Part B: Some Recent Judgments

1. Classification :

ADH Agencies v. CCE, Chandigarh, [2010 (18) STR 259 (P &
H)]

The appellants claimed that they were consignment agents and
not Clearing and Forwarding agents and therefore, not liable to pay service tax
during the relevant period of dispute.

The High Court relied on their own decision in case of
Kulcip Medicines (P) Ltd. [2009 (14) STR 608 (P & H)] wherein the Court had
accepted the view taken by the Tribunal in Mahavir Generic’s case [2006
(3) STR 276].

The High Court in the case of Kulcip Medicines (supra)
had held that :

In the present case, the High Court held that the appellants
are not liable to pay service tax under the category of C & F agent and that the
consignment agents are not covered within the category of C & F agent services.

2. Penalty :

Commr. of S.T., Bangalore v. Atria Convergence Tech. P. Ltd.,
[2010 (18) STR 265 (Kar.)]

Service tax was demanded by invoking extended period and also
levied penalty u/s.78 of the Finance Act, 1994. In an appeal filed by the
appellants against penalty, decision was given in favour of the appellants
holding that there was neither suppression, nor deliberate misrepresentation of
facts.

The Tribunal confirmed the order of the CCE
(Appeals). The Department was of the view that with the invoking of extended
period, levy of penalty was automatic and therefore, appealed against Tribunal’s
order before the High Court.

The Court held that the fact of non-suppression has already
been examined by the CCE (Appeals) and the same being confirmed by the Tribunal,
no penalties can be imposed in the instant case u/s. 78.

3. Renting of immovable property service :

SSIPL Retail Ltd. v. Union of India, [2010 (18) STR 262
(Del.)]

The Delhi High Court in the case of Home Solution Retail
India Ltd. v. UOI, [2009 (14) STR 433 (Del.)] had held that service tax was
not applicable on renting per se. However, the Revenue filed a special
leave petition before the Supreme Court against this decision and the matter is
pending before the Apex Court. However, the Department started raising the
demands and also threatened the appellants of actions if they stopped paying
service tax.

The High Court observed that the Apex Court has not granted
stay on Home Solution’s ruling (supra) and therefore, the Revenue cannot
resort to other means to protect revenue.

The appellant’s counsel undertook that corrective steps shall
be taken by the Revenue and the officers shall be instructed not to threaten the
assessees of coercive actions in case of non-payment of tax by them.

4. Stockbrokers :

CCE, Chandigarh v. N. K. Chugh & Co., [2010 (18) STR 145
(P&H)]

The respondents were sub-brokers. The question before the
Court was whether services provided by sub-brokers were covered under service
tax and were taxable. For the similar issue, the Tribunal in 2007 (7) STR 518
had held that sub-brokers were not liable to pay tax when the main broker paid
service tax. However, in the similar case, in 2009 the Tribunal in
(13) STR 158 took a view that the words ‘in connection with’ employed in S. 65
(105)(a) had been overlooked in the said earlier decision and that the earlier
decision was incuriam therefore, sub-brokers are liable to pay service tax.

Since there were conflicting decisions by the same Tribunal,
the High Court directed the case to the Larger Bench of the Tribunal.

II. Tribunal :

5. CENVAT Credit :

(a) Whether CENVAT credit of service tax paid by a
job-worker (not liable to pay tax by virtue of exemption Notification No. 8/205
ST, dated 1-3-2005) on a taxable service be denied to service receiver.

CCE & C, Aurangabad v. Laxmi Metal Pressing Works Pvt. Ltd.,
[2010 (18) STR 149 (Tri.-Mumbai)]

The job-worker was exempted from payment of service tax under
Notification No. 8/2005 ST. However, he paid service tax and the recipient of
service availed the CENVAT credit of the same.

The appellant raised a legal issue with reference to the
provisions of Rule 3 of the CENVAT Credit Rules, 2004. The Department was of the
view that under Rule 3 of the CENVAT Credit Rules, 2004, the CENVAT credit is
allowed in respect of ‘service tax leviable’ u/s.66 of the Finance Act, 1994 and
since job-worker is exempt from payment of service tax, the same cannot be
considered as ‘service tax leviable’ u/s.66. The respondents pointed out that
the exemption Notification was issued u/s.93, which would exempt the service
provider from payment of service tax leviable u/s.66. Therefore, service tax
though leviable to job-worker, is exempted by virtue of Notification and CENVAT
credit would be available under Rule 3. The Rule permits availment of CENVAT
credit of service tax ‘paid’ by service provider and not ‘payable’. The appeal
by the Department was dismissed.

