The Court held as follows:
- Service tax is a destination-based consumption tax being not a charge on business but on consumer and is leviable on service provided, hence, is a value added tax. Such service can be property-based or performance-based.
- In case of overlapping, the doctrine of pith and substance is to be applied and the Court has to look at the substance of the matter. List I has priority over List II, though predominance of List I does not prevent the State Legislature from dealing matters under List II.
- Considering various judgments it was observed that Entry 49 of List II relates only to tax on land and buildings and not any activity relating thereto. It cannot be held that renting of property did not involve any service as service could only be in relation to property and not by renting of property.
- The aspect of service element in renting transaction is an independent aspect covered under Entry 92C read with Entry 97 of List I. The subject-matter of impugned levy being outside the scope of Entry 49 of List II, power of the Union Legislature is undoubted.
- As regards the retrospective amendment, the High Court observed that the object of validating law is to rectify the defect in phraseology or lacuna and to effectuate and to carry out the object for which the earlier law was enacted.
Based on the above, the petition was dismissed holding that renting of immovable property for commercial purposes is a service having a value for the service receiver and therefore, service tax is leviable on the renting of immovable property as being covered under Entry 92C read with Entry 97 of List I on the value of taxable services referred to in S. 65(105)(zzzz) read with S. 65(90a) of the Finance Act, 1994. Further, the retrospective amendment retrospectively with effect from 1-6-2007 was also upheld.
II. Tribunal:
2. CENVAT credit:
(a) Can CENVAT credit be availed on the strength of debit notes?
Godrej Consumer Products Ltd. v. Commissioner of C.Ex., Indore, 2010 (20) STR 609 (Tri.-Delhi)
The appellants took CENVAT credit of Rs.7,327 based on debit notes and the credit was denied. Penalty of Rs.20,000 was imposed on the appellants for wrong availment of credit.
Rule 9(1) of the CENVAT Credit Rules, 2004 mentions the documents on the basis of which CENVAT credit can be availed. Such documents are invoice, challans, supplementary invoice and bills of entry. Therefore credit was denied by the departmental authorities considering debit notes as ineligible document for availing CENVAT credit. Rule 15 of the CENVAT Credit Rules, 2004 prescribes penalty for wrong availment of CENVAT credit at Rs.2,000 or amount of service tax, whichever is higher, at the discretion of the authority. The appellant was levied penalty of Rs.20,000 and no finding was given for levying such penalty. Considering the amount of penalty arbitrary, it was reduced to Rs.2,000 and as such the appeal was partially allowed.
(b) Can CENVAT credit be taken on service tax paid on repair and maintenance service for residential staff colony?
Commissioner of C. Ex., Trichy v. Madras Cements Ltd., 2010 (20) STR 672 (Tri.-Chennai)
The respondents paid service tax on repair and maintenance service for residential staff colony of workers. It was held that nexus is required between the services and the manufacture or clearance of excisable goods before the benefit of CENVAT credit could be taken in respect of such services. The assessees failed to establish any such nexus between the services which were considered by them to be input services and therefore, benefit of CENVAT credit was not allowed.
(c) Whether CENVAT credit of telephone installed in residential premises of chief executive and CHA service for clearance of import and export goods is allowable?
Mileen Engineers v. Commissioner of C. Ex., Mumbai-III, 2010 (20) STR 668 (Tri.-Mumbai)
The appellants availed the facility of CENVAT credit of duty paid on the inputs as well as service tax paid on the services of CHA and the telephone installed in the residential premises of the Chief Executive. The same was denied by the lower authorities as per the CENVAT Credit Rules, 2004. The Tribunal allowed CENVAT credit on CHA service but denied in case of telephone installed in the residential premises and held that credit is admissible only in case of exclusive use of telephone for business purpose.
3. Export of service:
Whether services for procuring purchase orders in India for foreign suppliers satisfy conditions under Export of Services Rules, 2005?
Em Jay Engineers v. Commissioner of Central Excise, Mumbai, 2010 (20) STR 821 (Tri.-Mumbai)
The appellant filed a refund claim of Rs.6,71,439 on the ground that their activities are considered as export of service and exempted from payment of service tax. After scrutiny of the claim, a show-cause notice was issued and the Adjudicating Authority sanctioned the refund claim partially rejecting an amount of Rs.1,40,268 on the ground that the claim was not admissible as per Notification 2/2007-ST.
This Notification provided that the two conditions needed to be fulfilled for considering any taxable service as export of service, viz.: service is provided from India and used outside India, and payment for such service provided outside India is received by the service provider in convertible foreign exchange. The appellant received commission from their foreign principal in foreign currency for introducing the Indian clients to the foreign suppliers. The foreign principal used these services outside India and exported those goods to the buyers in India and directly collected payments from the buyers. The appellants were not required to pay service tax and were entitled for refund. The appellant claimed rebate of service tax under Rule 5 of the Export of Service Rules, 2005. It was held that refund was allowable.
