Part B — Some recent judgments

(a)    Maersk India Pvt. Ltd. v. CCE Raigad, 2008 TIOL 1477 CESTAT-MUM

The appellant, registered under the category of ‘storage & warehousing’ and ‘maintenance and repairs services’, got a part of its empty containers repaired through its subcontractors. The sub-contractors charged Service Tax on their ‘repair charges’ received from the appellant and in turn, the appellant, against his Service Tax liability on output service of ‘maintenance & repairs’, claimed credit of Service Tax paid on input services of subcontractors. CENVAT credit was denied on the ground that sub-contractors did not have Service Tax liability and that there did not exist an agreement between the appellant and the sub-contractor for providing the latter’s services. The Tribunal found that there existed an agreement between the parties, which even the lower Appellate Authority had taken note of and irrespective of the same, it was ruled that once Service Tax has been paid by the supplier, the same cannot be questioned at the receiver’s end and accordingly, credit cannot be denied. Credit for the period prior to 10-9-2004 (the date on which the CENVAT Credit Rules were prescribed) also was held allowable as the ground was the same and in terms of existence of the Service Tax Credit Rules, 2002, credit could not be denied.

(b)    Credit: Whether can be utilised for Service Tax payment on GTA service?

M/s. Sri Sarvana Spg. Mills P. Ltd. v. CCE Madurai, 2008 TIOL 1429 CESTAT-Mad.

The short issue involved in the appeal was whether input duty credit can be utilised for payment of Service Tax on GTA services for the period October 2005 to March 2006. Since by an earlier order the appellant was already given a decision in their favour (covered under MMS Steel Ltd. & Others v. CCE Trichy, 2007 TIOL 1317 CESTAT-Mad.) and identical decision was also given in the case of RRD Tex Pvt. Ltd. v. CCE Salem 2007 TIOL 891 CESTAT-Mad., the order of the lower authority was set aside after condoning the delay in filing the appeal.

(c)    Jindal Steel & Power Ltd. v. CCE Raipur, 2008 TIOL 1450 CESTAT-Del.

The appellant, after taking registration as recipient of consulting engineer’s service and on the sum paid to foreign party, paid Service Tax net of abatement for R & D cess paid by them. The foreign party however had transferred merely the technology. Holding that the appellant was not entitled to utilise CENVAT credit for payment of Service Tax on output services, Service Tax was demanded and penalties were imposed. Since output services were provided much later than the year in which Service Tax was paid as receiver of services i.e., deemed service provider, input services were not considered co-relatable with output services. It was held that the date on which the registration for providing output service was sought was not relevant and that Service Tax paid as deemed output service provider was eligible for taking credit of. Further, Service Tax on transfer of technology under ‘consulting engineering service’ was wrongly paid by the appellant at the instance of the department and therefore also credit could not be denied. The Tribunal also stated that there was no time limit prescribed for utilisation of credit and therefore Service Tax paid on deemed output service was available as credit. The decisions cited by the appellant also supported the case of the appellant (Bhushan Power & Steel Ltd. v. CCE, 2008 (10) STR 18 (Tri.-Kol) and CCE Nagpur v. Visaka Industries Ltd., 2007 (8) STR 231 (Tri. Mum). Accordingly, the credit taken and utilised was held regular.

(iv) Management Consultant’s Service: Services to group companies:

M/s.  RPG Enterprises  Ltd. v. CCE Mumbai-IV, 2008 (11) STR 488 (Tri.-Mum).

The appellant received licence fee from various group companies including CEAT Ltd. under agreement with them, They contended as follows:

• The client-service provider relationship did not exist between the appellant and its group companies.

• Recovery  of expenses  was not a service.

• The recovery was only of costs and it operated on no-profit-no-loss basis.

• Since only cost was shared by all licensees, principle of mutuality was advanced.

• In-house organisation cannot contextually be considered impartial adviser meeting the criterion of specified category.

The Tribunal stated that being a company incorporated under the Companies Act, 1956 it was a separate legal entity independent of the entities among which its cost incurred was apportioned and it was essential to look at the very nature of the activities undertaken by M/ s. RPG so as to determine its taxability as management consultant as defined in S. 65(37) of the Finance Act, 1994. As per the Tribunal’s observation of company’s memorandum of association, the company’s objectives included developing and providing part of general economic and industrial intelligence, information in diverse areas of taxation, finance, legal, insurance risk management, data processing, information, systems, marketing, drafting, public relations, etc. to develop cadres of managers, provide infrastructure and administrative set-up for promotion, supervision, monitoring, etc. to the licensees. The Tribunal also found and reproduced extracts from income tax assessment order of CEAT Ltd. stating to the effect that RPG issued guidelines for MIS and possessed expertise in strategic planning, corporate finance, etc. In summation, RPG’s activities were held to be providing services with a view to improve the structure of organisations of licensees and therefore charges recovered by them were held to be leviable to Service Tax in the category of management consultancy.

