I Supreme Court :
1. Grant of stay pending disposal of case.
Ø Ravi Gupta vs. Commissioner of Sales Tax, Delhi 2009 TIOL 47 SC-CT.
For want of declaration forms, demand for over 8 crore was made on appellant, a dealer registered under the Delhi Sales Tax Act, 1975. The appellant prayed for further time to produce declaration forms, which was declined and on failing to get any relief, the appellant moved the Tribunal in six appeals. Along with the appeal, application to dispense with pre-deposit was filed. The Tribunal after hearing rival stands and particularly that declaration will be filed, directed payment of three crore rupees. The appellant filed a writ before the Delhi High Court questioning correctness of the order. The High Court directed the petitioner to produce statutory forms within six weeks and failing to do so, directed to pre-deposit in terms of the order. As the appellant did not produce the records, the Tribunal held that the appellant was required to pre-deposit three crore rupees as directed earlier and as the appellant failed to do both, appeals were held as not entertainable. A writ was again filed questioning correctness of the order, which was dismissed by the order on the ground that earlier order was not complied with. This order was challenged in appeal to the Supreme Court, wherein it was pleaded that the Tribunal and the High Court failed to appreciate that large number of declaration forms were to be collected from various parties and since the situation was beyond the control of the appellant, the forms could not be produced. If the forms are taken into account, the liability would not be more than 15 lakh.
After examining the relevant provision, the Hon’ble Court observed that though discretion is available, it has to be exercised judiciously. These things are to be considered by the Tribunal while dealing with application for dispensing with the pre-deposit — prima facie case, balance of convenience and irreparable loss. The Court noted, “Merely on establishing a prima facie case, interim order of protection need not be passed. But on a cursory glance, if it appears that the demand has no legs to stand, it would be undesirable to require the assessee to pay full or substantive part and dispose of petition in a routine manner. Merely because the Court has indicated the principles, that does not give a licence to the forum/authority to pass an order which cannot be sustained on touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen’s faith in the impartiality of public administration, interim relief can be given ! !”
The Tribunal was accordingly directed to hear the appeal on merits without insisting on any pre-deposit. However, no opinion was expressed on the merits of the case and the appeal was disposed of.
II High Court — Important decisions :
2. CENVAT Credit : Credit for service tax paid on outward freight.
Ø Ambuja Cements Ltd. vs. Union of India and Others 2009 TIOL 447 STR 3 (P&H) — order dated February 10, 2009.
Readers may refer to the decision of Delhi CESTAT reported at 2007 (6) STR 249 (Tri.-Del.) against which instant appeal was filed by the appellant on substantive question of law i.e., whether service of transportation up to the customer’s doorstep in the case of ‘for destination’ sales where the entire freight was paid and borne by the manufacturer would be ‘input service’ for Rule 2(1) of CC Rules and whether interest should have been demanded on the same ?
The Hon’ble Court examined and relied on these aspects, the definition of ‘place of removal’ as provided in Section 4(3)(c)(iii) of the Central Excise Act, 1944, the subsequently issued Board’s Circular No.97/6/2007-ST, dated 23.08.2007 (Master Circular) and the definition of input service as per Section 2(1) of the CC Rules — ‘Place of removal’ means a depot, a premise of consignment agent or any other premises or place where excisable goods are sold after the goods are cleared from the factory. Para 8.2 of the Board’s Circular (supra) contemplates fulfilment of certain conditions; (a) ownership of goods and the property of the goods should remain with the seller till the delivery of goods in acceptable condition at the doorstep of the purchasers, (b) the seller bears the risk of loss or damage in transit to destination, (c) the freight charge should form integral part of the price of goods.
Binding nature of the Board’s Circular also was recognised by the Court relying on the decision of Paper Products Ltd. vs. CCE, (1999) 7 SCC 84 which in turn had relied inter alia on earlier SC decisions like Usha Martins Industries (1997) 7 SCC 47 and Ranade Micro Nutrients vs. CCE (1996) 10 SCC 387 and that the Revenue precluded from challenging the correction of the Circular even on the ground that is inconsistent with statutory provisions.