(b) Whether following services, namely; (i) rent-a-cab
service, (ii) outdoor catering service, (iii) air-travel booking, (iv)
telephone/mobile services, and (v) steamer agent service, are eligible ‘input
services’.

Semco Electrical Pvt. Ltd. v. CCE, Pune, [2010 (18) STR
177 (Tri.-Mumbai)]

The appellant, a 100% Export-Oriented Unit manu-facturing excisable goods viz. electrical wiring, accessories made of aluminium, zinc and copper alloys, exported all goods except for waste and scrap, which was cleared in DTA (on payment of central excise duty). However, the quantum of the sale was small. As a result, credit of service tax on input service remained unutilised. Accord-ingly, the appellant filed periodical refund claims for service tax paid on ‘input service’ used in the manufacture under Notification No. 05/2006-CE, dated 14-3-2006.

Rejection of refund claims was made on the ground that services, namely (i) rent-a-cab service, (ii) outdoor catering service, (iii) air-travel booking, (iv) telephone/mobile services and (v) steamer agent service were not eligible input services as defined in Rule 2(l) of the CENVAT Credit Rules, 2004.

The following were the stands taken by the appellant?:
    i) The definition of ‘input service’ under the CENVAT Credit Rules is wide enough employ-ing words like ‘activities relating to business’, and ‘such as’. Hence, the manifest intention of the Legislature is to allow credit on all such services, which are relating to business.

    ii) The term ‘business’ cannot be given a restricted definition to say that business of a manufacturer is to manufacture final products, in a case like the present, business of the assessee is an integrated activity comprising of manufacture of final products, advertisement of the final products, entering into sale agreements with the foreign purchasers, export of the said goods, etc.

    iii) Expenses incurred on the ground of commercial expediency by the assessee are covered by the term ‘activities relating to business’, even if it benefits somebody else also. Hence, the Department cannot make artificial distinction between activity relating to business and activity relating to manufacturing activity.

    iv) As observed in All India Federation of Tax Practitioners v. Union of India, 2007 (7) SCC 527, service tax is VAT, which in turn is both a general tax as well as destination-based consumption tax. In the present case, service tax paid on expenditure incurred by the assessee on the outdoor catering, telephone, etc. has to be allowed as input stage credit, particularly since the same forms a part of the price of final product of the assessee.
    
v) Each of the limbs of the definition of input service is independent of the other limb. If an assessee can satisfy any one of the limbs, then credit of the input service should be available.
    
vi) While rejecting the appeals, the Commissioner (appeals) relied upon the one and only one decision of Coca Cola India Private Limited v. CCE, 2007 (7) STR 529. However, the said decision has since been reversed by the jurisdictional Bombay High Court vide decision reported at 2009 (15) STR 657 (Bom.). On this sole ground, the case of the Department should fail. The above view is supported by the decision of the Larger Bench of the Tribunal in the case of ABB Limited v. CCE, 3009 (15) STR 23.

    vii) In the case of CCS v. GTC Industries Limited, 2008 (12) STR 468, the Larger Bench has held ‘outdoor catering service’ received in the canteen of the manufacturer as input service.
    viii)The assessee contended that though the Supreme Court in the case of Maruti Suzuki has held that only the item satisfying all the three parts of the definition under Rule 2(k) would be considered as ‘input’ when it is used within the factory of production, there is no parallel between the inclusive part of the definition of input and input service.
    ix) The assessee pointed out that the Notification No. 41/2007-ST allows refund of service tax paid on ‘service’. The said exemption Notifica-tion does not use the term ‘input service’ and the intention of the Government is to export goods and not taxes.

The Department’s contentions were as follows?:

    i) The decision given by the Supreme Court in the case of Maruti Suzuki applies to the present case as far as eligibility of CENVAT credit is concerned. The use of input service in or in relation to the manufacture of the final products is a condition sine qua non for allowing the CENVAT credit thereon. Similar view was expressed by the Apex Court, the High Court of Bombay and the Tribunal in their decisions of Kirloskar Oil Engines Ltd., M/s. Cummins Generator Technologies India Ltd., and Mahindra Sona Ltd.

    ii) The decision in GTC Industries by the Larger Bench should not be followed since no. of workers of the assessee in the present case is less than 250 and therefore, there was no statutory requirement of provision of outdoor catering services to workers and therefore, CENVAT credit on the same should not be allowed.
    iii) The view expressed by the Larger Bench in the case of Cummins Generator should be fol-lowed and the test of 250 workers should be applied to each case to decide the eligibility of CENVAT credit.

