I. SUPREME COURT
36. [2019] 106 taxmann.com 217 (SC) Steel
Authority of India Ltd. vs. Commissioner of Central Excise, Raipur Date of order: 8th
May, 2019;
In case of retrospective escalation in prices of goods sold, for calculation
of interest on excise duty on price differential, the date of removal of goods
shall be considered and not the date of price revision
FACTS
The appellant sold and cleared the goods to its client and paid excise
duty on the price charged. Subsequently, the price of the goods was enhanced
retrospectively. The appellant discharged excise duty on the price differential
arising on account of the revision in price. Revenue demanded interest from
appellant u/s 11AB of the Central Excise Act, 1994, contending that the
appellant was liable to pay interest based on the date of removal of such goods
and not from the date of the price revision. The Tribunal rejected the appeal
filed by the appellant relying upon the judgement of the Supreme Court in CCE
vs. SKF India Ltd. [2009] 21 STT 499.
While deciding the appeal filed by the appellant against the order of
the Tribunal, a bench of two judges of the Supreme Court doubted the
correctness of the decision in the case of SKF India Ltd. (Supra) and
also in the case of CCE vs. International Auto Ltd. [2010] 24 STT 586
(SC) and referred the matter to a bench of three judges. Accordingly,
in the present appeals, the three-judge bench was required to decide that when
price is revised upward with retrospective effect and the excise duty on the
same is paid immediately on a future date, for the purposes of computation of
interest u/s 11AB, which is the month in which the duty ought to have been
paid?
HELD
The Supreme Court opined that where there is an escalation clause, goods
are cleared on a provisional price. Consequently, the value is provisional. If
there is a subsequent escalation with retrospective effect, it will affect the
valuation which was employed in the self-assessment by the assessee which would
necessarily be provisional. Enhancement of the value will date back to the date
of removal in view of the retrospective operation.
The Court did not agree with the reasoning of the bench of two judges
which held that for the purpose of section 11AB, the expression ‘ought to have
been paid’ would mean the time when the price was agreed upon by the seller. It
held that interpreting the words in the manner contemplated by the bench would
result in doing violence to the provisions of the Act and the Rules because
when an assessee in similar circumstances resorts to provisional assessment
upon a final determination of the value consequently, the duty and interest
dates back to the month ‘for which’ the duty is determined. Duty and interest
is not paid with reference to the month in which the final assessment is made.
Though the differential duty becomes crystallised only after the
escalation is finalised under the escalation clause, but it is not a case where
escalation is to have only prospective operation but admittedly retrospective
operation. In other words, the value of the goods which was only admittedly
provisional at the time of clearing the goods is finally determined and it is
on the said differential value that differential duty is paid. The Supreme Court
held that while the principle that the value of the goods at the time of
removal is to reign supreme, in a case where the price is provisional and
subject to variation and when it is varied retrospectively it will be the price
even at the time of removal. The fact that it is known later cannot detract
from the fact that the later-discovered price would not be value at the time of
removal. The three-judge bench also concurred with the views expressed in SKF
India Ltd. (Supra) and International Auto Ltd. (Supra).
Consequently, the present appeal filed by the appellant was dismissed.
II. HIGH COURT
37. [2019] (27) GSTL 12 (Mad.) Hitachi Power
Europe GMBH vs. C.B.I. & C. Date of order: 2nd
April, 2019;
Pre-show cause notice consultation with Principal Commissioners or
Commissioners is made mandatory in nature involving demand of duty above Rs. 50
lakhs as per the C.B.I. & C. Circular and recommendation of Tax
Administration Reforms Commission (TARC)
FACTS
An intimation for conduct of service tax audit was issued by the audit
department on the petitioner in 2015. In 2016, another notice was issued by
senior audit officer / CERA authority – V about the proposed CERA audit and for
keeping ready the documents for smooth audit. Audit was conducted and no
specific query was raised or explanation called for. Later, in 2016, a letter
was issued by Assistant Commissioner of Service Tax making reference of the
audit slips issued by CERA and the assessee was called upon to deposit the service
tax due as per the audit slips. The petitioner offered an explanation and
sought an opportunity of personal hearing prior to finalisation of proceedings.
