1. Penalty :
Whether levy of penalty can be considered by Court while considering quantification of penalty under a civil appeal ?
Commissioner of Central Excise, Haldia v. Exide Industries Ltd., 2010 (19) STR 291 (SC)
The appellants tried to challenge the levy of penalty in the civil appeal filed for its quantification. The Supreme Court rejected the appeal observing that the Tribunal had rejected the appeal for levy of penalty against which the appellants did not appeal. The Court did not express any opinion on merits.
II. High Court :
2. Penalty :
Whether penalties u/s.76 and u/s.78 can be imposed simultaneously for the same default ?
Commissioner of C.Ex. Chandigarh v. City Motors, 2010 (19) STR 486 (P&H)
The Adjudicating Authority levied penalty on the assessee u/s.76 and u/s.78 for the same default. In the first appeal, penalty u/s.78 was reduced and penalty u/s.76 was set aside and this decision was affirmed by the Tribunal. In the Revenue’s appeal to the High Court, it was held that penalty u/s.78 is sufficient to cover the default and two penalties for the same default cannot be imposed.
3. Import of services :
Can service tax be levied on firms or body corporate under consulting engineer’s services prior to 1st May, 2006 ?
Commissioner of Service Tax, Bangalore v. Araco Corporation, 2010 (19) STR 169 (Kar.)
The Department, in appeal, claimed that the respondent providing technical assistance and know-how to an Indian company should be liable to service tax under the category of ‘consulting engineer’s services’ for the period from November, 1998 to December, 2000.
The assessee contended that S. 65(31) dealt with the definition of ‘consulting engineer’ not the taxability thereof and the term ‘body corporate and any other firm’ in the said S. 65(31) was introduced only w.e.f. 1st May, 2006 and therefore, in the period prior to this date, the category applied only to individuals.
Secondly, the assessee also claimed that S. 65(31) applied only to an Indian service provider and the foreign service provider is liable to service tax only after the introduction of S. 66A w.e.f. 18th April, 2006.
According to the Court, reference to S. 65(31) being irrelevant was not acceptable and even on assuming its applicability, it applied only to services of Indian consulting engineers.
Holding that during the disputed period, the definition did not apply to a firm or body corporates and reverse charge also did not apply prior to 18th April, 2006, the Department’s appeal was dismissed.
[Author’s Note : The term ‘an engineering firm’ was always there in the definition introduced with effect from 7-7-1997. Therefore, the conclusion is based on misquoted legal provision. However, primarily reverse charge did not apply prior to 18-4-2006 and therefore, it would not impact the decision based on misquoted legal provision.]
4. Liability to pay service tax :
Whether liable when the services are provided by the principal ?
Commissioner of Central Excise v. P.C. Paulose, 2010 (19) STR 487 (Ker.)
By an agreement with Calicut Airport Authority Ltd., a right to collect entrance fees from visitors was provided to the assessee and therefore, the service tax was demanded from them. The demand was confirmed in the first appeal. The Tribunal’s order that the Airport Authority was rendering service and not the respondent was challenged by the Department.
The High Court held that once licence was given by the Airport Authority to the respondent to permit entry and allow enjoyment of services provided to the visitors, the respondent was a service provider though he was acting only as an agent and liable for service tax.
5. Recovery of dues :
Can the Department directly recover dues from principal employer u/s.87 ?
ONGC Ltd. v. Dy. Commissioner of Cus., C. Ex. & S.T., Rajahmundry 2010 (19) STR 164 (AP)
The Department was of the view that even though no assessment order was passed, manpower supply agencies were liable for assessment and since ONGC made substantial payment to them, notice u/s.87 of the Finance Act, 1994 could be issued on principal employer directing it to remit the payment.
ONGC Ltd. contended that it was not required to pay service tax in respect of payments made to manpower supply agencies and in absence of any assessment order, the question of directing the principal employer to pay service tax liability did not arise. The High Court observed that the authorities have the responsibility of collecting data and pass an assessment order. Only if there’s a failure or default in payment by the assessee, the Department has the option to call the principal employer in terms of S. 87 of the Finance Act, 1994. Without an assessment order in place, service tax was not crystallised and therefore, S. 87 could not be invoked.
6. Search & seizure :
Whether Revenue could retain the amount collected during search or seizure in absence of liability being crystallised ?
Naresh Kumar & Company v. Union of India, 2010 (19) STR 161 (Cal.)
Search was carried out in the petitioners’ premises and various records and documents were seized. The petitioners claimed that they were compelled to handover cheque of Rs 15 lakh to protect against service tax liability.
The High Court held that the trial judge did not decide the matter in the right direction and the actual issue was whether the Department could re-tain this amount under the provisions of law. While examining communication with the Department, it could be concluded that the payment was not voluntary and no provisions in the service tax law could justify compulsory payment of service tax in advance. Therefore, no amount could be withheld and the Department was bound to return the same with interest @ 9% per annum.
