By Puloma Dalal, Bakul B. Mody, Chartered Accountants
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Service Tax
I. Supreme Court :
1.1 Burden of proof : ‘reverse burden’ only when one party
to a transaction is a dealer (S. 12 of KGST Act, 1963)
Haleema Zubair v. State of Kerala, 2009 (13) STR 113 (SC)
The appellant a proprietor had two concerns — one having
trading activity and another providing professional services of inspection and
certification of quality. Appeal was filed on being aggrieved with the additions
made by the sales tax assessing authority demanding sales tax on the service.
Income-tax returns, assessment orders and other certificates were produced
before the Appellate authority. The Appellate authority reduced the additional
income from 5% to 2.5%. Appeal was filed with the Sales Tax Appellate Tribunal,
where it was contended that as per S. 5(1)(iii) of KGST Act (the Act),
consideration received for transferring right to use any good for any purpose
was liable for tax. The Revenue claimed that the relevant documents were not
produced before the lower authorities and the burden of proof as to taxability
lay on the assessee as per S. 12 of the Act.
The orders passed by the Tribunal and the High Court did not
consider distinction between assessment orders under the Income-tax Act and
Sales Tax Act inasmuch as the fact that income tax would be levied on the entire
income, whereas sales tax could be levied only on the ‘sale’ and not the other
income which did not result out of ‘sale of goods’.
The condition precedent to the passing of an order was
assessment of sale. Professional service rendered did not constitute sale, which
attracted service tax. Further, the Supreme Court ruled that in general law, the
burden of proof lay with the State and ‘reverse burden’ must be construed having
regard to the nature of the statute. In the Kerala General Sales Tax Law,
however, S. 12 places the burden on the assessee, provided a transaction of
‘sales’ has taken place and at least one party to it is a dealer. Definition of
‘Dealer’ was analysed and it was concluded that the concern providing services
was not a ‘Dealer’ and professional fees were liable for sales tax. Appeal was
allowed by way of a remand to the adjudicating authority for consideration of
materials placed by the appellant.
Cases relied upon :
(i) BSNL and Another v. Union of India and Others,
2006 (2) STR 161 (SC)
(ii) Girdhari Lal Nannelal v. The Sales Tax
Commissioner, M.P. 1996 (3) SCC 701
1.2 Violation of
principle of natural justice :
Kothari Filaments v. Commissioner of CVS (Port), Kolkata
2009 (13) STR 225 (SC)
The appellant, an importer of lithosphere, placed order with
a foreign company for import of lithosphere. On physical verification out of
total quantity of 860 bags, only 189 had lithosphere and the rest contained
yellow coloured substance ‘Tetracycline’.
Appellants contended it to be the mistake of exporter and
attached the acceptance of exporters for the same to prevent penal action. The
Commissioner in his order gave directions for confiscation of goods and imposed
penalty before completion of inquiry. Appeal was filed on the grounds of
violation of principles of natural justice.
The respondent contended that acceptance of mistake by
exporter did not facilitate compliance of principles of natural justice and the
indication of outcome of overseas inquiry had been placed in the show-cause
notice. It was the duty of the appellant to prove the mistake of the exporter
and refute the conclusions of inquiry, the authority had no liability to
disclose their materials.
It was held by the Supreme Court that person charged with
misdeclaration had right to know the basis on which he was penalised, to reply
effectively as considered inter alia in the case of Rajesh Kumar
& Ors. v. Dy. CIT & Ors., 2007 (2) SCC 181 and thus the principle of natural
justice was held to be violated. Setting aside the order, the matter was
remanded to the Commissioner for consideration afresh.
II. High Court :
Co-operative Society in public service
Green Environment Services Co-Op. Society Ltd. v. Union of
India, 2009 (13) STR 250 (Guj.)
The assessee, a co-operative society, provided treatment of
effluents and managed waste generated by industrial units which were members of
society. They contended that the object of the society was in the nature of
public service i.e., for Prevention & Control of Pollution Provisions of
S. 65(25a) of the Finance Act, 1994 excluded services in the nature of public
services. S. 93 of the Finance Act, 1994 grants power to the Central Government
to grant exemption from payment of service tax by notifying in the Official
Gazette. The facts of the case led to the conclusion that the petitioner-society
had been established with the aid of Central & State Governments for treatment
of industrial effluents and waste materials in public interest. The
representation to the Central Government for exemption would be made within 2
weeks and would be placed by the Central Government within two months from that
day. Interim stay for recovery was granted.
III. Tribunal :
3.1 Air travel agent : Adjustment of tax on cancellation of tickets :
CCE, Jalandhar v. Sharma Travel, 2009 (13) STR 150
(Tri.-Del.)
The respondent, an air travel agent adjusted service tax
amount on cancelled air tickets and paid the differential amount. The adjustment
was disallowed and was upheld by the Commissioner (Appeals). The Tribunal
remanded the matter to the Commissioner (Appeals) to decide on merits, evidences
and in consideration of question of limitation.
