Month: June

CENVAT credit — The respondents avai led credit on the basis of xerox copy of the bill of entry — The original copy of the same was not available with them and hence they also lodged a police complaint — They also made efforts to obtain a certified copy of the same from the Commissioner who refused to do the same — Held, CENVAT credit was allowed because credit could not be disallowed on the ground of mere technical violence.

The respondents availed CENVAT credit on the basis of the xerox copy of the bill of entry. A show-cause notice was issued for wrong availment of credit on the basis of xerox copy of the bill of entry. Penalty also was imposed. The appellant contended that the original copy of the bill of entry was not available with them and they had lodged a police complaint. Further they put in efforts to obtain a certified copy of the bill of entry from the Commissioner who denied their request.

Held:

It was held that the respondents were entitled for CENVAT credit availed by them on the strength of xerox copy, because they had made efforts to obtain a certified copy of the bill of entry which was denied to them. Also it was not disputed that the goods had suffered duty and they had been used in the manufacture of final product. The credit could not be denied on the basis of mere technical violence.

CENVAT credit — The appellant reversed credit on obsolete inputs — Penalty u/s.11AC was imposed on the ground that they reversed it only when pointed out and hence their intention was to evade duty — Held, for imposing penalty under this section there should be fraud, suppression or willful omission, etc. and for imposing such a penalty  mens rea has to be proved — Also a short delay in reversal does not prove that their intention was to evade duty.

The appellants were manufacturers of bulk drugs and they availed CENVAT credit on inputs used in the manufacture of their final products. The quality control store department rejected some inputs and with reference to a report titled ‘Status of Obsolete, slow-moving, non-moving materials’ the officers directed that the CENVAT credit availed on such inputs should be reversed immediately and the appellant reversed the same. Later the Department issued a showcause notice imposing penalty u/s.11AC on the ground that the appellant had intention not to reverse the credit and they reversed the credit only because the report regarding unusable inputs was detected by the officers of the Department. The appellant contended that the due date for reversal of duty was 20-12-2002 and they reversed the same on 4-12-2002 and the Department contended that they reversed the credit only when the appellant was caught on the wrong foot.

Held:

For imposing penalty u/s.11AC short levy of duty should have arisen by reason of fraud, collusion or any willful misstatement or suppression of facts and to impose penalty such contravention should be made with an intention to evade payment of duty. Hence to impose penalty under this section mens rea (i.e., guilty mind) has to be proved. In this case the company was in the process of writing off such inputs in their stores and there was nothing to suggest that they would not have reversed the credit at the time of writing off the inputs in their stock. A short delay in reversal did not prove that they had intention to evade duty.

The appellant manufactured stranded wire in their factories and received permission from M.P. State Electricity Board to generate electricity from windmills — Availed services of erection, installation and commissioning, repair, maintenance, insurance and took CENVAT credit — Department denied CENVAT credit as windmills were located far away from the factory and the power generated by the windmills was not directly received in the factory of the appellant — Held, appellant was eligible to CENvAT credit in respect of abovementioned services — it may not be always possible to locate windmills in the vicinity of factory.

The appellant manufactured stranded wire in their factory and received electricity from their wind-mills at Dewas through wheeling arrangement in terms of their agreement with the M.P. State Electricity Board. The appellant availed the services of erection, installation and commissioning, repair, maintenance and also insurance and took CENVAT credit of service tax paid on these services. The Department was of the view that since windmills were located far away from the factory and the power generated by the windmills was not directly received in the factory, the appellant was not eligible to CENVAT credit.

Held:

In case of wind-power generator, it may not be possible to locate it in the vicinity of factory as wind-power generators have to be located at places where wind with sufficient speed is available throughout the year. The appellant’s factories were situated far away from the windmills and they had obtained permission from M.P. State Electricity Board and in the permission, wind mills were mentioned as for captive use by the appellant. Therefore it was held that windmills were to be treated as captive plant and the service of erection, installation and commissioning, repair and maintenance and also insurance used in respect of the same are eligible for CENVAT credit. Services received had clear nexus with the business of manufacture since electricity generated by the windmills was used for running appellant’s factories.

Respondent providing service of Pandal or Shamiana — On investigation it was found that respondent was providing the customers premises for organising marriage functions — They also provided furniture, fixtures, etc. for the same — Respondent of the view that during the time of dispute the marriage function was not treated as social function — Held, respondent’s activity of providing such facilities was treated as temporary occupation of Mandap and that marriage was still a social function during the period of dispute.

