft Operations Pte. Ltd. (supra) that the AAR has discretionary power, which could be exercised on germane and weighty considerations. The discretion has to be exercised judiciously keeping in view the spirit and purpose of the provisions concerning advance ruling. The discretion may be invoked in exceptional cases on the grounds not expressly spelt out by the statute. The Finance Act had contemplated only two situations in which the application for advance rulings can be rejected. The first clause of the proviso to section 96D(2) of the Finance Act clearly suggests that legislative intent was to avoid two parallel proceedings by an applicant before adjudicating authorities, namely, any Central Excise Officer, the Appellate Tribunal and Court as well as before AAR simultaneously. The second clause of the proviso restricts an application before AAR if the same issue had already been decided by the Tribunal or any Court. There is no third clause in the proviso. Section 96D(2) gives discretionary power to the AAR in exceptional cases to reject an application but does not confer absolute discretionary power on the AAR.
14.8. In the impugned order dated 30.3.2012 passed by AAR, in paragraph 7, the AAR had held as under:
"For the purpose of this application, we do not think that it is necessary to finally adjudicate on the question whether a subsidiary of subsidiary Government company could invoke the jurisdiction of this Authority for advance ruling or not. We prefer to rest our decision on the discretion we have under section 96D(2) of the Finance Act, 1994 to allow or disallow an application for an ultimate ruling under section 96D(4) of the Act."
The AAR has further recorded findings in paragraphs 8 and 9 which are extracted as under:
“8. In this case, admittedly, the questions sought to be raised before us are pending before the CESTAT, though at the instance of the holding company of the applicants. If we go by the arguments of the applicants before us, our ruling to be given, will only bind the applicants and the authorities under the Act would be bound to implement the ruling in the case of the applicants. That would mean that in the appeal filed by the holding company of the applicants involving the identical questions, the CESTAT is free to render a ruling ignoring what is being ruled by this authority. That according to us, could lead to incompatible decisions concerning the same question, being rendered by two different authorities on the identical transactions. In facts and circumstances of this case, we think that such situation should be avoided. This will be in furtherance of the spirit of enacting the bar to the jurisdiction of this authority to entertain an application for advance ruling, when the identical question is pending before an authority under the Act, the Tribunal or Court.
9. We are in respectful agreement with the view taken by the Authority for Advance Rulings (Income-tax) in the above quoted ruling and applying the principle accepted therein, hold that we should exercise our discretion not to allow this application under section 96D(4) of the Act. We thus, reject these applications in exercise of our discretion. “
14.9. The question arises that where either of the two conditions laid down in proviso to section 96D(2) barring the jurisdiction of the AAR are absent whether the AAR could reject the application filed under section 96C under its discretionary power, even though their was no exceptional circumstances? We have already held that the petitioners and the holding company were separate and distinct legal entities and had independent rights and the AAR does not possess absolute discretionary power. Under section 96D(2) proviso (a) the important words used are, “in the applicant’s case”, which clearly explains that if in the applicants own case any matter is pending or had been decided then the AAR could dismiss the application. It is not disputed by the AAR in the impugned order that in the instant case that the question raised in the applications filed by the petitioners under section 96C were either pending in the petitioner's own case before any Central Excise Officer, Appellate Tribunal or any Court or the question raised in the applications filed by the petitioners had been decided by the Appellate Tribunal or any Court. Therefore, the embargo mentioned in the two clauses of the proviso to section 96D(2) were not existing which could oust the jurisdiction of the AAR. The questions raised by the holding company or the transaction details of the holding company or the records of CESTAT were not available with the AAR. Merely because the