Some Recent Judgments

T. G. Kirloskar Automotive Pvt. Ltd. v. CCE (Bangalore), 2010 (17) STR 359 (Tri-Bang.)

The assessee was denied CENVAT credit of service tax paid on transportation provided to the employ-ees from their place of residence to factory and vice-versa, relying on the decision of M/s. Stanzen Toy-otestsu India Pvt. Ltd.

Accepting the assessee’s contention that the above-mentioned decision was set aside by the Divisional Bench in the case of M/s. Stanzen Toyotestsu India Pvt. Ltd. v. CCE as reported in 2009 (14) STR 316 (Tri-Bang.) and relying on CCE v. Cable Corporation of India Ltd., 2008 (12) STR 598 (Tribunal) 2008 (87) RLT 783 (CESTAT-Mum.), the assessee’s case was held covered and the appeal was allowed.

Skyline Builders v. CCE (Calicut), 2010 (17) STR 437 (Tri-Bang.)

The assessee rendered goods transport agency service and claimed the benefit of abatement under Notification No. 1/2006, dated March 1, 2006. The assessee was denied abatement on the ground that they had claimed credit also. It was contended by the assessee that CENVAT credit was later reversed. The Tribunal held that in the given circumstances, the abatement could not be denied and pre-deposit was granted.

CENVAT Credit : Whether any time limit applicable for taking credit ?

Pierlite India Pvt. Ltd. v. CCE (Ahmedabad), 2010 (17)
STR 237 (Tri-Ahmd.)

The assessee had taken CENVAT credit in November 2006 for the input services paid during the period January 2005 to October 2005 and plead-ed that no time limit has been prescribed for taking the credit and placed reliance on Coromandel Fertilisers Ltd. v. CCE (A), Visakhapatnam, 2009 (239) ELT 99 (Bangalore) and on Para 3.5 of the CBEC manual. Further the assessee at the time of taking the credit gave all the details of the transactions in writing in November 2006. The Revenue admitted that there was no time limit in the law for availment of credit but relied on the M/s. J. V. Strips Ld. v. CCE, Rohtak, 2007 (218) ELT 252 (Tri.-Del.) and CCE (Hyderabad) v. M/s. Mould-tek Technologies Ltd., 2006 (205) ELT 415 (Tri-Bang.) for extension of time limit for issuing the SCN.

The Tribunal held that the decision relied on by the Revenue in the case of J. V. Strips was pronounced by a Single Member, while the decisions relied on by the assessee are of Divisional Benches. Further the decision of Coromandel Fertilisers was pronounced on 26-8-2008, whereas the decision of J. V. Strips on 26-7-2007. It also observed that the decision of Mould-tek could not be followed as the same Bench had rendered the decision in Coromandel Fertilisers at a later date. In view of the above cases and that the assessee had written a letter in November 2006 clearly ruled out the invocation of extended period and allowed the appeal.

 4.   Consulting Engineer : Whether covers execution of processes ?

Ravi Paints & Chemicals v. Commissioner of Service Tax (Chennai), 2010 (17) STR 354 (Tri-Chennai)

The assessee provided the services of processing of raw material, periodical testing of raw materials, finished products, exercising quality control and maintaining machinery used for manufacturing of dry cement paints of M/s. Brilliant Coating Pvt. Ltd.

The Revenue contended that the assessee was covered under the Consulting Engineer’s service as noticing any defects and the requirement of pointing out them that has to be set right would involve advisory/consultancy services and reliance was placed on Nokia (I) Pvt. Ltd. v. Commissioner of Customs, Delhi (2006 (1) STR 233).

The Tribunal held that the nature of the services did not warrant any consultancy or advisory services. Moreover the Tribunal stated that the decision of Nokia should not be interpreted in narrow sense that in case the engineers are appointed for a certain job it has to be technical consultancy. Hence the assessee was held as not covered under the said service.

 5.   Construction of complex — (a) whether con-struction service or works contract service (b) whether entitled to 100% credit or 20% ?