4. Input service:
In respect of overseas commission paid, whether input service has connection with manufacture or sale?
Commissioner of C. Ex., Jalandhar v. Ambika Forgings, 2010 (20) STR 662 (Tri.-Delhi)
A manufacturer sold the goods to foreign buyers and paid commission to overseas parties. This commission was considered by the assessee as ‘input service’. The question that arose is whether the commission had nexus with manufacture or sale. Credit was denied relying on the meaning of ‘promotion’ as in the dictionary. As per Rule 2(l)(ii) of the CENVAT Credit Rules, broad activities which are having nexus to business and are integrally connected to business fall under the definition of ‘input service’. It was observed that once legislative mandate is apparent, no technical meaning need to be assigned to deny credit. As per common business parlance, business promotion adds to revenue of the seller/manufacturer. If business promotion adds to the revenue, it would have nexus with the sale activities. Therefore, the respondent would take credit of input service on overseas commission paid and excise duty payable on manufacturing activity. The case of the Department was thus dismissed and the manufacturer was allowed credit.
5. Principle of natural justice:
Is it justified to deny CENVAT credit to the assessee when documents relied upon while denying the credit were not made available to the assessee by the Authority?
Idea Mobile Communication Ltd. v. Commissioner of C.Ex., Meerut-I, 2010 (20) STR 775 (Tri.-Delhi)
Rule 9(2) of the ‘CCR’, provides discretion to the adjudication authority to give concession to the assessee in relation to procedural irregularity regarding maintenance of documents, on the basis of which CENVAT credit can be availed. In the instant case even before ascertaining the liability of the assessee and applying its mind, the authority arrived at final conclusion and passed the order denying credit. The matter was remanded to the Adjudicating Authority for fresh decision. The assessee produced all original invoices for verification before the Authority. However, the Revenue failed to take notice of the same and no reply was issued to the letter addressed to the Superintendent. The Adjudicating Authority relied on certain documents which the assessee was not aware of. It was held that the principle of natural justice was denied to the assessee as the document on which the order relied upon were not disclosed to the assessee. The Tribunal allowed the appeal and remanded the case back to the lower authority for fresh adjudication.
6. Penalty:
(a) Whether penalty can be imposed in case there is ignorance for payment of tax
Sri Krishna Smelters Ltd. v. Commissioner of Central Excise, Salem, 2010 (20) STR 780 (Tri.-Chennai)
The assessee was held for non-payment of service tax and penalty was imposed u/s.78 of the Finance Act, 1994 and contended that the assessee cannot be held responsible for non -payment of service tax as there was no intention to evade payment of tax, as the entire amount of tax was available by way of credit. It was further held that S. 78 was invoked on the ground that the assessee failed to file the returns. The Tribunal held that failure to file returns was not sufficient to hold the assessee guilty of suppression and considering that the entire amount of tax was available as credit, there was no intention to evade payment of tax. Hence, the penalty imposed u/s.78 was set aside.
(b) Whether penalty can be imposed u/s.76 and u/s.78 if service tax has been paid along with interest willingly?
Idial Security Organisation v. Commissioner of S.T., Ahmedabad, 2010 (20) STR 787 (Tri.-Ahmd.)
The appellant was providing security agency services. Penalties under various Sections of the Finance Act, 1994 were also imposed. On coming to know of the liability, immediately full amount of service tax along with interest was deposited. The appellant did not pay the service tax only because he was not aware of the law. It was a one -man show and he had not collected service tax from the customers. Even though it can be said that ignorance of law cannot be an excuse, it is one of the factors while considering imposition of penalty. Considering this a fit case for waiver of penalty, S. 80 of the Finance Act, 1994 was extended and the appeal was allowed.
(c) Whether penalty is imposable in case of ad-justment of excess tax of a particular month in subsequent months?
Chettinad Cement Corporation Ltd. v. Commissioner of Central Excise, Trichy, 2010 (20) STR 815 (Tri.-Chennai)
The appellant intended to adjust excess service tax paid for the month of March towards subsequent month’s liability. This not being a case of delayed payment of service tax or failure to pay service tax and in way it could be said to be tax paid in advance, it was held that the assessee could not be penalised u/s.76 of the Finance Act, 1994 which is applicable in case of failure to pay tax. However, u/s.77, penalty of Rs.1000 was imposed and the appeal was allowed.
7. Valuation : Sales tax paid on materials:
A. N. Palaniappan v. Commissioner of Central Excise, Trichy, 2010 (20) STR 781 (Tri.-Chennai)
Materials consumed during the course of carrying out the activity of retreading of tyres under the service head ‘Maintenance and Repair Services’ could take benefit of Notification No. 12/2003-ST, dated 20 -6-2003. As per this Notification, so much of the value of taxable services, which is equal to the value of goods and materials sold by the service provider to the service recipient, is exempted from payment of service tax. In the instant case, the assessee was paying sales tax on the materials consumed and hence, the order levying service tax on such material component was set aside.