proposed business of the petitioners was similar to that of the holding company, it would not give rise to an inference that the proposed transaction of the petitioners would be identical to that undertaken by the holding company. The AAR has completely lost sight of the fact that the petitioners had not yet entered into any transaction till date. Therefore, in our considered opinion, the AAR was required to decide the questions raised by the petitioners in their application. Merely because the questions, if answered by AAR would bind the petitioner and the tax authorities only or the CESTAT might give a different decision in the matter of petitions holding company could not result in passing incompatible decision by the AAR as the decisions of AAR under the scheme of the Finance Act and section 6E is binding only between the petitioner and the tax authorities. The finding of the AAR that its decision could be ignored by the CESTAT defeats and frustrates the very object of establishing the Authority for Advance Rulings. The AAR committed an error of fact in coming to the conclusion that there were two identical transactions which may lead two incompatible decisions on the same question, is not based on any material on record as the petitioner has not yet entered into any transaction. We are also of the considered opinion that the view taken by the AAR is not supported by material on record and the questions raised by the petitioners in their applications were liable to be decided by the AAR as there was no exceptional circumstance under which the AAR could have exercised its discretion to reject the application of the petitioners on unspecified grounds. The petitioners neither abused the legal process, nor if the AAR would have taken a decision would have resulted in incompatible decisions concerning the same parties. Further, the decision of the AAR would not have resulted in anomalous situations. The questions raised in the applications of the petitioners were required to be decided by the AAR.
CONSIDERATION OF FACTS ON RECORD
15. We may now consider the facts on record. In the application filed by the petitioners under section 96C of the Finance Act, the petitioners have stated that the proposed business activity is at a preliminary stage of development and the necessary authorizations are being obtained. The Commissioner in his comments dated 29.12.2011 submitted before the AAR in paragraph 2 stated as under:
“2. In this regards, the point-wise compliance report of para 4 of the said letter is as under :-
(i) As per available information it is to report that M/s. Gujarat State Petronet Ltd., Gandhinagar is a subsidiary of M/s. Gujarat State Petroleum Corporation Ltd. (A Govt. of Gujarat undertaking). Further, M/s. GSPL India Gasnet Limited Gandhinagar (applicant) is a subsidiary of M/s. Gujarat State Petroleum Ltd., Gandhinagar. Therefore, as per Section 617 of the Company Act, 1961 read with Section 4 of the Company Act, 1961 M/s. GSPL India Gasnet Limited is a Government Company and accordingly is valid “applicant” within the meaning of Section 96A(b) (iii) of the Finance Act, 1994 read with Notification No.27/2009-ST dated 20.8.2009.
(ii) The activity/service in respect of which an advance ruling has been sought is a “proposed” one.
(iii) No case is pending involving issue raised by the applicant, as the applicant has not started such activity/service yet. However, it is to bring to your kind notice that on an identical issue one show-cause notice has been issued to M/s. Gujarat State Petronet Ltd. (GSPL), a holding company of the applicant, for denial of CENVAT credit availed on “input services” which was decided vide OIO No. 11/COMMR/2010 dated 25.3.2010 in which the adjudicating authority has decided the issue against M/s. GSPL. Being aggrieved, M/s. GSPL has filed an appeal before the Hon’ble Tribunal, Ahmedabad which is pending for decision. Further, two show cause notices issued for subsequent period to M/s. GSPL are pending for decision by adjudicating authority. The copies of OIO and show cause notice are enclosed for ready reference.”
15.1. The Commissioner submitted further comments on 31.1.2012 to the AAR wherein in paragraph 5, it was stated as under:
“5. It is pertinent to mention that applicant is subsidiary of M/s. Gujarat State Petronet Ltd. (GSPL), and identical issue is pending against GSPL before Hon’ble CESTAT, Ahmedabad. With sole intention for getting Advance Ruling on the same issue a subsidiary company of GSPL in the name of M/s. GSPL India Gasnet Ltd. was created. Therefore, the issue could not fall under the purview of Advance Ruling.”
