I. TRIBUNAL
5 [2021-TIOL-207-CESTAT-Bang] Textronix India Pvt. Ltd. vs. Commissioner of Central Tax Date of order: 6th April, 2021
Penalty cannot be levied u/s 78 of the Finance Act, 1994 when tax with interest is paid before issuance of show cause notice
FACTS
During the course of audit it was observed that the appellant had wrongly availed service tax credit on services not used for providing output service which includes civil interior works carried out on office building, garden maintenance charges, pooja expenses, etc. The credit availed was immediately reversed on being pointed out by the Department. Further, the credit availed was not utilised and sufficient balance was available during the relevant period. However, penalty u/s 78 for wrongly availing the credit was confirmed on the ground that the same was detected only during the audit.
HELD
The Tribunal noted that the credit was reversed immediately on it being pointed out by the Department before issuance of show cause notice. It was also noted that the credit was not utilised and sufficient balance was available during the relevant period. The Tribunal, relying on the decision in the case of YCH Logistics (India) Pvt. Ltd. [2020] 43 GSTL 518 (Tri-Bang), where it has been held that when tax with interest is paid before issuance of show cause notice, no show cause notice is required to be issued. Further, the Department has not bought any material on record to prove suppression and concealment of facts to evade payment of tax. Accordingly, the appeal is allowed and the demand of penalty is dropped.
6 [2021-TIOL-160-CESTAT-Bang] 24/7 Customer Pvt. Ltd. vs. Commissioner of Central Tax, Bengaluru East Date of order: 8th March, 2021
There is no requirement of nexus between input services and output services exported – The Department cannot question the eligibility of credit at the time of claiming refund
FACTS
The appellant is engaged in the export of Call Centre Services besides domestic supply of Renting of Immovable Property service. They are an STPI unit located in Bangalore and they availed CENVAT credit of service tax paid on various input services in respect of STPI unit and used the same in the export of services and taxable services provided in India. The CENVAT credit was availed after setting off against output service tax liability arising on domestic services; a refund claim was filed under Rule 5 of the CENVAT Credit Rules. The refund claim was rejected on the ground that there was no nexus between the input service and the output service exported.
HELD
The Tribunal noted that the services on which the credit is proposed to be rejected have been consistently held to be input services in various decisions. It was also noted that the Department has not questioned the eligibility of input services at the time when the CENVAT credit was taken and that as per the decision of this Tribunal in the case of K Line Ship Management [2019-TIOL-100-CESTAT-Mum], the Department is not permitted to question the same at the time of claiming refund. Further, Rule 5 of the CENVAT Credit Rules does not require a correlation between the output service exported and the input services used in such output services exported. Accordingly, the appeal was allowed.
7 [2021-TIOL-159-CESTAT-Del-LB] Kafila Hospitality and Travels Pvt. Ltd. vs. Commissioner, Service Tax Date of order: 18th March, 2021
Incentive received by air travel agents from airlines and CRS companies is not liable for service tax
FACTS
The assessee is a travel agent paying service tax considering the value of service as determined under Rule 6(7) of the Service Tax Rules, 1994. The main issue in the present case is whether incentive received from the airlines is liable for service tax. Besides, the assessee receives commission from the CRS companies and the same is alleged to be taxed under business auxiliary service on the ground that the assessee is promoting and marketing the business of such companies. The reference is made to the larger bench.
HELD
It is noted that for an activity to be considered as promotional, it is necessary that a service provider must ‘promote’ or ‘endorse’ the service of the client. It is, therefore, to be seen whether in the present case the travel agent is encouraging a passenger to purchase a ticket of a particular airline. The facts reveal that the travel agent is only providing options to the passenger and it is the passenger who determines the airline for travel. It is only when the target of having achieved the pre-determined number of bookings is achieved that the airline pays an incentive to the travel agent. It cannot, therefore, be said that the travel agent is promoting the services of any airline. Incidentally, the airlines may benefit if more tickets are sold, but this would not mean that the travel agent is providing a service for promoting the airlines. Thus, by rendering of services connected to travel by air, a travel agent would render ‘air travel agent’ services, which services cannot be said to be for ‘promotion or marketing’ of the airlines.
Similarly, in the case of CRS companies, the passenger is not aware of the CRS company being utilised by the travel agent for booking the segment, nor can a passenger influence a travel agent to avail the services of a particular CRS company. For an activity to qualify as ‘promotional’, the person before whom the promotional activity is undertaken should be able to use the services. The passenger cannot directly use the CRS software provided by the company to book an airline ticket. It cannot, therefore, be said that a travel agent is promoting any activity before the passenger. A mere selection of software would not result in any promotional activity. Accordingly, the assessee is neither promoting the business of the airlines nor of the CRS companies. Therefore, in the absence of a service there cannot be any liability of service tax.
8 [2020 (43) GSTL 540 (Tri-Hyd)] Infotech Enterprises Ltd. vs. CCCE & ST, Hyderabad-IV Date of order: 17th February, 2020
The real test of determining the nature of service is to understand the ‘deliverable service’ agreed in the agreement – Merely because billing is measured based on the number of man hours / man days, it does not become a manpower supply service
FACTS
The appellant was engaged in providing software services to customers located abroad. The provision of such services required some of the work to be done at the customers’ site. As these activities could not be done from Hyderabad, they created subsidiaries in different countries to carry out the services required at the customers’ end. The appellant received payment for the entire services from the customers and paid the subsidiaries for their services as per the performance agreements. Two show cause notices were issued to the appellant demanding service tax, inter alia, under reverse charge mechanism on the amounts paid to the subsidiaries located abroad under the head ‘manpower recruitment or supply agency services’ along with interest and penalty on the ground that the subsidiary had billed them based on the number of man hours which were required to perform these services.