7. Storage & warehousing:
Whether service tax is applicable on compensation received from Government for storage of free-sale sugar?
Commissioner of C. Ex., Chandigarh v. Nahar Industrial Enterprises Ltd., 2010 (19) STR 166 (P & H)
A manufacturer of sugar was directed by the Gov-ernment to maintain buffer stock and was also compensated towards storage, interest, insurance charges, etc. by way of subsidy. The Revenue contended that buffer subsidy was taxable under ‘storage and warehousing services’.
The High Court observed that the respondent stored its own stock in buffer and therefore, there is no service provider and service-recipient relationship emerging as one cannot provide service to his own self. Further, the subsidy was meant as compensation for loss of interest, insurance, etc. and not for rendition of any service. The respondent could not be construed as ‘storage and warehouse keeper’ and Government could not be held as its ‘client’ and accordingly, the appeal was dismissed.
III. Tribunal:
8. CENVAT credit:
i) Whether CENVAT credit is allowable fully to a service provider having a trading activity in view of Rule 6(3) of CENVAT Credit Rules, 2004?
Orion Appliances Ltd. v. Commissioner of Service Tax, Ahmedabad 2010 (19) STR 205 (Tri.-Ahmd.)
The appellant engaged in providing repairs and maintenance services and commissioning and installation services was taking full CENVAT credit on advertising, security, courier, telephone and banking services. However, these input services were being used for providing repairs and maintenance services and trading activities. The Department contended that the appellant is liable to pay service tax for excess CENVAT credit availed in respect of trading activities in terms of Rule 6(3) of CENVAT Credit Rules, 2004.
The appellant contested that Rule 6, requiring maintenance of separate books of accounts, applies only to an assessee engaged in providing exempted as well as taxable services and trading activities cannot be considered as exempted services and therefore, Rule 6(3) did not apply to him.
The Tribunal accepted that trading activity was not a service and therefore, Rule 6(3) did not apply. However, full CENVAT credit could not be availed by the appellant as CENVAT credit of input service requires one to one correlation with output services. Therefore, the appellant had to choose and segregate the quantum of input service attributable to trading activity and exclude the same from availment of CENVAT credit. Since the quantum could not be ascertained in advance, the appellant should calculate such amount once in a quarter or every six months. The matter was remanded for quantifying the amount of reversal, if required, after giving an opportunity to appellant.
ii) CENVAT credit: Outward transportation up to the place of removal when sale is for destination at customer’s premises:
L. G. Electronics (India) Pvt. Ltd. v. Commissioner of C. Ex., Noida 2010 (19) STR 340 (Tri.-Del.)
The appellant availed CENVAT credit of service tax on GTA service in respect of outward transportation of finished goods from factory gate to the customer’s premises or from factory to depots and from depots to customer’s premises. However, the department contended that the outward transportation from place of removal i.e., factory gate or depot to customer’s premises was not covered within the definition of ‘input service’ under Rule 2(l) of CENVAT Credit Rules, 2004.
The appellant contended that in all the cases, the sales to dealers, whether from factory gate or depots, was on FOR basis. Therefore, the goods were transported at the appellant’s risk and sale took place at customer’s premises and the customer’s price included the transportation cost.
Since the words ‘place of removal’ are not defined in CENVAT Credit Rules, they must be understood as defined by S. 4 of the Central Excise Act where-under the customer’s premises are considered as the place of removal. The credit in respect of GTA services for transportation from factory gate to depots should not be denied as the sales are held to be made from depots. In terms of Circular No. 97/8/07-ST dated 23-8-2007, CENVAT credit of GTA services up to customer’s premises were available to the appellant. Even if duty was paid on MRP-based valuation, credit of GTA services could be taken in terms of Circular No. 137/3/2006-CX-4, dated 2-2-2006.
The Department contended that in case of payment u/s.4A, Board’s Circular No. 97/8/07 ST, dated 23rd August, 2007 was irrelevant and CENVAT credit could not be availed by the appellant. U/s.37(2)(xvii) of the Central Excise Act, Central Government is entitled to make rules for credit of service tax as well as excise duty. Since there was no nexus between manufacture and input service, outward transportation from the place of removal could not be regarded as ‘input service’. The scope of CENVAT Credit Rules, 2004 could not travel beyond the scope of provisions of the Central Excise Act.
