M/S Metro Cash And Carry PVT LTD vs. State Of Karnataka
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Cause title — parties, addresses and appearances
ORDER
In this petition, petitioner seeks for the following reliefs:
a) Issue a writ in the nature of Certiorari or any other appropriate writ or order or direction quashing the impugned Show Cause Notices Nos.ACCT/LGSTO- 140/T-336/2022-23 Assignment No.07/2022-23 dated 15.11.2022, ACCT/LGSTO-140/T-336/2022-23 Assignment No.08/2022-23 dated 15.11.2022, ACCT/LGSTO-140/T-336/2022-23 Assignment No.09/2022-23 dated 15.11.2022 and ACCT/LGSTO- 140/T-336/2022-23 Assignment No.10/2022-23 dated 15.11.2022 issued by Respondent No.3 enclosed at Annexure-A, Annexure-A1, Annexure-A2 and Annexure-A3 respectively, proposing to demand and recover total IGST amounting to Rs.48,44,27,296/- [Rs.12,11,06,824/- per tax period] along with interest NC: 2024:KHC:10634 and penalty for the periods 2017-2018, 2018-2019, 2019-2020 and 2020-2021. b) hold that the levy of GST on the activity of holding equity capital by the parent Company in the Petitioner is illegal and without juri iction and is ultra- vires Section 5 of the IGST Act, 2017 read with Section 7 of the CGST Act, 2017;
c) pass such further order(s) and other reliefs as the nature and circumstances of the case may require.”
Heard learned counsel for the petitioner and learned counsel for the respondents and perused the material on record.
In addition to reiterating the various contentions urged in the memorandum of petition and referring to the material on record, learned counsel for the petitioner invited my attention to the judgment of this Court in the case of M/s. Yonex India Private Limited Vs. Union of India and others – W.P.No.2301/2023 dated 18.01.2024 in order to point out that issue involved in the present petition is directly and squarely covered by the aforesaid judgment and consequently, the present petition deserves to be allowed and disposed of in terms of the said judgment.
Per contra, learned AGA does not dispute that the aforesaid judgment in M/s. Yonex India Private Limited case it is NC: 2024:KHC:10634 held that mere holding of shares by the holding company in the subsidiary company cannot be classified, treated or construed as ‘supply of service’.
A perusal of the material on record will indicate that in M/s. Yonex India Private Limited case supra, this Court has held as under:
"
In addition to reiterating the various contentions urged in the petition and referring to the material on record, the learned Senior counsel for the petitioner invited my attention to the Circulars dated 17.07.2023 and 21.07.2023 issued by the Central Government and the State Government clarifying that the activity of holding of shares of subsidiary company by holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under the GST.
In this context, it is pointed out that the petitioner is a subsidiary company of M/s. Yonex, Japan [a holding company] and mere holding of shares in a subsidiary company by the holding company cannot be construed or treated as “supply of service” in the light of the Circulars issued by the Central Government and the State Government. It is therefore submitted that in the light of the Circulars referred to supra, the impugned order dated 02.11.2022 is without juri iction or authority of law, and the same deserves to be quashed. Under these circumstances, the learned Senior counsel submits that the petitioner would not press Prayer Nos. A and B sought for in the petition. NC: 2024:KHC:10634
Per contra, the counsels for the respondents, submit that there is no merit in the petition and the same is liable to be dismissed. However, they do not dispute issuance of the Circulars by the Central Government and the State Government.
As rightly contended by the learned Senior counsel for the petitioner, the Central Government has issued Circular dated 17.07.2023, which reads as under: “Representations have been received from the trade and field formations seeking clarification on certain issues whether the holding of shares in a subsidiary company by the holding company will be treated as 'supply of service' under GST and will be taxed accordingly or whether such transaction is not a supply.
In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as "CGST Act"), hereby clarifies the issues as under: Issue Clarification
Taxability of share capital held in subsidiary company by the parent company
Whether the activity of holding shares by a holding company of the subsidiary company will be treated as a supply of service or not and whether the same will attract GST or not Securities are considered neither goods nor services in terms of definition of goods under clause (52) of section 2 of CGST Act and the definition of services under clause (102) of the said section. Further, securities include 'shares' as per definition of securities under clause (h) of section 2 of Securities Contracts (Regulation) Act, 1956. This implies that the securities held by the holding company in the subsidiary company are neither goods nor services. NC: 2024:KHC:10634 Further, purchase or sale of shares or securities, in itself is neither a supply of goods nor a supply of services. For a transaction/activity to be treated as supply of services, there must be a supply as defined under section 7 of CGST Act. It cannot be said that a service is being provided by the holding company to the subsidiary company, solely on the basis that there is a SAC entry '997171' in the scheme of classification of services mentioning; "the services provided by holding companies, i.e, holding securities of (or other equity interests in) companies and enterprises for the purpose of owning a controlling interest.", unless there is a supply of services by the holding company to the subsidiary company in accordance with section 7 of CGST Act.