15.2. The petitioner filed a rejoinder to the preliminary comments submitted by the Commissioner before the AAR, wherein in paragraph 2 and 3.5, it had been stated as under:
“2. That the Ld. Commissioner has essentially stated the following in his comments
(i) In paragraph 2 (i) of the comments, the Ld. Commissioner accepts that the Applicant would qualify as an ‘Applicant’ within the meaning of Section 96A(b)(iii) of the Finance Act, 1994 read with the Notification 27/2009-ST. Nonetheless, the relevant provisions and the notification is excerpted herewith as Appendix 1 to this preliminary rejoinder for Your Lordship’s easy reference;
(ii) In paragraph 2 (ii) of the comments, the Ld. Commissioner accepts that the activity/service in respect of which the advance ruling has been sought is a ‘proposed one’;
(iii) In paragraph 2 (iii) of the comments, the Ld. Commissioner accepts that no case is pending involving the issue raised by the Applicant.
However, the Ld. Commissioner in paragraph 2(iii), without raising any objection, also points out the existence of show cause notice, order-in-original and appeal on an identical issue with respect to the Applicant’s holding company i.e. M/s. Gujarat State Petronet Limited (“GSPL”).
3.5 That in any case, this Application pertains to the question of admissibility of credit of service tax [as envisaged under Section 96C(2)(e) of the Finance Act, 1994 – section 96C and 96D of the Finance Act, 1994 are excerpted herewith in entirety as Appendix 2 to this preliminary rejoinder for Your Lordship’s easy reference]. Subsequent to the Union Budget 2011, the definition of “input service” under the CENVAT Credit Rules 2004 was substantially amended. The show cause notice, order-in-original and appeal with respect to the Applicant’s holding company i.e. M/s. Gujarat State Petronet Limited referred to by the Ld. Commissioner in his comments pertain to the definition of “input service” under the CENVAT Credit Rules 2004 prior to the changes introduced vide Union Budget 2011 and hence have absolutely no relevance vis a vis the maintainability of the present Application.”
15.3. It is also relevant to point out over here that during the hearing of applications filed by the petitioners, the AAR raised certain queries on 3.2.2012 which were replied by the petitioners on 8.2.2012 wherein in paragraph 3.3, the petitioners have stated as under :
“3.3 That in any case, this Application pertains to the question of admissibility of credit of service tax [as envisaged under Section 96C(2)(e) of the Finance Act, 1994 – section 96C and 96D of the Finance Act, 1944 are excerpted herewith in entirety as Appendix 4 to this additional submission for Your Lordship’s easy reference]. Subsequent to the Union Budget 2011, the definition of “input service” under the CENVAT Credit Rules 2004 was substantially amended. The show cause notice, order-in-original and appeal with respect to the Applicant’s holding company i.e. M/s. Gujarat State Petronet Limited referred to by the Ld. Commissioner in his comments pertain to the definition of “input service” under the CENVAT Credit Rules 2004 prior to the changes introduced vide Union Budget 2011 and hence have absolutely no relevance vis a vis the maintainability of the present Application. Even if the litigation pending in the case of the Applicant’s holding company i.e. M/s. Gujarat State Petronet Limited ends in a favorable outcome for Gujarat State Petronet Limited, that would not automatically entitle the Applicant to claim credit and thus would not make the question of law posed in this Application redundant given the significant changes in the new definition of ‘input services’.”