The Tribunal made the following observations?:

    c) Whether CENVAT credit of input services is allowed to a unit availing value-based exemption.

Vallabh Vidynagar Concrete Factory v. CCE & C, Vadodara, [2010 (18) STR 271 (Tri.-Ahmd.)]

The appellants, being a small-scale manufacturing unit, were availing excise duty exemption under Notification No. 8/2003 C.E., dated 1-3- 2003 and at the same time were availing CENVAT credit of service tax paid on input services. The Department denied CENVAT credit and also levied interest.

The contention of the Department was that as per Rule 6 of the CENVAT Credit Rules, 2004, CENVAT credit could not be taken on the services which have been used exclusively for manufactur-ing products fully exempt or liable to ‘Nil’ rate of duty. The appellants argued that Rule 6 of the CENVAT Credit Rules is applicable only to those manufacturers who are manufacturing both dutiable as well as exempt goods and that Notification No. 8/2003 does not restrict availment of credit of service tax/excise duty paid on services as well as capital goods. And, therefore, credit could not be denied. Accepting the said plea, the Tribunal allowed credit of service tax paid on services used for manufacturing products even if no duty was paid as per Notification No. 8/2003.

    6. Classification?:

    a) Handling of export cargo under port premises by custom house agent be classifiable as ‘Port services’ or ‘CHA services’??

    CC & E, Visakhapatnam v. Chowgule Brothers Pvt. Ltd., [2010 (18) STR 164 (Tri.-Bang.)]

The appellants, Custom House Agent (CHA) registered under CHA services were also engaged in cargo handling in the port premises. Cargo handling services includes handling of export cargo. Relying on the Board’s Circular B43/1/1997 -TRU, dated 6-6-1997, the Commissioner found that loading/handling of import or export goods, transferred from the premises of the exporter, etc. were activities relating to CHA services.

It was held that cargo handling in relation to export goods undertaken by the respondent CHA in port premises cannot be subject to tax classifying the same as ‘Port services’. Upholding the CCE (Appeals) order which was in favour of the assessee, the Tribunal observed that the order of the CCE (Appeals) was in conformity with the decision of this Tribunal in case of M/s. Konkan Marine Agencies v. CCE, Mangalore, [2007 (8) STR (Tri.-Bang.)] which has been upheld by the High Court [2009 (13) STR 7 (Kar.)]. Therefore, the Departmental appeal was rejected and stay application was disposed of.

    b) Whether the master biometrics service agreement be considered as manpower supply agency service or information technology software service.

Cognizant Tech. Solutions (I) Pvt. Ltd. v. Commissioner, LTU, Chennai, [2010 (18) STR 326 (Tri.-Chennai)]

The appellant entered into a master biometrics service agreement with Pfizer Pharmaceuticals (India) Pvt. Ltd. The contract was for rendition of the following services?:

And the same was divided into two phases?:

At the initial stage, the appellants were supposed to retain workforce of full- time equivalent staff providing data management and bio -statistics and reporting services on behalf of Pfizer. In the second phase, the appellants had to provide functional services to Pfizer.

The workforce recruited and retained by the ap-pellants were required to work under a project manager appointed by the appellants, who has to act as single point of contact being responsible for overall management of the project. It is important to note that the recruitment and training precedes provision of specialised services.

The Tribunal held that the nature of service required to be provided was information technology service as it was related to data management, which was out of the purview of service tax net at the relevant point in time.

    7. Mistake apparent from record?:

When binding decision not considered by Tribunal, be considered as mistake apparent from records.

CCE, Trichy v. Maha Sree Aruna Chemicals, [2010 (18) STR 239 (Tri.-Chennai)]
The Department filed an application for rectification of mistake as the Tribunal had not followed binding judgment delivered in case of Gauri Plas-ticulture (P) Ltd. v. Commissioner of Central Excise, Indore, 2006 (202) ELT 199 (Tri.-LB), as the same was not brought to notice of the Tribunal by the Revenue.

The Apex Court, in Furest Day Lawson Ltd. v. Jindal Exports Ltd., 2001 6 SCC 356, had held that if the Tribunal failed to notice a binding authority, the principle of per incuriam should be applied and as per the decision by the Larger Bench in Hindustan Lever Ltd., binding precedent not considered would constitute an error apparent from record and the same can be reviewed.