M/s. Puravankara Projects Ltd. v. Commissioner of Service Tax, Bangalore, 2010 TIOL 28 CESTAT BA

The assessee was engaged in the activity of construction and was registered under the commercial or industrial services and construction of complex services and also registered under Works Contract for the purposes of VAT. The Revenue contended that the assessee should be registered un-der the category of Works Contract for service tax. The Tribunal following the ratio of the decision in the case of Die-bold Systems Pvt. Ltd. v. CST, Chennai 2008 TIOL 489 CESTAT Mad. held that the assessee was already discharging the liability under the existing category for the period prior to 1-6-2007, when the works contract category was introduced, hence was not required to take fresh registration under works contract. Further the Tribunal also ob-served that the main activity of construction of flats and sale by the assessee per se did not involve any taxable service and therefore any ancillary activity forming part of the main activity could not be subjected to tax as works contract service. The various other services rendered by the assessee and the Tri-bunal’s observation on the same were as under :

  1)  Health and Fitness service : The assessee also constructed a gym in the residential complex and had charged the owners of flats. The Revenue contended that such services were covered under the Health & Fitness service and attracted service tax. The Tribunal stated that the facility was owned by the flat-owners and the assessee did not render any health & fitness service. Hence the same could not be considered as liable for service tax.

2)    Real Estate Agent’s service : The assessee had entered into an agreement with the prospective buyers for the flats under construction.
The prospective buyers on their own accord would find other prospective buyers and sell the flat to them. In such a transaction the assessee collected transfer fee from the prospective buyers under the term of the agreement. The Revenue contended that the service pertained to real estate agency. The Tribunal stated that the consideration received as transfer fee could not be considered as real estate agent’s service.

3)    Maintenance of Repair service : The assessee maintained flats constructed till such time they were transferred to the association of owners of the flats. In order to maintain the flats the assessee recovered expenses from the flat owners. Relying on the CBEC Circular that the reimbursable expenditure cannot form part of the value, the Tribunal held that reimbursement of such expenses was not subject to service tax.

The Revenue had also disallowed the input credit on the ground that the assessee should be allowed only 20% credit as the assessee rendered exempt services. The Tribunal held that the consideration received for transfer of right could not be considered exempt services and as such, the assessee could claim 100% CENVAT credit.

In view of the above observations, the Tribunal granted complete waiver and stay.

 6.   Custom House Agent (CHA) : Whether freight forwarding activity a part of CHA service ?

DHL Lemuir Logistics Pvt. Ltd. v. CCE (Bangalore), 2010 (17) STR 266 (Tri-Bang.)

The assessee registered as CHA according to the Revenue did not pay service tax on certain revenue streams. The assessee contended that he rendered two kinds of services (a) consolidation of cargo activities, and (b) CHA activity. The assessee also submitted a flow chart describing in detail the flow of services rendered by him. The services that were not included were :

a)    Charge collect fees (CCX fees) : The fees pertain to collection and remittance of freight to in-ternational air and water carriers. It was held that the services so rendered are not covered by CHA’s services.

 b)   Break bulk fees : In case when cargo was transported from outside India to India, margin was paid to the assessee and in the case when cargo was transported from India to outside India the assessee would have paid the margin and hence this was not covered as CHA’s service.

c)    Profit share from origin : In case of imports/ exports transactions made through third party as done in break bulk fees, margin was paid. This also was not considered as CHA’s services as break bulk fee itself is not CHA’s service.

d)    Unallocated income : Charges collected for various services are accounted into respective revenue heads on raising of the invoice on the customer. Later in case of any modification, correction, reversal of charges the entries are passed through the unallocated income head. Hence the amounts under this head do not relate to CHA’s services.

 e)   Currency adjustment factor : This is collected as part of freight in order to cover the ex-change rate fluctuations and hence this does not pertain to CHA’s services.

 f)   Air/sea rebate : Air or ship carriers offer bulk space quota and the assessee is booked as the shipper and later the assessee collects the amount from the customers and the difference between the two rates is air/sea rebate. The nature of the amount is not covered as CHA’s services.

  g)  Commission/brokerage : IATA is a worldwide trade association of the international air transporters. The assessee being registered with IATA can sell the air cargo transportation to the passenger and receives commission as a percentage of freight booked. Similarly it renders services for shipping industry and these charges do not relate to CHA’s services.

  h)  Air freight incentive : Air carriers offer incentives in the quantum of cargo booked and hence the services are not related to CHA’s services.

i)   Expenses, reimbursement billing : Charges are collected for expenses such as delivery charges, priority handling charges, courier charges, break bulk fees, statistical charges, etc. In case of such charges if margin is charged they shall be included in CHA’s services.