15.4. The petitioners in paragraphs 26.10 to 26.13 of the writ petition have stated as under:
“26.10 The AAR has erred in assuming that the issue pending before the Tribunal and the question raised in the Application is identical. It is stated that the question pending before the Tribunal in the case of Petitioner’s holding Company is that whether the services received by the Petitioner’s holding Company fell within the definition of ‘input service’ under the Credit Rules prior to the legislative changes introduced vide Union Budget 2011. It is stated that in the year 2011, the definition of ‘input service’ underwent substantial amendment. In the Application filed before the AAR, the question was whether the services received by the Petitioner are ‘input service’ in terms of the amended definition. Therefore, AAR has wrongly held that the issue pending before the Tribunal and in the Application is identical. Therefore, the issue pending before the Tribunal has absolutely no relevance vis-à-vis the maintainability of the Application before the AAR. Even if the issue pending before the Tribunal in the case of Petitioner’s holding Company results in an advance outcome for Petitioner’s holding Company, that would not automatically disentitle the Petitioner to claim CENVAT credit and thus would not make the question of law posed by the Petitioner in its Application before the AAR redundant given the significant changes in the definition of ‘input services’. Any order passed by the Tribunal or court based on an un-amended law does not debar maintainability of the Application before the AAR based on the amended law. Once the law has been changed, the ruling in the context of un-amended law loses its binding nature. This is strengthened by the Section 96E(2) which provides that the ruling of the AAR shall not be binding in case of change in law. Hence, in view of the changes in law, the impugned order of the AAR rejecting the Application on the basis of the issue being identical is incorrect and thus not tenable.
26.11 That the AAR in Para 8 of the impugned order has held that the question on which ruling has been sought by the Petitioner is pending before the Tribunal though at the instance of the holding Company. As already stated above, the question pending in the Tribunal in the holding Company’s case is not identical to the one posed by the Petitioner in the Application. Thus, the question pending in the Tribunal does not have any relevance to the question posed by the Petitioner in the Application. Therefore, the basis on which the AAR rejected the Application is factually and legally incorrect. Hence, the order passed by the AAR is in violation of Article 19(1)(g) of the Constitution of India. Consequently, such an order passed by the AAR is liable to be set aside.
26.12 That the transaction involved in the dispute pending in the case of the holding Company of the Petitioner is not identical to the proposed transaction based on which the advance ruling has been sought by the Petitioner. In the appeal pending before the Tribunal, the issue is based on the EPC contracts where the holding Company was not procuring the goods by themselves. However, in the present case, the Applicant will either procure the goods directly or through EPC contract. Therefore, the transaction in question in the Application is not identical to the transaction in question in the Appeal of the holding Company.
26.13 Further, it is stated that the transaction details of the matter pending before the Tribunal were not available with the AAR and thus the AAR erred in holding that the two transactions are identical. The holding Company and the Petitioner are two separate and distinct legal entitles. The Petitioner has not even entered into any transaction till date, whereas, the holding Company’s transaction, which is subject matter of dispute before the Tribunal, is already completed. Merely because the nature of proposed business of the Petitioner is similar to that of the holding Company, it does not imply that the proposed transaction of the Petitioner would be identical to that undertaken by the holding Company. Therefore, the finding of the AAR that the aforesaid transactions are identical is bad in law as well as on facts. The AAR has rejected the Application filed by the Petitioner in violation of Article 14 and Article 19(1)(g) of the Constitution.”
16. From the aforesaid facts, it is clear that the Commissioner in his comments dated 29.12.2011 submitted before the AAR had admitted that the petitioners are Government Companies and their application before the AAR was maintainable. The AAR was not required to go into the question as to whether the petitioners are Government Companies and whether application filed by them were maintainable or not. As a matter of fact, the AAR has not entered into this question.