It was held that the final order was passed per incuriam the binding authority of the Larger Bench of the Tribunal and the application of rectification of mistake filed by the Revenue was allowed.

    8. Penalty?:

Whether labour contract in present case be considered under manpower recruitment or supply agency service and whether extended period can be invoked.

Jivanbhai Makwana v. CCE, Ahmedabad, [2010 (18) STR 206 (Tri.-Ahmd.)]

The appellant was engaged in supplying man-power and was covered by supply of manpower service brought in the tax net with effect from 16-6-2005. The appellant obtained registration on 7-4-2005 and on 1-6-2005 the appellant surrendered the registration stating that he was not covered by manpower recruitment agency service. The definition employed words ‘.?.?.?.?.?.?supply of manpower.?.?.?.?.?.’ which were not there prior to 16-6-2005. The Department then advised the ap-pellant to obtain registration on 25-1-2007. The Department then demanded service tax with in-terest and imposed penalty for the period from 16-6-2005 to 31-3-2006.

The appellant contended that the contract en-tered into did not mention about the number of labourers to be provided, but the appellant had to ensure?that?the factory premise is kept clean, bathrooms, and toilets are cleaned properly and drinking water and coffee are supplied to staff and loading and unloading is carried out. Therefore, he does not satisfy the definition contained in the Finance Act, 1994.

The Tribunal held that the contract of supply of manpower is covered by the definition of man-power recruitment agency services since certain services like house-keeping, loading and unloading were related to number of labourers supplied and the contract required to provide labourers as per the company’s requirement and the payment to be made by the company was related to number of labourers supplied during a specified period.

With regard to extended period, the appellant argued that he himself had obtained registration and the appellant was genuine and therefore, there was no suppression of facts. However, it was held that the appellant was aware of the amendment in law and therefore, the appellant could not escape from payment of service tax merely because show cause notice was not issued within time limit and therefore, extended period was invokable. It being a bona fide belief of non-liability, penalties u/s. 73, u/s.76 and u/s.78 of the Finance Act, 1994 were set aside.

    9. Refund?:

    a) Whether exporter claiming refund can be re-viewed for payment of service tax by service provider.

CCE, Indore v. Anant Commodities Pvt. Ltd., [2010 (18) STR 214 (Tri.-Del.)]

Notification No. 41/2007 ST provides for claim of refund by an exporter who had used certain specified services for export of goods subject to conditions specified in the said Notification. In the present case, the following grounds emerged?:

    i) The Department argued that weighment, sam-pling and analysis services, cargo handling and stevedoring charges were not specified in the said Notification and the same was wrongly allowed by the Appellate Authority. Weigh-ment and sampling services are not treated as taxable service by the Tribunal and therefore, even if service provider had paid service tax, the same should not be refunded. However, the respondents argued that no separate service tax was paid by service provider for such services and service tax was paid under the category of ‘technical testing and analysis services’.

    ii) The Department represented that the Commis-sioner (Appeals) had erred in allowing refund of service tax on account of ‘Agency services’ instead of Custom House Agent (CHA). The re-spondents submitted that they availed services of a CHA for export of goods and the CHA paid service tax. Therefore, while considering refund of respondents, the assessment of service tax of CHA (service provider) should not be re-opened.

    iii) Refund should not be admissible of the tax not payable but paid by service provider and the same should be treated as deposit. The re-spondents urged that the respondent exporter cannot be reviewed for payment of service tax by service provider.

The Tribunal observed that in the present case, it was not the Revenue’s case that service provider who had provided the taxable service, in question, to the respondents, were not of the categories specified in the said Notification. What the Revenue sought to do as to conduct a detailed review of service tax payment by service providers and then disallow certain amounts of service tax refund to the respondents on the ground that those amounts represented tax on amounts charged for services which were not the part of value of such services. The Tribunal in its series of judgments has held that CENVAT credit cannot be denied to receiver of duty paid inputs, by the Central Excise authorities having jurisdiction over the input received, by revising the assessment of duty at the supplier’s end. The same principle was applied by the Tribunal and the Departmental appeal was dismissed.

b) Whether refund could be denied on the ground that all the details and linkage with goods were not mentioned on invoice of service provider.

