By Puloma Dalal, Bakul B. Mody, Chartered Accountants
fiogf49gjkf0d
Service Tax
I. Supreme Court :
Sales tax : Decision of Supreme Court in case of K. Raheja Development
Corporation referred to Larger Bench :
Larsen & Toubro Ltd. v.
State of Karnataka, 2008
(16) STT 286 (SC)
The assessee is engaged in property development involving
construction and building of flats and subsequent sale thereof. Under a
development agreement, it developed a plot owned by an owner and accordingly
tripartite agreement was entered into between the assessee, owner of plot and
prospective buyer. Relying on the Supreme Court judgment in K. Raheja
Development Corporation v. State of Karnataka, (2005) 2 STT 178 (SC), the
Department alleged that construction of flats was on behalf of purchaser and it
was a works contract and as such, sales tax be levied on works contract. The
question therefore was whether the tripartite agreement was entered into by the
assessee on its own or on behalf of the owner or on behalf of prospective
purchaser of flat.
The appellant did not deem it fit to rely on para 20 of K.
Raheja’s (supra) decision prima facie on the following grounds :
- The developer–assessee undertook the contract to develop property of the
owner.
- The SCN merely proceeded on considering tripartite agreement as works
contract.
- There was no allegation in the SCN as to existence of monetary consideration
in the first contract of development agreement.
- Whether the ratio enunciated in para 20 of the K. Raheja’s judgment was
correct (reproduced below):
“20. Thus the appellants are undertaking to build as
developers for the prospective purchaser. Such construction/development is to
be on payment of a price in various instalments set out in the agreement. As
the appellants are not the owners, they claim a ‘lien’ on the property. Of
course, under clause 7 they have right to terminate the agreement and to
dispose of the unit if a breach is committed by the purchaser. However, merely
having such a clause does not mean that the agreement ceases to be a works
contract within the meaning of the terms in the said Act. All that this means
is that if there is a termination and that particular unit is not resold but
retained by the appellants, there would be no works contract to that extent.
But so long as there is no termination, the construction is for and on behalf
of the purchaser. Therefore, it remains a works contract within the meaning of
the term as defined under the said Act. It must be clarified that if the
agreement is entered into after the flat or unit is already constructed, then
there would be no works contract. But so long as the agreement is entered into
before the construction is complete, it would be a works contract.”
According to the Apex Court, if ratio of K. Raheja (supra)
had to be accepted, there could be no difference between a works contract and a
contract for sale of a chattel as a chattel and further there was a question
whether the petitioner was the contractor for the prospective flat purchaser.
The stand of the Department that not the development agreement but the
tripartite agreement was a works contract was found fallacious by the Court and
the judgment was recommended to be reconsidered by the Larger Bench.
Withdrawal of exemption retrospectively held as not within
the power of State besides being arbitrary.
MRF Ltd. v. A.C. Sales Tax, 2008 (12) STR 206 (SC)
Kerala State Sales Tax authorities in this case withdrew
retrospectively an exemption granted for a specified period and for a specified
amount under an MOU with the Government granted by the Board of Revenue. The
Court observed that the petitioner made a huge investment in
diversification/expansion of its industrial unit based on the exemption and the
State was benefited through central excise duty, industrial development of the
State and contribution to labour and employment. Therefore denial of right
accruing to the appellant was unfair, unreasonable, arbitrary and violative of
Article 14 of the constitution. Further, the Court held that the State did not
have power to withdraw the exemption retrospectively under the provisions of the
Kerala General Sales Tax Act and allowed the appeal.
II. High Court :
Time bar : Whether applies to duty paid mis-takenly ?
CCE, Bangalore v. Motorola India Pvt. Ltd., 2008 (11) STR 555 (Kar.)
An amount was mistakenly debited in excess of duty payable to
the PLA account by the assessee. On noticing the same, the Department was
informed about it. The authorities directed to file refund claim which was
rejected on the ground of lapse of time and it was also confirmed by the
Appellate Commissioner. The Tribunal accepted the assessee’s case on the ground
that the amount paid mistakenly did not amount to duty. The High Court relying
on the Apex Court’s decision in the case of India Cements Ltd. v. CCE,
1989 (41) ELT 358 and also noting that the Madras High Court also held the claim
reasonable in view of the Apex Court’s above decision, rejected Revenue’s
appeal.
Karamchand Thaper & Bros. (Coal Sales) Ltd. v. UOI, 2008 (11) STR 459
(Cal.)