The Tribunal in turn observed that the Department’s contention that input duty credit is available only in respect of services used in or in relation to manufacture in terms of S. 37(2) of the Central Excise Act and that “in case of conflict between provisions of the Act and provisions of Rule, provisions of the Act shall prevail” does not hold good for reasons that in Bombay Tyre International Ltd. 1983, the Supreme Court held that it was not acceptable that because the levy of excise was on manufacture, the value of excisable goods must be limited to manufacturing cost and profit only. Referring to the basic principle of value added tax and valuation aspect, since all expenses up to place of removal were included in assessable value, the Tribunal observed that the whole scheme of Central Excise levy is to be kept in mind rather than interpreting Rule 2(l) of CENVAT Credit Rules, 2004 and S. 37(2) of Central Excise Act in isolation. The contention of the Department that the duty was paid u/s.4A was found baseless as availability of credit and valuation for payment of duty were found to be two independent issues as explained vide Circular No. 137/3/2006. Since the matter was decided exparte, the case was remanded back to the Commissioner to examine whether the sale was on FOR destination basis and if this was found to be the fact, direction was provided to allow credit up to customer’s place.
iii) Outdoor catering service used in the factory not an input service
Commissioner of C.Ex., Chennai v. Sundaram Brake Linings, [2010 (19) STR 172 Tri-Chennai]
There were 13 appellant manufacturers to the issue involving availment of CENVAT credit on outdoor catering service disallowed holding that they were not used for manufacturing excisable products. Applying decision of GTC Industries 2008 (12) STR 468, the appellate authority allowed the credit.
The Department contended before the Tribunal citing the case of CCE, Nagpur v. Manikgarh Cement Works, 2010 (18) STR 275 that in order to fall in the definition of input service, the service must be used in or in relation to manufacture directly or indirectly and outdoor catering service had no nexus with the manufacturing activity.
The appellants relied on the decision of GTC Industries (supra) and contended that it was rightly followed by the first Appellate Authority and since the value of catering service formed a part of cost of production, the same was to be considered as an input service. The Tribunal stated that the Central Government is empowered to frame rules for grant of credit of duty of service tax and held that outdoor catering service cannot be considered as input service and restored the original order deleting however, penalties imposed by the original authority.
iv) Whether CENVAT credit allowable on invoices in the name of branch, not registered under service tax?
Manipal Advertising Services Pvt. Ltd. v. CCE, Mangalore 2010 (19) STR 506 (Tri-Bang.)
The appellant provider of advertisement services was disallowed credit on invoices addressed to branch offices both by original and Appellate Authorities.
The appellant referred to Rule 4(2) of Service Tax Rules, 1994 which provided that in case of centralised billing or centralised accounting system, in respect of any services, the assessee had the op-tion to register the premises or offices from where centralised billing or central accounting system was located. Accordingly, the appellant got registered its premises on the ground that they had centralised billing or central accounting system. Reliance was placed on the case of Stadmed Pvt. Ltd. 1998 ELT 466 wherein credit of duty was allowed on invoices addressed to branch offices. However, according to the Department, in absence of centralised registration, credit in respect of inputs used at branches was not admissible.
The Tribunal held that since the appellant discharged service tax liability, the benefit of CENVAT credit could not be denied on the ground that invoices were in the name of branch. The appeal was allowed.
9. Stay of pre-deposit:
Whether appellant is engaged in providing business auxiliary services?
Jetlite (India) Ltd. v. Commissioner of C. Ex., New Delhi 2010 (19) STR 209 (Tri.-Del.)
The appellant took over M/s. Sahara Airlines Ltd. (SAL) and added the category of ‘business auxiliary services’ in March, 2007 in service tax registration. The Department demanded `128 crore of service tax for the period from July, 2003 to January 2007 under the said category and interest and penalty of the same amount.
The appellant had entered into an agreement with Sahara India Commercial Corporation Limited (SICCL) in 1995 to promote business of SICCL of housing and real estate projects through printing it on air tickets. Consideration was paid based on per ticket.
SAL accounted the money received as ‘operational revenue’. However, SICCL recorded the same as ‘project work in progress’ as it was a capital expenditure.
The Department contended that SAL being already registered with Service Tax authorities ought to have disclosed material facts in the ST-3 return. However, the appellant had taken opinion on 4th August, 2003 in regard to the present activity and therefore, was under a bona fide belief. Therefore, the appellant relisted invoking of extended period of limitation.
According to the appellant, they merely used logo of SICCL and as per agreement, no brochures or other arrangements to popularise the business was carried out. The difference between promotion of sale of goods and use of brand was explained and the appellant claimed that the entire consideration was only towards display of logo.
The Tribunal observed that:
Levy and collection of tax is regulated by law and not by contract. The term ‘service’ has a variety of meanings, but has to be construed depending on the context in which it is used. An activity provided individually or integrally would not make any difference as to its charge. The character of service does not change with permutation or combination of services and the nature of services does not alter if certain clauses of agreement are not fulfilled. No evidence was led to prove that use of logo was not helpful to promote real estate business of SICCL. The information of SICCL’s projects was supplied purposely to air travel passengers.
There was no case made out to show that undue hardship would be caused to the appellant if no full waiver was granted. Noting Ravi Gupta’s case 2009, wherein it was held that if prima facie it appears that the demand raised would not stand, the assessee should not be compelled to pay full or substantial part of the demand. The appellant was directed by the Tribunal to make pre -deposit of `100 crore within eight weeks of the date of receipt of the order staying the balance demand.
