Part B : Some Recent Judgments

1. CENVAT Credit  :

Non-alcoholic beverage manufacturers of concentrates whether are eligible to avail credit of service tax paid on advertisement, sales promotion, market research and utilise the same against duty liability on the concentrates is the issue involved.

Coca Cola India (P) Ltd. v. CCE, 2009 (22) SIT 130 (Bom.) (HC)

The credit was denied on the ground that advertisements did not relate to concentrates manufactured by the appellant although advertisement expenses formed part of the sale price of the said concentrates manufactured by the appellant. The appellant contended that the advertisement of the brand name with a soft drink had direct relationship with the manufacture of concentrate inasmuch as the demand and consequently, the production of concentrate depended on the consumption of the soft drink and that the advertisement enhanced the market-ability of the concentrate. It was also pleaded by the intervener in the case that service tax like CENVAT was a consumption tax, which had to be borne by the consumer. There was an integral link between the concentrate manufactured by the appellant and the beverage viz. aerated water manufactured by the bottler from it. In this context, the definition of ‘input service’ was analysed in great detail. Further, the Supreme Court’s decision in the case of Bombay Tyres International, 1983 (14) ELT 1896 (SC) was discussed at length. In this case, the Supreme Court held that even though the levy was on the manufacturer, the measure could be with reference to the sale price. Accordingly, it was held that the expense for marketability and selling including advertisement and publicity would form part of the value of goods under assessment. It was also contended by the appellant that revenue never disputed that advertisement of aerated water was an activity related to manufacture and sale of concentrate and that cost of advertisement was relatable to aerated water which formed part of the value of concentrate in the hands of its manufacturer and therefore, it was included in the sale price of concentrate charged by the manufacturer. In this background, the terms ‘means’, includes’, ‘such as’ and ‘business’ used in the definition of ‘input service’ were extensively analysed with reference to several Supreme Court and Larger Bench decisions which inter alia included the following:

Pepsi Foods Ltd. v. CCE, 2003 (158) ELT 552 (SC)

Doypack Systems (P) Ltd. v. UOI, 1988 (36) ELT (SC).

In summation, what followed from the discussion was that credit was availed on the tax paid on the Input service, which was advertisement and not the contents of the advertisement. Thus, it was observed that it was not necessary that the advertisement must relate to the final product manufactured by the person advertising. So long as the manufacturer can prove that the advertisement services used had an impact on the manufacture of the final product, he could avail the credit of the service tax paid by him. The correlation between the soft drink and the concentrate being direct and proportionate, the advertisement indirectly enhanced the marketability of the concentrate. Once the cost incurred for service was added to the cost assessed, the nexus of the cost of the advertisement service was established with the manufacture of the final product. As such, the expression ‘input service’ was capable of covering indirect use in or in relation to the manufacture of the final product and accordingly, CENVAT credit was available to the manufacturer for payment of duty.

2. Import of service:

Unitech Ltd. v. CST, 2009 (15) STR 385 (Delhi)

The High Court agreed with the issue settled by the Bombay High Court in the case of Indian National Shipowners Association v. UOI, 2009 (13) STR 235 (Bom.) and held that the Revenue could collect tax only upon being invested with due legal authority, an event which occurred only on insertion of S. 66A on 18-4-2006 and as such, the demand confirmed by Tribunal from recipient of taxable service of foreign architect for the period 1-1-2005 till 15-6-2005 was held as done without authority of law and accordingly answered the question of law.

3.Penalty: Power of Commissioner (Appeals) to reduce:

CCE v. Madhuri  Travels, 2009 (15) STR 241 (Bom.)

The short question before the Tribunal was, to examine whether minimum penalty prescribed u/ s.76 could be reduced by Commissioner (Appeals). The Court ruled that considering S. 80 of the Finance Act, 1994 the authority was vested with the power not to impose penalty or reduce the same and matter being covered in the order of the Court in the case of CCE&C Nashik v. D. R. Gade, 2008 (9) STR 348 (Bom.), revenue’s appeal was dismissed.