Further, the Hon’ble Court examined that all the requirements of the Circular were fulfilled —the supply of cement was ‘at destination’. Freight and insurance were borne by the appellant. Referring to the reply filed by the appellant to show-cause notice, the Court ruled that the third condition of freight charge forming part of cost of excisable goods stood fulfilled and thus the service of transportation was ‘input service’ for the CC Rules and accordingly, the credit availed was ruled to have been lawfully availed and there being no contravention of law, consequential interest payment did not arise.
3. Broadband connectivity — liable for VAT as sale of light energy although taxable to service tax.
Ø Bharti Airtel Ltd. vs. State of Karnataka & Others 2009 TIOL 99 HC — KAR-VAT
Vide an order dated January 16, 2009 the judgment in this case has given rise to controversy and uncertainty as the broadband connectivity charge recovered by the appellant is held as ‘sale of light energy’ taxable under the Karnataka VAT Act on the entire sale proceeds in spite of being taxed to service tax and principle laid down by the Supreme Court in the landmark decision of Bharat Sanchar Nigam Ltd. vs. UOI, 2006 (2) STR 161 (SC) is distinguished. The Assessing Authority in this case issued twelve notices under the Karnataka VAT Act (KVAT) to reassess the turnover of the appellant by adding subscription received towards leasing of broadband by treating the same as ‘transfer of right to use goods’ on the ground that physical lines of optical fibres were goods and rejecting appellant’s contention that leasing of broadband was a service on which service tax was paid. The demand was confirmed through a reassessment order on the new ground that the appellant was selling light energy. The appellant’s writ against the order was allowed by way of remand for fresh disposal. Twelve fresh notices were issued proposing to treat the transaction of providing broadband service as ‘sale of light energy’ and then were reassessed treating the leased service as sale of light energy. The Assessing Authority while deciding the case had also observed that there is no express provision in the service tax law that no VAT could be levied on a transaction on which service tax was levied nor does KVAT law contain a provision as to non-levy of VAT on a transaction on which service tax was levied by the Central Government. The appellant strongly relied on the decision of BSNL (supra), State of U.P. and Another vs. Union of India and Another 2003 TIOL 14 SC-ST, Associated Cement Company Ltd. vs. Asst. Commissioner of Sales Tax, Jabalpur and Another 1971 (28) STC 629 and a few other decisions and contended that the order of reassessment was opposed to the decision in the case of BSNL (supra) and that the activity of transmission of data from one place to another through optical fibre cables (OFC) did not involve sale of ‘light energy’ to the subscribers of broadband. What is delivered by the broadband users is data or voice information in electronic wave form and the light emitted by the laser device in the transmitter is used only for transmitting the same data at the destination point and that there was no element of ‘sale’ as Artificially Created Light Energy (ACLE) could not be termed as ‘goods’ as defined under Article 366(12) of the Constitution of India, under Section 2(7) of the Sale of Goods Act, 1930, Section 2(15) of the KVATAct, 2003, as it does not possess any of the properties of goods. The ACLE which is the electronic magnetic wave of high frequency is not capable of being possessed, stored, delivered and marketed and therefore, it cannot be held as goods was contended relying on the decision in the case of BSNL (supra), wherein it was held that ‘goods’ do not include ‘electro magnate waves’ or radio frequencies for the purpose of Article 366(29A)(a). Per contra on behalf of the Revenue, it was contented that the principle enunciated in BSNL’s case (supra) cannot be applied to this case, as it had not considered ‘artificially created light energy’ and placing strong reliance on the decisions of the Supreme Court in (1) Associated Cement Co. Ltd. vs. CC (2001) 4 SCC 493 (2) Tata Consultancy Services vs. AP (2005) 1 SCC 3208 – 2004 (178) ELT 22 (SC) and (3) State of A.P. vs. NTPC & Others (2002) 5 SCC 203. It was further contended by the Revenue that artificially created light energy is capable of being abstracted, possessed and consumed and as such, it could be held as ‘goods’ for the purposes of Article 3661(12), Section 2(7) of the Sale of Goods Act, 1930 and Section 2(15) of the KVAT Act, 2003. The definition of ‘goods’ under these laws was examined in detail by the Hon’ble High Court and it observed that in the decisions of TCS (supra) and ACC (supra), the term ‘goods’ as used in Article 366(12) is very wide and includes all types of properties whether tangible or intangible/ any incorporeal property and accordingly it was held that software sale was sale of goods as it was capable of being extracted, consumed and used and it could be transmitted, transferred, delivered, stored and possessed, etc. The Hon’ble High Court ana lysed observations in the BSNL’s case as regards’ electromagnetic waves’ in detail and distinguished non-extinguishable electromagnetic waves from’ Artificially Created Light Energy: (ACLE)’ and noted that ACLE is made to travel in the confined area in OFC Network and direction of their movement is regulated and that the said light energy gets extinguished and it cannot be reused by the same subscriber for carrying his another data or of any other subscriber. Each specific data is carried by a separate ACLE and it could be safely held that it is being abstracted, possessed, transmitted and delivered during transmission of data to the subscriber and like, in the case of electricity, the creation, supply, possession, use and transmission (movement) and delivery of ACLE takes place almost simultaneously. Rival submissions including expert opinions were placed on record by the appellant as well as by the Revenue. However, artificially created light energy was held as ‘goods’.
Further questions that were examined were – whether there is a ‘sale’ of ACLE by the appellant to its subscriber so as to attract VAT and whether VAT was leviable even if transmission was chargeable to service tax. The definition of ‘sale’ was considered, analysed and discussed at great length and it was held that the nature of the transaction between the appellant and its subscriber under ‘service line agreement’ though is described as ‘service’, is one of ‘composite transaction’ involving ‘service’ and ‘sale’ elements. With ACLE, the data and information of the subscribers cannot be transmitted by using only OFC network. Similarly, without using OFC network, the data/information cannot be transmitted by using only ACLE.
For composite transactions, again the Supreme Court’s observations in BSNL’s case were examined and an opinion was formed that in the instant composite transaction also, the two elements of service and sale cannot be split. In this frame of reference, relying on the decision in State of UP vs. UOI, 2003 TIOL 14 SC-ST, it was held that the entire proceeds received from the subscriber as ‘service rentals’ would have to be taxed under the KVAT Act treating the transaction of providing broadband connectivity to its subscribers as sale of Artificially Created Light Energy *(ACLE) and that the Government of Karnataka had authority to levy VAT on the entire proceeds collected as ‘lease rentals’, despite it being assessed to ‘service tax’ by the Central Government under the Finance Act, 1994.
[Note: The above decision would have repercussions of serious nature if finality is reached for taxing a transaction twice].
4. Whether supply of vessels to ONGC amounts to a service in relation to mining?
Indian National Ship Owners’ Association & Others vs. UOI & Others, 2009 TIOL 150 HC Mum-ST.
Members of the petitioner provide vessels that include offshore drilling rigs, harbour tugs, construction barges, etc. to exploration and production operators such as ONGC in India and in international waters on time-charter basis to carry out various jobs which inter alia includes anchor handling, towing of vessel, supply to rig or platform, supporting offshore construction, piloting big vessels in and out of harbour, etc. When the taxing entry of service in relation to mining of mineral oil or gas was introduced with effect from 01.06.2007 (entry 65(105)(zzzy), the petitioner’s members on approaching service tax authorities were informed that services of supply of vessels to ONGC or the like companies were liable for service tax under the said taxing entry and actions were initiated for recovery of service tax and an instant writ was filed therefor. In the interim, the Finance Act, 2008 with effect from 16.05.2008 introduced entry (zzzzj) to tax service in relation to supply of tangible goods for use without transferring right of possession and effective control of such goods. Accordingly, the petitioner pleaded that the activity of the members was specifically covered by the new entry and since it did not relate to ‘mining’, it was not covered by the earlier entry and that the new entry was not carved out of the old entry. Reliance was placed on Pappu Sweets & Biscuits & An. vs. CIT, UP, (1998) 7 SCC 228 and Yogendra North Naskar vs. CIT, Calcutta, (1969) 1 SCC 555 and also on Glaxo Smithkline Pharmaceuticals, 2005 (188) ELT (TrL), Diebola Systems (P) Ltd. 2008 9 STR 546 (TrL) and a couple of others.