On the plea of principle of mutuality, the Tribunal stated that the relationship between the two independent legal entities was not that of principal-agent and it did not fulfil the conditions enumerated in the decision of Chemsford Club, 200 (37) SCC 214 as the identity of fund contributors and the recipients of the fund was not the same. The amount paid to RPG by CEAT was shown as expense for the receipt of service in the latter’s balance sheet and therefore it was held that no one acted on behalf of the other in the instant case.

The plea of valuing gross amount charged as inclusive of Service Tax also was not accepted on the ground that explanation 2 to S. 67 of the Financial Act, 1994 was added from 10-9-2004 and was not applicable retrospectively for the period under dispute.

The plea for non-applicability of longer period of limitation based on solicitor’s opinion also was not found convincing on the ground that bona fide belief was not blind belief and the intention to suppress the facts existed and thus rejecting the appeal the demand of Service Tax and penalties was confirmed.

(v) Penalty: Bona fide belief held:

Tidewater Shipping Pvt. Ltd. v. Commissioner of Service Tax, 2008 (11) STR 475 (Tri.-Bang).

In four different appeals, the appellant paid entire Service Tax with interest on being pointed out the lapse and much prior to issuance of show-cause notice. The adjudicating authority did not levy penalty considering the discretion u/ s.80. However, the Commissioner reviewed the orders and imposed penalties u/s.76 and u/s.78. Finally, all the cases were held to be under bona fide belief, appeals were allowed with consequential relief.

(vi)  Penalty u/s.78  :

Industrial Security Agency v. CCE All., 2008 (11) STR 347 (Tri. Del).

In this case, circumstances under which penalty is leviable and provisions of S. 78 have been discussed at length. The Tribunal observed that non-submission of return; result and concomitant of non-registration for which penalty is already imposed. Penalty u/s.78 is not imposable simply because the assessee has not filed the Returns. Accordingly, the Tribunal set aside penalty u/ s.78 considering that the facts and circumstances of the case not led by suppression, fraud or even contravention of relevant statutory provisions with an intent to evade Service Tax. Further, according to the Tribunal, if reasonable cause for failure to pay Service Tax is proven, penalty u/s.76 may not be imposed at all. However, the facts of the case were found to be not justifying complete waiver of penalty. Yet, the penalty u/s.76 was reduced.
 

(vii)    Software (Imported) whether goods or service?

Perfect Technologies v. CCE & CS, Siliguri 2008 TIOL 1386 CESTAT-Kol.

The appellants imported software from a foreign company in a digitised form by downloading the same online. The plea was made by the appellant that downloaded software being ‘goods’ was not chargeable to Service Tax. According to the Revenue, it could be treated as online service as it was downloaded online. However, considering the fact that even if it was a service provided online, reverse charge did not apply prior to 18-4-2006 (in terms of S. 66A coming into force) and such view was supported by the decision of Lohia Starlinger v. CCEX Kanpur, 2008 (10) STR 483 (Tri.-Del.) and demand for the subsequent period was not quantified by the Revenue. Further, in the case, there also existed a doubt as to the jurisdiction of the adjudicating Commissioner and therefore it was held fit for waiving pre-deposit.

(viii) Valuation of reimbursements:

Rolex Logistics Pvt. Ltd. v. Commissioner Service Tax, Bangalore, 2008 (11) STR 394 (Tri.-Bang) :

The appellants, registered under ‘management consultancy services’ and ‘maintenance and repair services’, filed their returns and paid Service Tax. On search operation, it was found that no Service Tax was paid on reimbursements shown in the balance sheet and hence, differential Service Tax was demanded in the show-cause notice. The appellant pleaded that rent of godown, salary of employees, etc. were not management consultancy services. The Tribunal observed that order of the Commissioner (Appeals) was non-speaking on various case laws relied upon by the appellant. Further, the facts of appellants’ filing of return and checking and scrutinising of records, etc. by the Department could not be prima facie considered ‘suppression’ in the light of various Supreme Court decisions cited by the appellants, waiver of pre-deposit was granted.