II. Tribunal:

4.(a) Appeals: Hearing without pre-deposit when divergent views prevail :

SRC Projects P. Ltd. v. CCE, 2009 (15) STR 463 (Tri.-Chennai)

In the instant case, the appellant adjusted excess service tax paid against later liability. The original authority relied on the Single Member Tribunal’s decision of Nelson Org. Mang. P. Ltd. V. CCE, Delhi 2006 (3) STR 503 (Tri.-Del). However, various other decisions including the one in the case of Nima Architect and Valuers V. CCE, 2006 (1) STR 305 (Tri.-Del) decided that excess payment of service tax could be adjusted against later liability of service tax. The Commissioner (Appeals) dismissed the appeal as payment of pre-deposit ordered was not complied with. The Tribunal remanded the matter for fresh decision with a direction that the matter be heard without insisting on pre-deposit in the circumstances when divergent views were held in various Tribunal decisions.

b) Pre-deposit not insisted if tax paid with interest:

    K. Fasteners V. Commissioner of Central Excise, Salem 2009 (15) STR 330 (Tri.-Chennai)
 
The appellant assembled items supplied by its principal. Service tax was demanded under ‘business auxiliary service’ and applicable interest and penalties were levied. The appellant contended the activity as manufacturing yet paid service tax with interest before issuance of Show Cause Notice. The appellant’s appeal before the Commissioner (Appeals) was rejected for non-payment of pre-deposit insisted on penalty amount for considering the appeal. While hearing the stay application, appeal itself was taken up by the Tribunal and the matter was remanded to the Commissioner (Appeals) directing that the appeal be heard without pre-deposit as usually when tax is paid with interest, pre-deposit should not be insisted upon.

5. CENVAT Credit :

a) Service tax on construction of compound wall – an input service:

In re: Raymond Zambaiti P. Ltd., 2009 (15) STR 596 (Commr. App)

Appellant availed service tax paid on construction service of compound wall of the factory. CENVAT credit was disallowed on the ground that it was neither used directly for ‘manufacture’ of excisable goods nor for any output service. The appellant contended that the compound w311was part of the factory. Reliance was placed on Apex Court’s decision in the case of South Eastern Coalfields Ltd. V. CCE, 2006 (200) ELT 357 (SC) and according to which ‘precinct’ had to be given broader meaning to include the surrounding area. It was further observed that the definition of ‘input service’ included services used in relation to setting up, modernisation, renovation or repairs of factory and no factory could function without a compound wall to take care of security, environmental protection etc., the construction of compound wall would be input service within the meaning of its inclusive definition and as such, CENVAT credit was considered allowable.

b) Security agency service used for factory admissible:
CCE&C Guntur V. Hindustan Coco-Cola Beverages P. Ltd., 2009 (15) STR 248 (Tri. Bang.)

Services of security agency at the depot and services of pest busters were used in the manufacturing activity of food products for human consumption. The former service used to prevent theft and the latter from contamination were found eligible for CENVAT credit by Commissioner (Appeals) after detailed analysis of ‘input service’ and following precedent of DCM Shriram Consolidated Ltd., 2006 (4) STR 610 (Comrnr. Appl.) Finding no infirmity in the order, plea of department for stay of order was rejected.

c) Substantive benefit not denied on procedural ground:

C&CCE. Vapi  v.  DNH Spinners, 2009 TIOL  1216 CESTAT-AHM

The assessee received invoices from vendors in the name of head office instead of factory. Based on the decisions in the case of Eveready Industries India Ltd., 2007 (219)ELT 333 and Tisco Ltd., 2008 (228) ELT 224, it was held that when the invoices received by head office/registered office were endorsed by the appellant, substantive benefit could not be denied on procedural ground. Incidentally, the appellant being only manufacturing unit, the head office could not be considered as input service distributor and the denial was dismissed.

6. Import  of Service:

a) Limitation: Plea justified when clarity in law is absent:
Ashok Leyland Ltd. v. CCE&ST, LTU Chennai, 2009 (15) STR 289 (Tri. Chennai)

The appellant paid commission to foreign parties during 2004-05 and 2005-06 till October 30, 2005. This was covered as Business Auxiliary Service. However, service was exempt till 9-7-2004 under Notification No. 8/04-ST until it was restricted to services of commission agents relating to agricul-tural produce. The appellant had a bonafide belief as to non-taxability under reverse charge until the introduction of S. 66A on 18-4-2006. Several deci-sions were cited. which inter alia included ‘ Sterlite Industries (India) Ltd. v. CCE, 2008 (11) STR 375), Lohia Strangler v. CCE, 2008 (10) STR 483 (Tri.-Del), Foster Wheeler Energy Ltd. v. CCE, 2007 (7) STR 443. The Tribunal also took a note of the Larger Bench’s decision in the case of Hindustan Zinc Ltd. v. CCE, 2008 (11) STR 338 (Tri.-LB) and distinguished Apex Court’s decision in the case of Kerala State Electricity Board (KSEB) v. CCE, 2008 (9) STR 3 (SC) cited by the department. The Tribunal found force in the limitation plea as no clarity existed in law at material time as to the issue of applicability of reverse charge provision. It accepted bonafide belief in non-taxability and provided waiver of pre-deposit as part payment was made by the appellant prior to the issuance of Show cause Notice.
 