 The respondent was registered for providing taxable service of Pandal or Shamiana. On investigation it was found that the respondent was allowing temporary occupation to the customers for organising marriage functions and for this purpose, besides permitting temporary occupations of the premises, the respondent was also providing furniture, fixtures, lighting, catering, etc. A specific provision w.e.f. 1-6- 2007 was made that social function included marriage and hence, respondent contended that for the period prior to 1-6-2007, marriages were not social functions. The respondent was of the view that giving their premises to their clients mainly for marriage functions would not be considered social functions prior to 1-6-2007 i.e., during the period of dispute and providing the service in relation to use of Mandap or providing Pandal or Shamiana service for marriage function was not taxable.

Held:

The activity of the respondent was treated as allowing temporary occupation of Mandap for some consideration and was treated as service in relation to use of Mandap which was taxable during the period of dispute. It was held that even though the period of dispute was prior to 1-6-2007, it could not be construed that marriage was not a social function prior to 1-6-2007.

Appellant, a service provider under advertising Agency Service — Department of the view that the appellant did not discharge service tax liability and also had wrongly availed CENVAT credit — Terms of agreement stated that the appellant was entitled to 10% commission on gross amount spent which included print advertisement and also other expenses incurred — Held, all such expenditure or cost shall be treated as consideration for the taxable service provided and shall be included in the value for the purpose of charging service tax on the said service — CENvAT credit allowed for the same — Penalty waived.

The appellant was a service provider falling under the category of ‘Advertising Agency Service’. On scrutiny of records, it was found that the appellant had not discharged the service tax liability on the gross amount received by them in respect of services rendered and further they wrongly availed CENVAT credit on vehicle maintenance/insurance. Accordingly, service tax was demanded disallowing the credit and also demanded interest and penalty. The client had appointed the appellant to act as an advertising agent/consultant on the terms set out in the agreement and the agreement stated that the appellant will act as an exclusive creative agency of the clients for certain brands specified in the agreement. The terms of agreement also indicated that the appellant was entitled for an agency commission of 10% on gross media spent which included print advertisement, outdoor hoardings and all other expenses incurred on behalf of the client, third party, etc. The appellant got only the agreed commission from the customers and they had discharged service tax on the said commission income and also the appellant did not avail any service tax credit on the service tax paid by the advertisers.

Held:

It was held that if any expenditure or costs are incurred by the appellant i.e., the service provider in the course of providing taxable service, all such expenditure or cost shall be treated as consideration for the taxable service provided and shall be included in the value for the purpose of charging service tax on the said service. However, the appellant was held eligible to take credit of the excise duty/ service tax on input/input services used in or in relation to the provision of output service subject to providing necessary documents in respect of such credit and the penalty also was waived.

valuation — Reimbursement of expenses — Whether includible in taxable value — Held, yes, if the same were required to be spent in order to provide taxable service.

The appellant was providing clearing and forwarding services to M/s. Whirlpool India Private Limited during the period April 2001 to September 2005 and was receiving payment as commission/service charges. Apart from this, the appellant was also receiving amounts for service charges for employment, freight for distribution/transportation of goods, loading/unloading of goods, phone expenses, etc.

The appellant was required to arrange transportation of goods for which the appellant was paid fixed remuneration. Although as per the agreement, this charge was called ‘freight charges’, the same was not on actual basis. The Department was of the view that the remuneration received as freight charges was also remuneration for clearing and forwarding services and they further stated that various expenses reimbursed to the appellant were nothing but consideration for providing clearing and forwarding services. The Department further was of the view that these amounts should be added to the value of commission received by the appellant and service tax should be paid on such gross receipts and demand for service tax was made by the Department along with interest and penalty.

Held:

 It was held that without engaging clerks and utilising telephones and having godowns for storing the goods and without paying the loading and unloading charges, the appellant could not have rendered the clearing and forwarding services and even if these expenses were separately billed to the client, the expenses will form a part of value of taxable services. In case of transportation services, they were provided by the person operating the vehicles and there was no proof of the fact that the appellant had the responsibility to deliver the goods at the door-steps of the client. For freight revenue, it was conceded that it could be considered as reimbursable expense so long as the actual freight amounts were claimed. For expenses of pre-dispatch inspection, octroi and detention charges, it was held that these expenses were not towards any activity that would constitute service rendered by the appellant and therefore, excludible. Abatement from gross receipts received could be allowed for the expenses subject to production of vouchers for such expenses.