HELD
Merely because the total amount has been billed using the number of man hours as a measure, it does not become a manpower supply service. If this logic is accepted, every case where the billing is done based on the number of man hours / man days would be treated as a manpower supply service. The real test of determining the nature of service is to go through the agreement to understand what is the deliverable that was agreed to be delivered to the service recipient. In the present case, the deliverable was software services and not supply of manpower. Therefore, the demand made under reverse charge mechanism under the head ‘manpower recruitment or supply agency service’ along with interest and penalties was set aside.
9 [2020 (43) GSTL 549 (Tri-All)] Radhey Krishna Technobuild (P) Ltd. vs. Commr. of C. Ex., Lucknow Date of order: 17th December, 2019
Charges collected along with the consideration for residential units are considered as bundled service – Therefore, abatement under construction of residential complex service is admissible on such charges
FACTS
On the sale of residential units, in addition to the consideration the appellant also collected some charges from the flat buyers under the head ‘electric meter main load supply charges’. It appeared to Revenue that the appellant had taken abatement on the said charges even though such charges were collected for a purpose other than construction of residential complex service. Therefore, such abatement was not admissible, it said.
HELD
The Tribunal held that the charges for electric meter main load supply were collected along with the consideration for sale of residential units. They were collected from the very person to whom the residential unit was sold. Therefore, the said services were bundled services u/s 66F of the Finance Act, 1994 and, consequently, abatement was admissible.
10 [2020 (43) GSTL 533 (Del-Trib)] Vaatika Constructions Pvt. Ltd. vs. Pr. Commr. of ST, Delhi-III Date of order: 2nd March, 2020
Section 65(105) of Finance Act, 1994 – When a show cause notice is issued under a particular category of service, then the demand cannot be confirmed under a different category
FACTS
At the time of issue of the show cause notice, service tax was demanded under the category of ‘construction of complex’ services. However, the Principal Commissioner passed the order by confirming the demand under the category of ‘works contract’ services. Hence, the present appeal was filed.
HELD
The Tribunal, relying on some past judgments, held that a demand of service tax under a particular category cannot be confirmed under a different category. Thus, the demand of service tax could not have been confirmed under ‘works contract’ when the show cause notice was issued under ‘construction of complex’ services.
11 [2020 (43) GSTL 562 (Ahmd-Trib)] Mafatlal Industries Ltd. vs. CCE & ST, Ahmedabad Date of order: 1st June, 2020
CENVAT credit cannot be denied only on technical infraction
FACTS
In the present appeal, various queries pertaining to CENVAT credit were placed before the Tribunal. CENVAT credit was denied, inter alia, for the following reasons:
1. CENVAT credit of Rs. 3,31,189 was denied on the ground that invoices did not carry either the serial number or the service tax registration number.
2. CENVAT credit of Rs. 41,94,123 was denied on the ground that credit lying in other branches of the appellant was transferred under centralised registration without any documents.
3. CENVAT credit of Rs. 5,59,851 was denied on various services such as Mediclaim, vehicle insurance, canteen expenses, CHA bills, guest house, vehicle hire charges, membership charges and residential premise on the ground that the said services do not have any nexus with the manufacturing activity.
4. CENVAT credit of Rs. 39,60,634 was denied on the ground that it pertained to ISD invoices issued by the appellant’s branches for services received by the said units prior to their registration as ISDs.
HELD
The Tribunal heard the matter extensively and held in respect of each issue as follows:
1. Denial of CENVAT credit on the ground that invoices do not carry either serial number or service tax registration number is in the nature of technical infraction which was not done by the appellant. It was not the case of the Department that in the said invoices no service tax was paid and there is no dispute about receipt and use of the services, which are the main criteria for allowing CENVAT credit on input service. Therefore, CENVAT credit cannot be denied merely on technical infraction.
2. No documents are prescribed to transfer CENVAT credit from branches under centralised registration. It is undisputed that the appellant had made necessary recording in the statutory books of the transferee’s branch. There is no case that transferor branches have transferred excess credit or wrong credit. Therefore, CENVAT credit cannot be denied only on the ground that proper documents under centralised registration were not issued for transfer of credit.
3. It was held that CENVAT credit in respect of input services such as Mediclaim, vehicle insurance, canteen expenses, CHA bills, guest house, vehicle hire charges, membership charges and residential premise have been allowed in various judgments:
(a) For Mediclaim, the Tribunal relied on Chennai vs. Spectrasoft Technologies Limited 2019 (24) GSTL 224 (Tri-Chennai) and CST Mumbai vs. FIL Capital Advisors (India) Pvt. Limited 2015 (40) STR 1073 (Tri-Mumbai).
(b) For canteen and insurance services, the Tribunal relied on CCE, Bangalore vs. Stanzen Toyotetsu India (P) Limited 2011 (23) STR 444 (Kar).
(c) For vehicle insurance, the Tribunal relied on Vinayak Steels Limited vs. CCE & ST, Hyderabad 2017 (4) GSTL 188 (Tri-Hyderabad).
4. The Tribunal, by relying upon the judgment in mPortal (I) Wireless Solutions (P) Limited vs. CST, Bangalore 2012 (27) STR 134 (Kar), held that CENVAT credit cannot be denied even if ISD invoices were issued for the distribution of input service credit prior to registration.