Later, another notice was issued calling for various documentary evidence in
support of contentions in the explanation offered. A detailed reply was filed
along with a request to drop the proposals raised by audit. The request for
personal hearing was reiterated. The above events culminated with impugned show
cause notice with a reference to CERA audit. There was, however, no reference
to the replies filed or the details furnished in the course of the audit.
A writ petition was filed by the petitioner that he had not got an
opportunity of personal hearing prior to finalisation of proceedings against him
and eventually a show cause notice was issued against him which ultimately
triggered the commencement of adversarial proceedings between the petitioner
and the department. The circular of C.B.I & C. and recommendation of TARC
states that there should be pre-show cause notice consultation between the
petitioner and the officer prior to the stage of issuance of show cause notice.
HELD
The Hon’ble High Court held that the impugned show cause notice has been
issued to the petitioner without the process of pre-show cause notice
consultation and directed the officer to call upon the petitioner with all
relevant details and afford him full opportunity of pre-show cause notice
consultation, prior to issuance of the show cause notice.
38. [2019] (25) GSTL 534 (Del.) Vaani Kapoor vs.
Commissioner of Service Tax Date of order: 10th
September, 2018;
Consideration paid by flat buyers to a builder for acquisition of the
flats is not subject to service tax
FACTS
The petitioner was the owner of the residential flat constructed by the
builder. Service tax amount on the residential flat under construction was
collected from the petitioner by the builder. Subsequently, a writ petition was
filed challenging such levy on the construction of residential flats as
unconstitutional vide the judgment of Suresh Kumar Bansal & Ors. vs.
UOI & Ors. (2016) 287 CTR (Del) 1 wherein, the levy of service tax
on residential flat u/s 65(105) (zzzh) of the Finance Act, 1994 – as well as
explanation to section 65(105) (zzzzu) was held ultra vires and
unconstitutional and the amount collected towards service tax was directed to
be refunded.
HELD
The High Court, referring to the judgement of Suresh Kumar Bansal
& Ors. (Supra), held that identical relief shall be granted to the
petitioners. The respondents were directed to undertake the requisite
procedures for the remittance of the refund amount to the petitioner and to
issue required notices to the builder and to the petitioner to facilitate the
process, thereby allowing the writ petition.
III. TRIBUNAL
39. [2019] 106 taxmann.com 148 (Bang. – CESTAT)
AMD India (P) Ltd. vs. Commissioner of Service Tax, Bangalore Date of order: 20th
November, 2017;
Tribunal held that activity
of providing sales and marketing support in India to entities located outside
India cannot be said to be covered under purview of ‘intermediary services’
FACTS
The appellant, a 100%
software export-oriented unit, provided business auxiliary services to its
holding company located outside India, i.e., sales and marketing support
services which involved activities including meeting with original equipment
manufacturers, providing training on products, holding events or trade shows,
etc. The appellant’s claim of refund for unutilised CENVAT credit, in terms of
Rule 5 of CENVAT Credit Rules, 2004 was rejected by the Revenue on the ground
that the services provided by appellant are in the nature of ‘intermediary
services’ under Rule 9 of Place of Provision of Services Rules, 2012 and, thus,
cannot be said to be ‘export of services’ under Rule 6A of Service Tax Rules,
1994.
HELD
The Tribunal noted that the terms of Master Service Agreement with its
holding company does not provide that the appellant will facilitate or will
arrange the purchase and sale on behalf of entities outside India. Further, it
was noted that the appellant’s potential customers for the products of the
foreign company are located abroad. Though the services are provided with
respect to the buyer in India, the benefit of the same accrued to the service
recipient located abroad.
The Tribunal relied on its decision in Lenovo India (P) Ltd. vs.
CCE [2009] 21 STT 134 (Bang. – CESTAT) holding that promoting sale of
goods of foreign clients in India being BAS fulfils the conditions under Export
of Service Rules, 2005 and qualifies as export of service. Further, in KSH
International (P) Ltd. vs. CCE [2010] 25 STT 307 (Mum.), it was held that
the phrase ‘used outside India’ is to be interpreted to mean that the benefit
of the service should accrue outside India; thus, it is possible that export of
service may take place even when all the relevant activities take place in
India so long as the benefits of these services accrue outside India.
Accordingly, in this case the Tribunal held that the appellant cannot be said
to be providing ‘intermediary services’ and allowed the present appeals with
consequential reliefs.