Appellant engaged in providing service of booking of air tickets, arrangement for food, local travel, etc. at places outside India — Appellant paid service tax under the category of ‘Air Travel Services’ but Department demanded tax for providing ‘Tour Operator Service’ — Held, out-bound tours outside the purview of service tax — Pre-deposits of the dues were waived.

The appellant was engaged in arranging tours/ tour packages within India and out of India. The appellant undertook activities like booking of air tickets, arrangements for hotel stay at places outside India, food, local travel at places outside India, etc. and they also undertook work related to Visa formalities. The appellant paid service tax under the category ‘Air Travel Services’ in respect of tickets booked from a place in India to the first place outside India and air travel from last destination in foreign country to the first destination in India. The Department was of the view that the amount collected from tourists like air fare and expenses for other arrangements was to be included under the category of ‘Tour Operator Service’ for which the Department raised service tax demand along with interest and penalty.

Held:

The planning and arrangements undertaken are primarily relating to out-bound tours and the same involve coordination with agencies outside India. According to the Board’s Circular F. No. B. 43/10/97- TRU, activities of out-bound tours are outside the purview of service tax. Hence the pre-deposits of the dues were waived.

Pre-deposit by way of debiting CENVAT Account allowed.

The appellant was directed to make pre-deposit of an amount as a condition of hearing appeal before the Commissioner (Appeals). The appellant debited the amount in CENVAT credit account. The Commissioner (Appeals) took a view that this did not amount to pre-deposit and rejected the appeal.

Held:

The Tribunal disposed of the stay petition holding that pre-deposit made by debiting CENVAT account was sufficient compliance and directed the Commissioner (Appeals) to hear the matter and decide the issue on merits after giving reasonable opportunity of hearing without further pre-deposit since the matter was not decided on merits.

CENvAT credit — Respondents purchased an induction furnace and took CENvAT credit for the same after nine years — They sold the machine and paid duty on transaction value — Department was of the view that the duty was payable of the amount equal to the CENvAT credit availed at the time of purchase — Held, respondents had paid the correct amount of duty — Machine cannot be treated as cleared as such when it was sold after putting into use for nine years.

The respondent was engaged in the manufacture of non-alloy steel ingots who purchased an induction furnace in the year 1994 and took credit CENVAT for the same. It used the said machinery till 2003 and then sold it after payment of duty which was equal to 16% on the sale price. The respondent paid duty on the transaction value but the Revenue was of the view that respondent should have paid duty equal to CENVAT credit availed at the time of purchase of the machinery and also imposed penalty on them.

Held:

It was held that the respondent had paid the correct amount of duty because capital goods are used over a period of time and that they lose their identity as capital goods only after use over a period of time. The same became inserviceable and fit to be scrapped. The object of CENVAT credit on capital goods is to avoid the cascading effect of duty. For this, it is provided that if the machines were cleared ‘as such’ the assessee shall be liable to pay duty equal to the amount of CENVAT credit availed. The machine cleared after putting into use for nine years cannot be treated as cleared ‘as such’.

A show-cause notice was issued imposing penalty on the respondents for late payment of service tax in spite of the fact that the respondents had already paid service tax along with interest — Held, no such notice was required to be issued.

In both the cases, show-cause notices were issued imposing penalty for delayed payment of service tax in spite of the respondents paying the service tax along with interest before issuance of SCN.

Held:

It was held that no notice shall be served on the persons who have paid service tax along with interest. If notices are issued, the person to be punished is the person issuing such a notice and not the person to whom the notice was issued.

Service of order — Whether sending of order by speed-post complies with the provision of section 37C(1)(a) of the Central Excise Act — Held: Order is to be served on the assessee or his agent by Registered Post A.D. or any other mode specified in section 37C  ibid.