Attention of the Court was drawn to the fact that there existed taxing entries for services of transportation by aircraft, transportation by road and transportation of goods other than water through pipeline or conduit, but no specific entry exists for transportation by sea and, therefore, the activity could not be subjected to service tax.
Provisions of Section 65A, entry (zzzy) and entry (zzzj) along with the respective clarificatory Circulars of the Board were examined. Quoting from the judgment of the Assam Court in the case of Magus Construction P. Ltd. vs. UOI, 2008 TIOL 321 HC GIW-ST, the Court observed that tax on services is a new concept and the Government had adopted selective approach as against comprehensive approach and this distinction needs to be kept in mind as only specified services are taxable under such approach.
The Court further observed that the expressions ‘in relation to’ and ‘in respect of’ are words known as of ‘widest amplitude, but one has to keep in mind the context in which they are used’. The services rendered by a person must have a direct or a proximate relation to the subject matter of the taxing entry. Services having remote connection cannot be included in a taxing entry on the strength of the words ‘in relation to’. Applying this, it was held that entry (zzzzj), was not inserted by amending entry (zzzy) and the former is not the specie of what is covered by (zzzy) and no service tax could be demanded on the activity of supply of vessels under mining service.
5. When does the taxable event take place under the service tax law?
CCE&C Vadodara vs. Schott Glass India P. Ltd., 2009 TIOL 82 HC -AHM-ST 2009 (14) STR 146 (Guj).
The Revenue challenged the order of Ahmedabad CESTA T on the following questions:
o Whether or not in service tax the taxable event is realisation of payment for taxable services rendered and not the time of rendering service?
o Whether or not at the time of realisation of payment for the taxable service provided, the provisions of Rule 2(1)(d)(iv) come into force making the service receiver liable for service tax?
According to the Revenue, in the order in question, the CESTAT had overlooked the fact that service tax burden was shifted to the recipient of service from 16.08.2002 in terms of Rule 2(1)(d)(iv) for services provided by non-residents and the respondent assessee was required to pay service tax on the amount paid in September, 2003. Factually, CESTAT had found that services were rendered prior to March 2002 and at such time, there was no liability cast on the receiver of service. The Court observed that service tax is levied as provided in Section 64(3) of the Act to all taxable services provided or after commencement of Chapter 97 of the Act. Thus, taxable event is providing all taxable services defined by Section 65(105) of the Act. Merely for the fact that invoice was raised later and payment was made subsequently, the liability cannot be fastened. Neither the Section nor did the Rule even suggest that taxable event is raising of the invoice for making the payment. The Tribunal accordingly had decided in accordance with the law based on facts and material on record and there was no legal infirmity in the order.
III Tribunal:
CENV AT Credit :
6. Service tax on accident policies, etc. allowable as credit?
Milipore India Ltd. vs. CCE, Bangalore, II 2009 TIOL 490 CESTAT-BANG.
The issue related to availment of CENV AT credit of service tax on the services of medical and personal accident policy, group personal accident policy, insurance personal vehicle services, landscaping of factory and catering bills. Definition of input service in Rule 2(i) of CC Rules was examined vis-a-vis CAS-4 standards reproduced in the decision of GTC Industries Ltd. 2008 TIOL 1634 CESTAT-MUM-LB Since CAS-4 considered all the services like medical benefit, subsidised food, education and canteen bill, etc. to form part of the cost of final products, the services received should be treated as received in relation to manufacture. , Further, since modernisation, renovation, repair etc. of the office premises, etc. are also included in the broad definition of input service, even landscaping should be treated as in relation to manufacture of final product and accordingly, the credit on all the above services was allowed.