(b)(i) Import of service (ii) operational assistance for export considered BSS :

Fifth Avenue  v. CST, 2009 (15) STR (Tri.-Chennai)

Service tax was paid by the appellant for the period April 2006 to September 2006 being receiver of operational assistance for execution of export orders to whom payment was made in foreign exchange. Issue involved was two fold: Appellant pleaded to consider the service of operational assistance for export orders as business support service and not business auxiliary service and secondly application of reverse charge was also contended to be applicable only from 18-4-2006 relying on the Bombay High Court’s decision in the case of Indian National Shipowners Association v. UOI, 2009 (13) STR 235 (Bom). Appellant succeeded on merits on both the pleas and therefore, service tax demand for the period prior to 1-5-2005 was set aside.

c. Bathija International v. Commissioner of Central Excise, Salem 2009 (15) STR 249 (Tri. Chennai)

Appellant, an exporter, paid commission to agents abroad. Service tax was demanded under ‘Business Auxiliary Service’ and applicable interest and pen-alties were imposed for the period 12-8-2004 to 27-9-2006. Appellant contended that there being no li-ability prior to introduction of S. 66A on 18-4-2006 and the liability for the subsequent period already having been paid by them, plea was made for remand without further pre-deposit. The matter was remanded without pre-deposit.

7. Refund:    Admissible based  on credit notes:

Professional International Couriers Pvt. Ltd. v. CST, 2009 (15) STR 295 (Tri.-Chennai).

Appellant being co-loader for a courier agency was not required to pay service tax as per Board’s Circular, however inadvertently paid service tax after collecting the same from the principal courier agency and claimed refund. The principal agency was returned the so-collected service tax by way of credit note. The principal agency even reversed the credit taken by them for service tax so paid to the appellant. Relying on the ratio of decision in the case of Shiva Analyticals (I) Ltd. v. CST, 2007 (7) STR 35 (Tri.-Bang.), it was held that in the circumstances when service tax erroneously collected was returned to the customer whether by cheque or by issuing credit note and the fact supported by chartered accountant’s certificate, there being no unjust enrichment,  the refund    was  held  as admissible.

8. Valuation:  Benefit of Notification  No. 12/ 2003 to caterer’s  service:

a. Grand Ashok v. CST, 2009 (15) STR 344 (Tri.-Bang.)

The appellant, an in-flight caterer was called upon to pay service tax on the gross amount of their bill, which included supply of goods and beverages on which VAT was paid. Service tax was paid on handling and transportation. Decision of Imagic Creative P. Ltd. v. CCT, 2008 (9) STR 337 (SC) was discussed at length and relied upon. Apex Court’s decision in case of Bharat Sanchar Nigam Ltd. v. UOI, 2006 (2) STR 161 (SC) also was relied upon and it was held that service tax was liable to be paid on outdoor caterer’s service. However on sale of goods, since VAT was paid, service tax could not be levied and the appellant was entitled to benefit under Notification No. 12/2003-ST. Further, appellant being under bonafide belief, longer period of limitation was not invokable.

b. On a similar issue in the case of LSG Sky Chefs (India) Pvt. Ltd. v. CST, 2009 (15) STR 545 (Tri.-Bang.), it was held that sales tax and service tax being mutually exclusive and separate invoices having been issued for supplies of goods, service tax could not be imposed on the portion of the contract on which VAT was paid.

c) Pre-deposit waived: Cost of goods in construction service:

M/s. Sobha Developers Ltd. v. CST, Bangalore 2009 TIOL 1176 CESTAT-Bang.

In case of residential consumption service, the appellant paid service tax on 30% of the contract and VAT was paid on the balance 70% representing value of goods and material. Relying on the same Bench’s final order No. 24/2009 dated 16-1-2009 in case of M/s. LSG Sky Chefs (India) Pvt. Ltd. (supra) and in the case of Wipro GE Medical System Pvt. Ltd., 2008 TIOL 2476 CESTAT-Bang., it was observed that the Board also has issued circular to the effect that the appellant is not liable to pay service tax and the appellant had a strong case of merits based on the fact that where sales tax is paid, service tax would not be demanded and the balance remaining unpaid pre-deposit was waived.