The petitioner engaged in the business of leasing operation and supervision work for supply of coal to power plants applied for registration under business auxiliary service. The Department did not re-ject the application. There is a provision for deemed registration if not granted within 7 days. After 22 months, the Department on its own registered the firm under clearing ‘and forwarding service. Al-though the rate is the same, liability under the said category would arise from 1999. The case of the petitioner was restricted to the point that without appropriate order of adjudication, the petitioner could not be registered under a different category. Being a factual issue, service tax authorities offered to re-examine the issue. The Court ruled that certificate granted could not remain in operation until the Commissioner, Service Tax, gives reasoned decision after hearing the petitioner and until then, the petitioner would continue to pay service tax under business auxiliary service. However, the Court stated that it had not made any observation on merits which the Commissioner, Service Tax, had to adjudicate.
III. Tribunal:
Business Auxiliary Service – Data processing services whether taxable under this category?
Dataware Computer v. CCEC & ST (A) Guntur, 2008 (12) STR 121 (Tri.-Bang). Final order dated 25-3-2008.
The appellants under the order provided services of data processing and preparing MIS reports to Andhra Pradesh Electricity Board from July 2003 to April 2004. The contract defined the scope of services which included generation of various MIS reports and development of software for the same. The decision in the case ofBellary Computers v. CCE Mangalore, 2007 (8) STR 470 (Tri.-Bang.) was relied upon. Considering the service of the appellants as ‘Information technology service’, it was held as excluded from the scope of ‘business auxiliary service’.
CENVAT Credit:
Availing CHA services, whether input services for exporter of goods?
(i) CCE Rajkot v. Rolex Rings (P) Ltd., (2008) 16 STT (Ahd.-CESTAT)
While exporting goods, the appellant utilised services of CHA and surveyors. The Revenue treated them as non-eligible being of post-manufacturing activity and post-clearance of goods. Considering the Board’s Circular No. 91/8/2007 and the definition of ‘input services’ (which the Revenue had not considered), if was held that exporter remained owner of the goods until export took place and place of removal is port area. Further, the services are clearly related to business activity and therefore the Revenue’s appeal was rejected.
(ii) [indal Steel & Power Ltd. v. CCE Raipur, 2008 16 STT (N.D. – CESTAT)
For consulting engineer’s services received from abroad, the assessee got registered this category and paid service tax from CENVAT account. Later they also registered as output service provider of consulting engineer’s services. However, the services availed from foreign company related to transfer of technology. The assessee however, took credit for the service tax paid as receiver. The Revenue denied credit on the ground that considering the relevant period i.e., when credit was taken, the assessee did not provide any output service and therefore, services received were not ‘input services’ for output services provided later. The assessee contended that service tax on transfer of technology was paid only under the direction of the Department. The Tribunal observed that had the service tax been paid by actual service provider, the assessee would have been entitled to credit. Merely because tax was paid as receiver of service, its right as recipient could not be denied. Further, at the relevant time, in terms of Rule 2(p) of the CENVAT Credit Rules, service tax was paid as deemed output service provider. Also, there is no time limit prescribed for utilisation of credit. Therefore, the date on which output service registration was taken is not at all relevant. Utilisation of credit was permissible in view of the extended definition of ‘output services’. Further, case laws cited by the appellant viz. Bhushan Power & Steel Ltd. v. CCE & ST, (2008) 12 SIT 155 (Kol. – CESTAT) and CCE v. Florescence Microfinish Pumps (P) Ltd., (2008) 12 SIT 423 (Delhi – CESTAT) also supported the view and as such the appeal was allowed.
Subcontractor’s services:
Evergreen Suppliers v. CCE Mangalore, (2008) 16 SIT 122 (Bang. CESTAT) – Final order dated June 23, 2008.
Service tax was demanded from the assessee under cargo handling service and clearing and forwarding service, whereas the assessee contended that it acted as subcontractor and the main contractor had discharged the service tax liability. However, in absence of purportedly sustainable proof, the demand was confirmed. The assessee submitted that in their own case for the earlier period, the Tribunal held that the field officers failed in their duty by not verifying whether principal contractor discharged the tax liability as stated by the assessee and the said failure could not be used against the assessee as in terms of Trade Notice No. 39-CE of 11-06-97, subcontractor was not liable. The Tribunal felt bound by this ruling and held the demand as unsustainable.