The Commissioner set aside the demand, but the
Revenue pleaded to invoke doctrine of unjust enrichment. Rejecting the Revenue’s
appeal, the Tribunal confirmed the order of the Commissioner (Appeals).
3.2 Registered society and a charitable trust whether
liable under categories club or association service, convention service and
commercial training and coaching ?
M/s. Ahmedabad Management Association v. Commissioner of
Service Tax, Ahmedabad, 2009 TIOL 214 CESTAT-AHM
AMA was a registered society and a charitable trust under Society’s Registration Act and Bombay Public Trusts Act. AMA filed an appeal against the order of the Commissioner for confirmation of demand of service tax on services provided by it. Penalties u/s.7SA, u/s.76, u/s.77 and u/s.78 had been imposed.
The appellant contended that AMA was a non-profit making institution as amounts earned by it were utilised for fulfilment of its objectives and members were liable for liabilities, but had no share in surplus as it was ploughed back. Thus, it was not a commercial concern. The programmes conducted were exempted from year 2003 as vocational training by the government. Therefore, these services cannot be classified as ‘Commercial Training and Coaching Services’. The services of a club or association came under the tax net w.e.f. 16-6-2005. Exclusion clause excluded services provided by associations in nature of public service. AMA did not have any profit motive and provided public services, which were excluded from taxable services. Convention service was liable to tax when provided by a commercial concern. Convention events were not only for members but also for general public. A Circular dated 1-11-2006 clarified that non-commercial concerns would not fall under it.
The respondent considered the definition of commercial training and coaching centre as per the Act and did not consider training programmes conducted at AMA as vocational training programmes, which were exempted.
As regards club or association services, since they were provided to members, they were taxable and were not covered by exclusion clause, according to the Revenue.
As regards convention services, since they were provided to general public not free of cost but for consideration, they could not be excluded from the tax net, as per the Revenue.
It was held by the Tribunal that:
a) AMA was not a commercial concern in consideration of its objectives, ploughing back of sur-pluses or no profits in the hands of members. The cases on which decision was relied upon were Great Lakes Institute of Management 2008 (10) STR 202 (Tri.-Chennai) and Institute of Chartered Financial Analysis of India 2008
(TIOL 2036 CESTAT-Bang). AMA was not liable to pay service tax on membership fees received from members of the club, as it was not providing any specific services.
b) The programmes conducted were continuing education programmes and not commercial programmes.
c) Since AMA was not a commercial concern, no service tax could be levied on convention services, and therefore the appeal was allowed.
3.3 CENVAT Credit: Transfer on takeover:
CCE, [aipur v. Hindustan Coca Cola Beverages Pvt. Ltd., 2009 (13) STR 222 (Tri.-Del.)
The issue in this case was of transfer of credit from one bottling plant to another plant. The Revenue contended that neither the ownership nor the capital goods were transferred.
The Commissioner (Appeals) in his order stated that one bottling plant was taken up by another as registration certificate of the taken over plant was surrendered and the unutilised credit was transferred to the plant which took over. There was no revenue loss and no contravention of any rule. The credit was allowed.
Whether construction of jetty, ‘capital goods’ ?
Penalty: interpretation of statute:
Mundra Port & Special Economic Zone Ltd. v. C.E., Rajkot, 2009 (13) STR. 178 (Tri.-Ahmd.)
The appellants were providers of port services, storage and warehousing services and cargo handling services liable for service tax.
The major issue was availment of credit on steel and cement used for construction of jetty and port building. Attention was drawn by the appellant to the definition of inputs and emphasised on expression ‘used for providing output services’ and reliance was placed on the case of State of Punjab & Another v. British India Corporation Ltd., (AIR 1963 SC 459). It was contended that the operations of port and management serviees was not possible without such construction and only incidental to the main activity should be excluded from the purview of expression ‘used for’, therefore the credit on such inputs should be allowed.
It was held that the jetty did not fall within the definition of capital goods and was constructed by the contractor. Cement and steel were used by the contractor for construction services and considering them ‘not used’ for providing port service, credit was disallowed.
The credit of service tax on mobile phones, CHA and surveyor charges, rent-a-cab and professional fees was allowed and credit on club house fees was disallowed as it was for recreation of employees, and was not for providing output services.
Credit of duty on air conditioners, being ‘capital goods’ as per the Rules, was allowed.
Penalty was set aside as the issue involved bonafide interpretation of law.
Ruchi Health Foods Ltd. v. CCE, Chennai, 2009 (13) STR 330 (Tri.-Chennai)
The assessee was in the manufacture of refined oil and vanaspati, used CENVAT credit on capital goods viz. acid oil plant used for refining and processing. Credit availed was disputed as acid oil was manufactured in a separate plant where, according to the Revenue, no dutiable goods emerged. Further, credit of duty paid on computers, paints and welding electrodes was also disallowed.