Hence the order was remanded to the Original Au-thority for determining the liability in the light of observations made by the Tribunal on various services and further directed to obtain CA certificate.

(Note : Readers may note that any kind of commission or brokerage income would be taxable as business auxiliary service while acting on behalf of a client at relevant time).

  7.  Jurisdiction :

CCE (Guntur) v. Integral Construction Company, 2010 (17) STR 380 (Tri-Bang.)

The assessee was providing the services of blast hole drilling, blasting, excavation, loading, transportation, dumping, etc. in the mines in Madhya Pradesh and accordingly, the services were covered under the category of site formation and clearance excavating and earthmoving demolition services. The SCN, however, was issued by CCE, Guntur.

The assessee in this case did not have centralised registration and therefore, technically for his various premises, he required separate registration. In the instant case, the Tribunal dismissed the appeal on the issue of jurisdiction based on the decision in the case of Ores India Ltd. v. CCE, 2008 (9) STR 157 (Tri.-Kol.).

    8. Leasing of stalls : Whether taxable as Business Exhibition service ?

Karnataka Exhibition Authority v. CCE (Bangalore), 2010 (17) STR 296 (Tri-Bang.)

The assessee’s service of leasing of stalls during Dassera festival to the highest bidder was held taxable in revision order. Further, the assessee did not provide any direct service to the lessees of the stalls. The Tribunal held that the leasing of the stalls was not covered as Business Exhibition services and was allowed.

  9.  Management Consultancy : Whether ERP implementations covered ?

M/s. IBM India Pvt. Ltd. v. Commissioner of Service Tax, Bangalore, 2010 TIOL 167 CESTAT Bang.

The assessee provided services in relation to implementation and adoption of ERP software and did not pay service tax thereon. However in respect to their services of planning and advise relating to ERP, they discharged the liability under the category Management Consultancy services and the Revenue also agreed to this. In respect of services relating to implementation and adoption of ERP, according to the assessee they were covered under the Information Technology Software services effective from May 16, 2008 and the Revenue wanted to cover it under the Management Consultancy services. Reliance was placed on BCCI v. CST, [2007 (7) STR 384 (Mumbai-Tribunal)], Glaxo Pharmaceuticals [2005

    ELT 171 CESTAT] and inter alia stating that in case of introduction of a new category, it is implied that the service was not taxable earlier.

The reasons highlighted were that the services were not in connection with the management of the organisation, the services should not be covered in the inclusive definition of management service and moreover the services rendered being of executory were not covered. Reliance was inter alia also placed on CCE, Mumbai-IV v. AISCO Engineering Pvt. Ltd., 2006 (5) STJ 171 (Tri-Mum.). The assessee also contended that prior to September 20, 2004 these services were exempted from service tax and with effect from September 10, 2004 the services were specifically exempted from the definition of consulting engineer’s service and that the exemption was removed only on the introduction of the new ser-vice of information technology from May 16, 2008. Reliance was placed on the case of Federal Bank Limited (2009 TIOL 584 CESTAT Bang.). The Tribunal relying on this decision and other decisions held that the services of implementation and adoption of ERP was not covered under the category of management consultancy services but was squarely covered as IT software service introduced from 16-5-2008.

   10. Business Auxiliary Service : Money Transfer Service : Whether taxable ?

Muthoot Fincorp Ltd. v. CCE (Bangalore), 2010 (17) STR 303 (Tri-Bang.)

The assessee, an NBFC having network in vari-ous states entered into an agreement with Weiz-mann Forex Ltd., Cochin (WFL) which represented Western Union Financial Services Inc. (Western Union). The assessee provided money transfer service. The Revenue held that the service was a Business Auxiliary Service (BAS) and since it was rendered to a party in India there was no ‘export’.