The High Court admitted the appeal on substantial question of law as to whether CESTAT was justified in holding that the pre-conditions of section 37C of the Central Excise Act, 1944 were complied with and therefore the appeal filed by the appellant was barred by limitation. The case of the assessee was that the copy of the order passed by the Commissioner (Appeals) on 31st March, 2008 was not served upon them and only when the recovery proceedings were initiated, they obtained the copy of the order dated 31-3-2008 on 20-2- 2010 and thereupon filed an appeal before CESTAT within three months. Thus, it was contended that it was filed in time. CESTAT dismissed the appeal holding it to be time-barred on the ground that the copy of the order was dispatched on 1st April by speed-post and therefore it must have been received by the assessee in 2008. This complied with the requirement of section 37. Held: As per section 37C(1)(a) it was mandatory for the Revenue to serve a copy of the order by registered post with acknowledgement due to the assessee. Since in this case, the order was not sent by registered post but by speed-post, there was no evidence of tendering decision to the assessee. In the circumstances, the requirements of section 37C were not complied with. Further reliance by CESTAT on the decision of P&H High Court in Mohan Bottling Co. (P) Ltd. (2010) 255 ELT 321 was held incorrect as in that case, the order was sent by registered post. As such, the claim of the assessee that copy of the order was received for the first time on 26-2-2010 would have to be accepted.

Facts:

In both the cases, show-cause notices were issued imposing penalty for delayed payment of service tax in spite of the respondents paying the service tax along with interest before issuance of SCN. Held: It was held that no notice shall be served on the persons who have paid service tax along with interest. If notices are issued, the person to be punished is the person issuing such a notice and not the person to whom the notice was issued.

Contract of clearing and forwarding agent’s services entered into in 1998 providing that liability to pay service tax vested in service provider. Law amended retrospectively in 2000 to come into effect from 16-7-1997 to shift the liability to service recipient. The issue whether the change in legal provisions alter the legal rights or obligation arising out of contractual terms and whether or not the principal could deduct service tax from the bills of contractor — Held, nothing in law prevents the parties from agreeing that burden of tax would be borne by the service provider — Hence, arbitrator took possible view of the relevant clause in the contract which could not be interfered by the High Court.

The appellant, a Government undertaking manufactures steel products and the respondent firm provided transportation service under a contract for handling goods from the stockyard of the appellant. The terms of contract provided that the contractor would have to bear all duties and taxes. However, the appellant was held ‘assessee’ under the law as the service tax law was retrospectively amended in the year 2000, whereby the recipient of ‘clearing and forwarding service’ was required to pay service tax to the Government as ‘assessee’. The appellant deducted such service tax paid by it to the Government from payments made to the respondent-contractor. According to the respondent, since the appellant was the ‘assessee’ under the law in terms of retrospective amendment made in the service tax law, the tax payment was the responsibility of the contractee-appellant and the terms in the agreement of the respondent’s responsibility of payment of tax was only in accordance with the provisions of law prevailing at the time of entering into agreement. (At the time of entering into agreement, the service provider had to discharge the obligation of service tax.) Arbitration award given in favour of the appellant was earlier set aside by the High Court with the observation that the purpose of the relevant clause in the agreement was not to shift the burden of taxes from the assessee who is liable under the law to pay taxes to a person who is not liable to pay taxes under the law. The petition against the said decision of the High Court (given by the Single Member Bench) was dismissed by the Division Bench of the Bombay High Court and this was challenged in the Supreme Court.

Held:

The Finance Act, 1994 provisions determine the liability of the assessee towards tax authorities and it is irrelevant to determine rights and liabilities under the contract. Nothing in law prevents them from entering into contract regarding burden of tax arising under the contract between the parties. The Supreme Court after considering the submissions from both the sides also observed that assuming that the relevant clause in the agreement was capable of two interpretations, the view taken by the arbitrator was clearly a possible view if not plausible one. It cannot be said that the arbitrator travelled outside his jurisdiction or the view taken was against the contract. The High Court therefore had no reason to interfere with the award. Thus allowing the appeal, it was held that the appellant could not be faulted for deducting service tax.

Authorised service station — Authorisation has to be given by the manufacturer of vehicles only, not by any manufacturer and the services have to be provided only in relation to vehicles manufactured by that manufacturer — If respondent provided services to vehicle manufactured by other manufacturer for which he is not authorised to provide services, they cannot be held authorised service station vis-à-vis such manufacturer of vehicle and services provided in respect of those vehicles.

The respondents were authorised dealers for vehicles manufactured by General Motors and were covered by the category of authorised service station and they were also registered with the Service Tax Department under the category of Business Auxiliary Services. During the period October 2006 — December 2007, they also undertook servicing of vehicles manufactured by other manufacturers. The Department was of the view that they were liable to pay service tax in respect of such servicing of vehicles i.e., other than General Motors.