M. R. Organisation v. CCE, Ahmedabad, [2010 (18) STR 209 (Tri.-Ahmd.)]

According to Notification No. 41/2007 ST, dated 6-10-2007 as amended by Notification No. 3/2008 ST, dated 19-2-2008, for claiming refund, the receipt issued by courier agency should contain details of exporter, IEC No., etc. and also there should be evidence to link the courier service to export goods. The period of such invoices issued was very close to the Notification date and there-fore, on request, the courier company provided all relevant details.

There was no dispute with regard to export of goods and availment of courier services. The only objection by the Revenue was with regard to details on invoice. It was held that there is no bar to provide the details separately in case original receipt did not contain these details. There is no requirement that the invoice should contain link-age. The exporter can produce evidence later. The matter was remanded back to original authority to decide afresh.

c) Whether refund of pre-deposit be made in cash.

Narendra Raja Textiles Pvt. Ltd. v. Commissioner of Central Excise, Coimbatore 2010 (18) STR 249 (Tri.-Chennai)

The assessee was sanctioned part of the refund claim and the Dy. Commissioner ordered the same to be credited to RG 23 account. The appellant asked the Dy. Commissioner (Refunds) to sanction refund in cash. The Commissioner (Appeals) observed that the impugned amount was pre-deposited in cash and the appellant was eligible for refund in cash. The refund of such amount was not governed by S. 11B of the Central Excise Act, 1944. However, since the appeal against first order was not filed on time, the assessee could not be granted refund.

As per CBEC Circular No. 275/37/2K -CX.8A, dated 2-1-2002, if the appeal is decided in favour of ap-pellant or matter is remanded for fresh decision, the amount of pre-deposit should be refunded. As observed in case of CCE v. Dhiren Chemicals Ltd. delivered by the Constitutional Bench of the Supreme Court, if the Circulars issued by CBEC have placed a different interpretation, then the same would be binding on the Revenue.

It was held that the appellant was eligible for refund in cash suo moto by the Revenue authorities and the appeal was allowed.

d) Whether refund can be granted of input services not consumed for providing output services to be exported.

Kbase Tech Pvt. Ltd. v. Commissioner of Central Excise/CST, [2010 (Tri.-Bang.)]

The appellant claimed that by virtue of Circular, No. 120/01/2010-ST, dated 19-1-20110 which was issued recently to grant relief to exports in respect of refund claims, the appellant is entitled for refund of unutilised CENVAT credit. The appellant quoted various recent judgments delivered by the Tribunals on the similar issue.

The Department contended that the orders passed by the lower authority are not legal and proper as it does not take into consideration the conditions laid down in Notification No. 5/06-CE(NT), dated 14-3-2006 related to refund of CENVAT credit and that only that part of CENVAT credit which is attributable to the provision of exported output services can be allowed as refund and the Department’s counsel took support of various judgments as well.

The Tribunal observed that?:

    10. Service to own constituent?:

Whether HUF and its constituent separate entities for service tax??

CCE, Hyderabad v. Universal Travels, [2010 (18) STR 157 (Tri.-Bang.)]

The respondents, one of the constituent units of HUF rendered manpower supply services to other constituent units of HUF, sister concerns and group companies.

They did not pay service tax on the ground that different units of HUF are to be treated as one legal entity.

The Department held that all the constituent units of HUF, though termed as group companies, sister concerns were independent concerns/companies registered under relevant law and had independent business activities and hence service tax was payable on the amounts received form HUF constituents. When appealed, the Commissioner (Appeals) relying on a chartered accountant’s certificate, registration certificate for professional tax and copy of letter issued by ACIT, allowed the appeal. Therefore, the Revenue appealed before the Tribunal.

The Department contended that service tax registration was in the name of M/s. Universal Travels clearly indicating the unit as a separate legal entity under service tax laws and it issued debit notes on other units. Therefore, both the statutory requirements for levy of service tax under ‘manpower recruitment or supply agency’ were satisfied. The respondents contend that they were one of the constituents of HUF and different units of the same HUF doing different businesses cannot be treated as separate legal entities.

The Tribunal observed that the adjudicating authority had not shown or proved under which relevant laws the constituent units are registered as separate legal entities for their legal existence as such. However, on the other hand, the respondents had produced chartered accountant’s certificate, registration certificate for professional tax and copy of letter issued by the ACIT. Therefore, it is as good as providing service to self. Relying upon the Tribunal’s decision in Precot Mills Ltd. v. CCE, Tirupati, [2006    STR 495 (Tri.-Bang.)] the Tribunal rejected the Revenue’s appeal.