The assessee contended that it was not covered under BAS as it did not promote the services of money transfer, but only displayed the publicity material given to them and it should be covered under the Banking and Financial services which covers transactions of money transfer with effect from May 01, 2006. Hence as the specific service came into force on May 01, 2006, the same could not be taxed from a prior date. Alternatively, if it was covered under the BAS, then Export Rules could exempt the service as one of the conditions stipulated by the Export Rules is that the services should be used outside India. The Tribunal ruled that even if the agreement was between the assessee and WLF, the beneficiary of the transaction was Western Union and the services so rendered by the assessee were utilised by Western Union outside India and hence this condition of the Export Rules was satisfied.

Further as regards the condition of receipt of consolidation in convertible foreign exchange, the Tribunal relied on Nipuna Services Ltd. v. CCE&ST, Hyderabad, 2009 (14) STR 706 (Tri-Bang.) that the condition was only applicable to Rules 3(1) and 3(2) of the Export Rules at given time. In case it was to be made applicable to Rule 3(3), then the Notification would have expressed so, but the Notification only mentioned Rule 3(1) and Rule 3(2) and the ap-peal was allowed accordingly.

   11.  Penalty : Not leviable when bona fide belief of non-taxability exists :

CCE (Ludhiana) v. Instant Credit, 2010 (17) STR 397 (Tri-Bang.)

The assessee acted as a Direct Sales Associate (DSA) and was therefore liable to service tax under the category of Business Auxiliary services and did not obtain registration as it had a belief as to non-taxability. However, on officers visiting the premises and insistence as to liability, the assessee paid service tax when the SCN was issued and pleaded for relief in penalty on bona fide belief. Since the Department did not have evidence of the assessee having intention of suppression, the Tribunal did not interfere with the decision of the Commissioner (Appeals) and held that no penalty was leviable.

Vista Infotech v. Commissioner of Service Tax, Bangalore, 2010 (17) STR 343 (Tri-Bang.)

The authorities noticed that the assessee, even though collecting service tax, did not deposit the same and pleaded financial hardship on account of non-payment by a major client. The assessee appealed against penalty and not against the confirmation of liability and interest and relied on the Board Circular No. 137/167/2006-cx-4, dated 3-10-2007 and further relied on the Tribunal’s decision in the cases of Essar Steel Ltd. v. CCE&C (Su-rat), 2009 (13) STR 579 (Tri-Ahmd.); Vee Aar Secure v. Commissioner of Service Tax, Bangalore, 2009

    STR 50 (Tri-Bang.) and V.S.T. Tillers Tractors v. Commissioner of Central Excise, Mysore, 2009 (14) STR 159 (Tri-Bang.).

Observing that the assessee regularly paid the tax for the earlier period and the fact that the liability was discharged before the end of the proceedings, the assessee was held entitled to relief u/s.73(3) and relying on the judgments cited above, no penalty was held leviable.

   12. Refund : Service tax paid on input services for period prior to 18-4-2006 :

Polyspin Ltd. v. CCE (Tirvunelveli), 2010 (17) STR 441 (Tri-Chennai)

The Commissioner (Appeals) upheld the order of the adjudicating authority for recovery of refund considering it as erroneously granted for input services not liable for service tax. The recovery proceedings were ordered for the refund of tax paid for the period prior to April 18, 2006, the date on which S. 66A came into effect when the assessee was not liable to tax. The Tribunal held that the refund could not be denied on the mere ground that the assessee was not liable to tax and hence the appeal was allowed.

    13. Valuation : Material sold by advertising agency :

CCE (Chennai) v. Elegant Publicities, 2010 (17) STR 263 (Tri-Chennai)

Scanning charges and publicity material charges collected from customers by an advertising agency were contended by the Revenue as part of taxable service.

The assessee contended that they had not done any preparation, visualisation or conceptualisation of the publicity material but only purchased and sold the same to the customer. Since this was not successfully rebutted by the Revenue, it was held that mere sale and of publicity material is not a taxable service and similarly scanning also is not covered under the advertisement services.

Valuation : Material supply :

Hindustan Aeronautics Ltd. v. Commissioner of Service Tax (Bangalore), 2010 (17) STR 249 (Tri-Bang.)