Refinery was part of the factory and the assessee could take credit of duty paid on capital goods and not on exempted or nilrated goods. The impugned goods produced PFAD also, which was cleared on payment of duty. Acid oil was also cleared on payment of duty. Thus, machinery installed in refinery was not exclusively deployed in producing only non-dutiable products. Declarations as per the rules, records, invoices and returns relating to credit had been furnished to the Dept. indicating that PFAD was also an acid oil which was cleared on payment of duty. Likewise, credit on duty on computers, electrodes in view of decision of Jawahar Mills Ltd. v. CCE, Coimbatore, 1999 (108) ELT 47 (Tri.-LB) were allowed. The order itself was set aside and appeal was allowed.
3.4 Can penalty u1s.76 be reduced?
CCE – Rajkot v. Shri BSGK Shashtry, 2009 TIOL 173 CESTAT-AHM
The Commissioner (Appeals) reduced the penalty uj s.76 against which the Revenue filed an appeal and contending that S. 76 was unambiguous and did not provide liberty to reduce penalty and submitted that decision in M/ s. ETA Engineering Ltd. [2006 (3) STR 429 (Tri. LB)] had to be followed.
Various decisions in which authorities used discretion to impose less penalty u/ s.80 of the Finance Act, 1994 submitted by the appellant were considered and rejecting the Revenue’s appeal, extension of S. 80 by the lower authority was upheld.
3.5 Limitation:
Refund: Whether barred by limitation?
CCE, Pune-III v. M/s. Beharay & Rathi Constructions, 2009 TIOL 178 CESTAT-Mum.
The respondents, being recipient of ‘goods transport agency’ services, thus liable for service tax, availed abatement of 25% instead of 75%, erroneously resulting in excess payment. The refund claim was held to be hit by time bar of S. 11B of Central Excise Act, 1944.
The Commissioner (Appeals) held that tax collected by mistake of law, did not attract S. 11B and cited various case laws in support.
The Tribunal held that among various decisions cited, many were of prior period in which amendment dated 19-9-1991 in S. 11B had not been considered. Therefore, the impugned refund claim filed by the respondents was hit by time bar in consideration of S. 11B.Reliance was placed on Mafatlal Industries Ltd. v. Union of India, 1997 (89) ELT 247 (SC) and Commissioner of Customs v. Aman Electrical Manufacturing Co., 1997 (90) ELT 260 (SC).
Kilburn Engg. Ltd. v. CCE, Vadodara-II, 2009 (13) STR 285 (Tri.-Ahmd.)
The appellants engaged in the manufacture of machinery, who installed, erected and commis-sioned it at customer’s premises and raised separate bill for this. The dispute related to supervision of erection, commissioning of machinery to attract service tax liability under consulting engineering services.
The Commissioner (Appeals) observed that supervision of erection and commissioning required professional knowledge and therefore fell within the scope and ambit of ‘consulting engineering service’ and relied on the case M. N. Dastur, 2002 (140) ELT 341 (Cal.).
The Tribunal relied upon case CCE, Cochin v. BPL Telecom Pvt. Ltd., 2007 (5) STR 349 (Tri. Bang.),
M/s. Jyoti Ltd. v. CCE, Vadodara, 2008 (9) STR 373 (Tri. Ahmd.) and held that technical assistance provided by manufacturer of goods could not be held as consulting engineering services.
It also considered that first and second show-cause notices for the same period for the same facts being barred by limitation, relief was allowed.
3.6 Jurisdiction:
CCE, Mumbai v. Central Cable Pvt. Ltd., 2009 (13) STR 328 (Tri.-Mumbai)
An appeal was filed against the order passed by CCE (Appeals), for consideration of legal aspects.
The Commissioner (Appeals) in his order observed that the Assistant Commissioner had no jurisdiction to issue show-cause notice.
The Revenue contended that Circulars on which reliance was placed by the Commissioner (Appeals) were not in force when the matter was adjudicated by original authority and he was empowered by a Circular to issue show-cause notices.
The Tribunal remanded the matter back to the Commissioner (Appeals) for reconsideration.
3.7 Reimbursements – whether taxable? (Also limitation) :
Rolex Logistics Pvt. Ltd. v. CST, Bangalore, 2009 (13) STR 147 (Tri.-Bang)
The appellant engaged in ‘Management Consultancy Service’ took over operations of two proprietary firms, which were not providing management consultancy services. They were accused of suppression of value of taxable services as regards reimbursements claimed by the firms and evasion of service tax for which demand along with interest and penalty was raised.
The appellant contended that show-cause notice was issued based on the information from balance sheet and other books of accounts and therefore suppression could not be alleged.
The Tribunal observed that service tax liability accounted only towards the amount received and not towards reimbursements.
It was further held that there was no suppression of facts with an intention to evade tax, therefore longer period could not be invoked.
Some of the cases relied upon:
(i) Scott Wilson Kirkpatrick (l) Pvt. Ltd. v. CST, 2007(5) STR 118 (T)
(ii) B.S. Refrigeration Ltd. v. eST, 2006 (4) STR 103(T)
(iii) Glaxo Smithkline Pharmaceuticals Ltd. v. CCE, 2006 (3) STR 711 (Tribunal)