Therefore, the activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST.
It is requested that suitable trade notices may be issued to publicize the contents of this Circular.
Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board, Hindi version would follow.
Similarly, the State Government also issued Circular dated 21.07.2023 on the same lines, which reads as under:
Representations have been received from the trade and field formations seeking clarification on certain issues whether the holding of shares in a subsidiary company by the holding company will be treated as 'supply of service’ under GST and will be taxed accordingly or whether such transaction is not a supply. NC: 2024:KHC:10634
In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred bysection 168 (1) of the Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as "KGST Act"), hereby clarifies the issues as under. Sl. No. Issue Clarification
Taxability of share capital held in subsidiary company by the parent company
1 Whether the activity of holding shares by a holding company of the subsidiary company will be treated as a supply of service or not and whether the same will attract GST or not Securities are considered neither goods nor services in terms of definition of goods under clause (52) of section 2 of KGST Act and the definition of services under clause (102) of the said section. Further, securities include "shares" as per definition of securities under clause (h) of section 2 of Securities Contracts (Regulation) Act, 1956. This implies that the securities held by the holding company in the subsidiary company are neither goods nor services. Further, purchase or sale of shares or securities, in itself is neither a supply of goods nor a supply of services. For a transaction/activity to be treated as supply of services, there must be a supply as defined under section 7 of KGST Act. It cannot be said that a service is being provided by the holding company to the subsidiary company, solely on the basis that there is a SAC entry '997171' in the scheme of classification of services mentioning: "the services provided by holding companies, ie, holding securities of (or other equity interests in) companies and enterprises for the purpose of owning a controlling interest.", unless there is a supply of services by the holding company to the subsidiary company in accordance with section 7 of KGST Act. Therefore, the activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST. NC: 2024:KHC:10634
Difficulties, if any, in implementation of this circular may be brought to the notice of this office.
As it is clear from the aforesaid Circulars issued by the Central Government and the State Government, mere holding of shares by the holding company in the subsidiary company cannot be classified, treated or construed as “supply of service” as clearly clarified and confirmed by the aforesaid Circulars by both the Central Government and the State Government.
Under these circumstances, I am of the view that in the light of the issuance of Circulars by the Central Government and the State Government during the pendency of the present petition, clarifying that holding of shares by M/s. Yonex Co., Japan [the holding company] in its subsidiary, the petitioner herein at Bengaluru cannot be treated or classified as “supply of service”. The impugned order dated 02.11.2022 passed by the respondent No.4 which proceeds on the basis that the said holding of shares amounts to “supply of service” is clearly illegal, arbitrary and without juri iction or authority of law, and the same deserves to b e quashed.
In the result, the following: ORDER
i The petition is hereby allowed. ii The impugned order dated 02.11.2022 issued by the respondent No.4 is hereby quashed. The submission made on behalf of the petitioner that Prayer Nos.a and b are not pressed, is placed on record.”
In the instant case, the parent company is M/s. Metro Cash and Carry International GmbH of which the petitioner herein NC: 2024:KHC:10634 i.e., M/s. Metro Cash and Carry Pvt. Ltd., is a subsidiary and merely because the parent company – M/s. Metro Cash and Carry International GmbH holds shares in its subsidiary i.e., the petitioner herein, the said circumstance cannot be classified, treated or construed as ‘supply of service’ for the purpose of GST. Under these circumstances, since the issue in controversy involved in the present petition is directly and squarely covered by the judgment of this Court in M/s. Yonex India Private Limited case supra, I am of the view that the impugned Show Cause Notices issued are without juri iction or authority of law and the same deserves to be quashed.
In the result, I pass the following: ORDER (i) Petition is hereby allowed and disposed of in terms of M/s. Yonex India Private Limited case supra. (ii) The impugned Show Cause Notices at Annexures – A, A1, A2 and A3 are hereby quashed. JUDGE
SV; List No.: 1 Sl No.: 61
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.