17. The petitioners have sought advance ruling in respect of activity/service which is proposed one. No case is pending involving the issue raised by the petitioners in their application as the petitioners have not yet started any activity or service. The only objection of the Commissioner was that an identical issue was pending before the CESTAT. The petitioners in their rejoinder as well as on the questions raised by AAR had answered that the question raised by the petitioners in their applications were not identical to that raised by the petitioners holding Company Gujarat State Petronet Ltd. as the question pending before the CESTAT had been raised by the holding Company pertained to the definition of “input service” under the CENVAT Credit Rules, 2004 prior to the changes introduced in the definition by Union Budget 2011 wherein in paragraph 3.5 of the rejoinder, the petitioners had stated that the petitioners’ application pertains to the question of admissibility of credit of service tax subsequent to the Union Budget 2011 as the definition of input service under the CENVAT Credit Rules, 2004 had substantially been amended. From the aforesaid facts, it is clear that the question pending before the Tribunal was with regard to input service prior to the amendment of definition of input service under the CENVAT Credit Rules, 2004 whereas the petitioners have sought advance ruling on input service after the amendment of the definition of “input service” made subsequent to Union Budget 2011 in the CENVAT Credit Rules, 2004. Thus, the question pending before the CESTAT and the question raised before AAR were entirely different and if the AAR pronounces advance ruling on the question raised by the petitioners, then it will not result in conflicting or incompatible decisions. Further, the order of the AAR would be binding only on the petitioners and the Tax authorities in view of section 96E of the Finance Act.
18. That the AAR has rejected the applications of the petitioners by which advance ruling was sought on the ground that the transaction of the petitioners and the holding Company were identical. It appears that the AAR has lost sight of the fact that if the petitioners would have entered into any transaction, then their application for obtaining advance ruling was not maintainable. The advance ruling is sought on the question, before any activity or service as proposed by the applicant has commenced. Further, the petitioners had not yet entered into any transaction and this fact was not disputed by the Commissioner in his comments. Therefore, the view taken by the AAR that there were identical transactions of the petitioners and the petitioners’ holding Company and it would result in giving incompatible decisions on an identical question, is erroneous.
19. For the aforesaid reasons, we are of the considered opinion that the applications filed under Section 96C by the petitioners were rejected by the AAR on non-existent grounds. The AAR could not reject the applications of the petitioners under its discretionary power as there were no exceptional circumstances, or abuse of the legal process or rendering incompatible decisions concerning the same parties or any anomalous situations would have arisen if the AAR would have pronounced advance ruling. The questions raised by the petitioners and the question raised by the holding Company were entirely different as the holding Company’s matter before the CESTAT was with regard to question prior to amendment made by the Union Budget 2011 in the definition of “input service” under the CENVAT Credit Rules, 2004 whereas the question raised by the petitioners was with regard to definition of “input service” after the amendment had been made by Union Budget 2011 in the definition of input service. The petitioners had not yet entered into any transaction and the advance ruling had been sought on the proposed activity or service, therefore, the petitioners’ applications were maintainable and the AAR was required to pronounce advance ruling under section 96D of the Finance Act. Even assuming arguendo that the question pending before the CESTAT in the matter of holding company and the question raised before AAR by the petitioners were similar, if the AAR pronounces advance ruling on the question raised by the petitioners, then, in our opinion, it will not result in conflicting or incompatible decision between the same parties, as the order of the AAR would be binding only on the petitioners and the tax authorities in view of section 96E of the Finance Act. We are further of the considered opinion that the bar created by the proviso to section 96D(2) were absent and therefore, the petitioners applications filed under section 96C for advance ruling was maintainable before the AAR. The order of the AAR deserves to be set aside and a direction is liable to be issued to the AAR for deciding the applications of the petitioners filed under Section 96C at the earliest.
CONCLUSION
20. For the aforesaid reasons both the writ petitions succeed and are allowed, the Order No.AAR/ST/04-05/2012 in Applications No.AAR/44/ST/10/11, AAR/44/ST/11/11 dated 30.3.2012 passed by the Authority for Advance Rulings (Central Excise, Customs and Service Tax), New Delhi, Annexure-P to the writ petitions are quashed. The Authority for Advance Rulings (Central Excise, Customs and Service Tax), New Delhi, to decide the questions raised in the petitioners applications, filed under under section 96C, on merits, under section 96D of the Finance Act, 1994, preferably within a period of three months from the date a copy of this judgment is produced before the aforesaid Authority. Rule is made absolute. Parties shall bear their own costs.
(V.M.SAHAI,J) (N.V.ANJARIA,J) ***vcdarji