7. Erection of machinery at buyer’s place by a sub-contractor: Whether allowable?
CCEX Vapi IAlidhara Textool Engineers PI Ltd. vs. Alidhora Textool Engineers Ltd./CCEX Vapi, 2009 TIOL 370 CESTAT-AHM.
A manufacturer supplied, installed and erected machinery in buyer’s premises. An agency was outsourced to instal the machines and took credit of service tax paid on erection and commissioning services provided by the said agency. The question involved was whether installation done at buyer’s premise would be treated as input service for manufacturing as it was a post manufacturing activity. It was contended that commissioning and installation cost was included in the price of machines and duty was paid on the same and that part of the service was provided at buyer’s premises and a part at manufacturer’s. Copy of sample sales contract wherein erection and commissioning cost was included was produced. Commissioning was to be managed by the appellant-manufacturer. Sub-contractor was held to be service provider to manufacturer and it was held that CENV AT Credit Rules do not require that the service should be rendered at factory only for determining eligibility of service tax credit and accordingly, credit was allowed to the appellant.
8. Service provided by one person, tax paid by another – whether entitled for credit?
Federal-Mogul-Goetze (India) Ltd. VS., CCE, Chandigarh, 2009 TIOL 460 CESTAT-DEL.
Credit was taken by a manufacturer on the basis of TR-6 challan showing payment of service tax by the sister concern of the service provider. Service provider was not registered initially when service was provided. Hence, its sister concern which was registered paid service tax charged to the appellant for services provided through its sister concern. This fact was intimated to the Asst. Commissioner. However, no reply was received. Later even the unregistered service provider got registered and paid service tax with interest. It was held that TR-6 was a valid document based on which credit was taken. Since the service tax liability was dis-charged and later even service tax registration was obtained by the actual service provider, it was held that credit could not be denied.
9. Service tax credit on mobile phones or landlines at residence of staff admitted as CENV AT credit.
ITC Ltd. VS. CC&CE, 2009 TIOL 439 CESTAT- MAD
Relying on the decision of the High Court in the case of CCE VS. Excel Crop Care Ltd., 2008 (12) STR 436 (Guj.) and also the Tribunal decision in the cases of Indian Rayon & Industries Ltd. VS. CCE Bhavnagar, 2006 (4) STR 79 and Keltech Engineers Ltd. vs. CCE, Mangalore, 2008 (10) STR 280 and the case of CCE (LTU) Chennai VS. Braka India, 2009 (89) RLT 876, it was held to the effect that in the absence of express prohibition under CCR, service tax paid is admissible as the phones were not installed at the factory premises cannot be the ground germane to the provision of rates relevant for the purpose.
10. Whether credit for service tax paid on reimbursable expenses is allowed to be taken?
Chandra Shipping & Trading Services vs. CCE & C, 2009 (13) STR 655 (Tri.-Bang).
The appellant, a Custom House agent was alleged to have wrongfully availed input credit for over 4 years and an amount of over 52 lakh plus interest and penalty under Sections 76 and 78 were demanded. It was contended that CENVAT credit returns were not verified by the Department. The credit was denied on the grounds that credit was taken on services not used and that no evidence was produced by the appellant that no credit was availed by importers/exporters for whom the services were used. The appellant contended that grounds on which credit was denied were extraneous to the CCR, which have to be interpreted strictly and credit could not be denied based on suspicion. Time bar also was pleaded. Benefit of time bar was granted to the appellant. Since the Revenue had not verified the facts, benefit of doubt was granted to the appellant. It was held that the burden of proof was on the Department to prove the allegations with solid evidence. Since the appellant had filed all its Returns regularly, the demand hit by time bar and the penalties were set aside.
11. Credit taken prior to payment for value of input service.
Gujarat Pipavav Port Ltd. vs. CCE Bhavnagar, 2009 (14) STR 53 (Tri.-AHD).
Service tax credit was availed one month earlier than permissible under Rule 3(1) of the Service Tax Credit Rules, 2002. Credit can be availed only after making payment for value of input service and the service tax shown in the invoice. The appellant pleaded technical lapse. Since in any case credit was available in the next month, interest for one month was required to be paid but penalty imposed was waived.