Note: Similarly, in [2019]
106 taxmann.com 213 (Bang. – CESTAT) Commissioner of Central Excise &
Service Tax, Bangalore-V vs. Analog Devices India (P.) Ltd. [13-11-2017],
it was held that when an Indian entity provided consulting engineering service
and business auxiliary service to the holding company located outside India and
it located potential customers for products of the foreign company located
abroad, such services cannot be said to be in the nature of ‘intermediary
services’. However, in Excel Point Systems India (P) Ltd. vs. CST [2019]
106 taxmann.com 174 (Bang. – CESTAT) [28-09-2017], where the assessee
had entered into a Buying Services Agreement with its parent company located in
Singapore to render marketing support services, which included data collection
and statistical and business analysis in relation to the company’s products /
customer market and sending across data / reports to the company, etc., and
technical support services, which included advisory support provided to
customers with regard to the project design based on directions from the
company, the Bangalore Tribunal held that such services rendered by the
assessee would fall within the definition of intermediary services.
40. [2019] 106 taxmann.com 74 (Chandi. – CESTAT)
Evalueserve.Com (P) Ltd. vs. Commissioner of Service Tax, Gurgaon Date of order: 7th
February, 2018;
Where assessee provided various services to the customers of the client
(i.e. service recipient), on direction of service recipient located outside
India, Tribunal held that such services cannot be said to be ‘intermediary
services’
FACTS
The appellant entered into an agreement with a client, a foreign entity
located outside India, wherein the appellant was required to provide the
services to the customers of the client in accordance with the requirements as
specified by the client. The appellant would directly interact with the
customers of the client, as and when required, and hence would provide the
services to such customers on behalf of the client in close coordination with
the client’s team. The final reports were directly provided by the appellant to
the customers of the clients.
Accordingly, for the services provided by the appellant on behalf of the
client in relation to inter alia, business research (including financial
services), market research and intellectual property activities, the appellant
received the margin every month from its client in convertible foreign
exchange. Revenue alleged that the activities of the appellant would get
covered within the scope of ‘intermediary services’ under Rule 2(f) of Place of
Provision of Services (POPS) Rules, 2012 and, hence, cannot be said to be
export of services under Rule 6A of ST Rules, 1994.
HELD
The Tribunal noted that the lower authority committed an error in
holding that the appellant provided services on behalf of the foreign client,
whereas the appellants are themselves engaged in providing services to their
client on their own account. In fact, the appellant has provided the services
to customers of their client and having no direct nexus with the customers of
their client and nowhere has facilitated or arranged for the services provided
to their client by a third party. Furthermore, the appellant have themselves
provided the services to their client as the main service provider on
principal-to-principal basis; therefore, the activity undertaken by the
appellant does not qualify as intermediary as defined in Rule 2(f) of Place of
Provision of Services Rules, 2012.
The Tribunal also referred to the view taken by the Advance Rulings
Authority of India in the case of Universal Services India (P) Ltd. vs.
CST [Ruling No. AAR/ST/07/2016, dated 4-3-2016] and Godaddy India
Web Services (P) Ltd. In re [2016] 67 taxmann.com 324/64 GST 681 (AAR –
New Delhi). Accordingly, the Tribunal held that the appellant cannot be
said to be a provider of ‘intermediary services’ and, thus, not liable to pay
service tax under Rule 9 of POPS Rules, 2012.
41. [2019] (25) GSTL 460 (Tri. – Ahmd.)
Commissioner of Service Tax, Ahmedabad vs. Om Air Travels Pvt. Ltd. Date of order: 2nd
April, 2019;
Discount received from main IATA agent by the appellant as a sub-agent
is not taxable
FACTS
The appellant was a sub-agent, purchasing tickets at a discounted price
from the main IATA agent and later selling these at a higher price to
customers. The Department was of the view that the discount received from the
main IATA agent as a sub-agent was liable to be taxed under Business Auxiliary Service.
Relying on the decision in the case of CCE Goa vs. Zuari Travel
Corporation vide order dated 18th July, 2013, the appellant
submitted that the services are classifiable as an air travel agent service and that the commission received from the main IATA agent and selling
the tickets to customers is not taxable.