Held:

The definition of ‘authorised service station’ includes centre or station authorised by any motor vehicle manufacturer, to carry out any service in respect of vehicles manufactured by such manufacturer i.e., the authorisation has to be given by the manufacturer of vehicles. It was held that authorised service station was required to be authorised for providing services to the vehicles of such manufacturer and not by any manufacturer. Hence the Department’s contention that the service station may be authorised by any manufacturer and services provided by them in respect of vehicles manufactured by other manufacturers for which it was not authorised are to be held taxable, was not accepted.

The appellant provided services to Government departments like Income-tax Department, EPFO, DCA, etc. — The Department demanded service tax for services provided to DCA and EPFO under ‘Management Consultants Services’ — Held, services provided to DCA and EPFO were taxable under the category of ‘Information Technology Software service’  — As regards services of issuing PAN cards, it was held that they were services provided in relation to sovereign function of Income-tax Department hence not liable as business auxiliary service.

The appellant rendered services to various Government departments, namely, Income-tax Department, Department of Company Affairs, Employees Provident Fund, etc. For Income-tax Department they were undertaking the service of issue of PAN cards and for this purpose they used to print, supply and distribute application forms to the applicant, receive application in the prescribed form on behalf of the Incometax Department, validate the applications with the checklist provided by the Department and in case of any discrepancies, the applications were returned to the applicants pointing out the deficiency and for re-submission with necessary correction/rectification. On receipt of PAN from the National Computer Center of the Income-tax Department, the appellant would print PAN cards and issue the same to the applicants. The above service was sought to be classified under the category of ‘Business Auxiliary Services’. The Department made demand for service tax for the period of July 2003 to September 2004 on amount received as service charges from various applicants of PAN card. Further, for rendering service to Employee Provident Fund Organisation (EPFO), demand was made under the category of ‘Management Consultants Services’. Similarly, for services rendered to the Department of Company Affairs (DCA) towards E-Governance Project, also the demand was made treating the service as management consultancy.

Held:

In respect of services rendered for issue of PAN cards on behalf of the Income-tax Department it was held that they were the services provided in relation to sovereign function of the Income-tax Department of levy and collection of income-tax and it was not in relation to any business and hence issue of PAN cards was not leviable to service tax under ‘Business Auxiliary Services’. The services rendered by the appellant to the DCA were to manage and monitor the modernisation and computerisation of various operations and the services provided to EPFO were in relation to acquisition and installation, commissioning and system integration of the IT services. These activities were classifiable under the category of ‘Information Technology Software Service’ and not under ‘Management Consultants Services’.

Facts:
The Appellant collected service tax on a non-taxable service and had deposited the tax with delay without the payment of interest. Show Cause Notice was issued proposing levy of interest and penalty u/ss. 76, 77 and 78 of the Finance Act, 1994. The First Appellate Authority held that since the amount collected was not chargeable, penalty u/s. 76 and 78 was set aside. Aggrieved thereby, Revenue appealed before the Tribunal. While allowing the Revenue’s appeal, the Tribunal noted that since the tax was collected and the same was deposited only on the insistence of Revenue, it was a case of willful suppression and interest and penalty u/ss. 75 and 78 was restored leading to the present appeal.

Held:
The Hon’ble High Court noted that service tax was not leviable u/s. 68 of the Finance Act and the liability was only to deposit tax u/s. 73A(2) of the Finance Act which was done after delay. Thus as service was not taxable, penalty u/s. 78 was not invocable.

Facts:
Assessee company is situated in United Kingdom with no office or branch in India. They provided consulting engineering service to an Indian Fertiliser company for period March 1998 to April 2001. Revenue alleged that since officers of respondent company had visited premises of assessee they are liable to service tax. Both the appellate authorities decided against the Revenue, aggrieved by which appeal is filed before High Court.

Held:
The High Court observed that, the Tribunal dismissed the order relying upon Mumbai Bench judgment of Tribunal in case of Philcorp Pte. Ltd. vs. CCE on the ground that the respondent company did not have any office or operations within the Territory of India. The submission made by the revenue that respondent company’s officers had visited the client’s plant in India and thus liable to tax is not accepted by the Court , in view of the fact that, assessee don’t have branch or office within the taxable territory. Thus, the appeal was dismissed as service provider was located outside India with no business operations or office within territory of India.