HELD
The Tribunal held that purchasing tickets at lower price, i.e.,
discounted price and selling at a higher price is a trading activity and the
difference is a trade margin during the process of sale and purchase of the
tickets, and hence the trade margin is not taxable. The impugned order is
upheld and Revenue’s appeal is dismissed.
42. [2019] (25) GSTL 59 (Tri. – All.) Logix Infrastructure
Pvt. Ltd. vs. Commissioner of Central Excise & Service Tax, Noida Date of order: 29th
September, 2018;
Entire consideration on residential complex service including components
such as preference location charges, external and internal development charges,
legal specification, etc. are eligible for abatement under Notification No.
26/2012-ST
FACTS
An appeal was filed by a service provider giving
residential complex services stating that with effect from 1st July,
2012 there does not exist the concept of individual service in the statute as
per the introduction of section 66F. The section provides that when there are
various elements of services then they are to be bundled together and shall be
treated as a single service. Thus, the assessee can claim an abatement of 75 %
on tax rate of 12.36 % as per Notification No. 26/2012-ST for the service
provided by them to recipients in the form of preference location charges,
external and internal development charges, legal specification, etc., as such
services do not have independent existence but are associated with the
provision of residential complex service; thus they cannot be vivisected and
cannot be treated as separate and charged at a different rate. But the C.B.E.
& C. were of the view that such services should be treated as independent
service and should be subject to different rate of tax, i.e., benefit of
abatement should not be granted on preferential service.
HELD
The Tribunal held that section 66F will prevail over any clarification or
view taken by C.B.E. & C.; therefore the components such as preferred
location charges, external development charges, etc., are part and parcel of
various elements of the main service, which is residential complex service, and
therefore the entire consideration received by the appellants is eligible for
abatement.
43. [2019] (25) GSTL 573 (Tri. – Chan.) Hitachi
Metals (I) Pvt. Ltd. vs. Commissioner of C. Ex. & ST (Gurgaon-1) Date of order: 3rd
April, 2019;
Claiming refund of service tax beyond the period of one year from the
date of payment
FACTS
The appellant entered into an agreement with M/s Hitachi Metals (India)
Pvt. Ltd. having its office in Japan and similar agreements with outside
clients for promotion of products by way of customer’s identification and
contact and to co-operate with and represent MET in promotional efforts. The
appellant, due to lack of clarity, had paid service tax for the period April,
2006 to February, 2008 for the services provided to the foreign-based service
recipient receiving payment in convertible foreign exchange. As per C.B.E.
& C. Circular No. 111/05/2009-ST dated 24th February, 2009, it
had been clarified that services of Indian agents who carry out marketing in
India for foreign sellers would be treated as exports and no service tax was
required to be paid.
On the basis of this, the appellant filed a refund
claim on 12th January, 2010. However, the refund was rejected on the
grounds that it was filed beyond the period of limitation mentioned in section
11B of Central Excise Act, 1944. As per this section, the refund claim shall be
filed within a period of one year from the date of payment. As the appellant
filed the refund claim beyond that period, it was rejected.
HELD
The Tribunal allowed the appeal relying upon the decision in the case of
National Institute of Public Finance & Policy vs. Commissioner of
Service Tax 2019 (20) G.S.T.L. 330 Delhi. In that case, the assessee
paid service tax under the wrong impression that it was liable to pay service
tax. Subsequently, it was informed by C.B.E.C. on 13th April, 2009
that its activities were not taxable. While processing the refund application,
the refund of certain amounts was denied on the ground that the application was
filed after a lapse of one year.
Revenue relied upon Collector of C.E., Kanpur vs. Krishna Carbon
Paper Co., 1988 (37) E.L.T. 480 (S.C.) and submitted that refund claim
before a departmental authority is to be made within the four corners of the
statute and the period of limitation prescribed in the Central Excise Act and
the Rules framed under it.
The Hon’ble Court, however, distinguished the said judgement stating
that Krishna Carbon Paper Co. (Supra) was a case where principal
duty was payable; excess amount had been paid on a mistaken notion with respect
to the liability for excess production under a notification which was later
discovered to be not correct. In the present case, the levy never applied – a
fact conceded by no less than the authority of C.B.E.C. In these circumstances,
the general principle alluded to in Krishna Carbon Paper
Co. (Supra) would apply. Accordingly, the appeal was allowed.
