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1. Background :
Exporters of services experienced rough times during
the past four to five years claiming refund or rebate of service tax
paid on various input services used in exported services and there has
been tremendous amount of litigation already pending at different
levels, wherein various issues both legal and procedural have been
raised by the Department which inter alia include the following :
-
Whether the
service per se can be considered export in terms of the Export Rules,
2005.
-
Non-filing of
declaration form prior to exporting service.
-
Inadequacy of
documents evidencing export of service.
-
Services on
which service tax paid is taken as CENVAT credit are not considered
‘input services’.
-
Inadequacy of
documents for CENVAT credit.
-
Non-registration or late registration of the assessee as service
provider.
-
Refund claims
filed beyond limitation period u/s.11B of the Central Excise Act.
-
Refund
relating to export of exempted service.
-
Refund
inadmissible on account of unjust enrichment.
Realising difficulties faced by the export-oriented
units, the Government issued Circular No. 120, dated 19-1-2010 to
simplify and standardise refund procedure to expedite the process of
refund applications and grant refunds although the procedure is already
in place for granting rebate of service tax paid by cash or CENVAT of
input services or for claiming refund under Rule 5 of the CENVAT Credit
Rules, 2004. Question here is whether or not and how the doctrine of
unjust enrichment should apply to the refund claims filed by exporters
of services for service tax paid on input services. For this purpose,
the doctrine of unjust enrichment and provision of S. 11B need
examination.
2. Doctrine of unjust enrichment :
In ordinary course, when any claim of refund is filed
by an assessee, he is required to file an application of refund in the
prescribed format under the law along with required documentary
evidence. On receipt of the application, the Assistant Commissioner of
Central Excise or Deputy Commissioner of Central Excise after being
satisfied may himself make an order for the refund of the whole or any
part of tax. The claimed amount is refunded to the applicant only if the
incidence of tax has not been passed on by the applicant to any other
person; or else if the amount considered due to be refunded, is
transferred to the Consumer Welfare Fund as the claimant is not allowed
to be unjustly enriched i.e., the claimant cannot get an amount which he
has not suffered. This law cannot be better understood than by the
quotes per majority decision in the landmark judgment of Mafatlal
Industries Ltd. v. Union of India, 1997 (89) ELT 247 (SC) :
Á claim for refund, whether made under the
provisions of the Act as contemplated in Proposition (i) above or in a
suit or writ petition in the situations contemplated by Proposition
(ii) above, can succeed only if the petitioner/plaintiff alleges and
establishes that he has not passed on the burden of duty to another
person/other persons. His refund claim shall be allowed/decreed only
when he establishes that he has not passed on the burden of the duty
or to the extent he has not so passed on, as the case may be. Whether
the claim for restitution is treated as a constitutional imperative or
as a statutory requirement, it is neither an absolute right nor an
unconditional obligation but is subject to the above requirement, as
explained in the body of the judgment. Where the burden of the duty
has been passed on, the claimant cannot say that he has suffered any
real loss or prejudice. The real loss or prejudice is suffered in such
a case by the person who has ultimately borne the burden and it is
only that person who can legitimately claim its refund.”
Also interesting are the quotes of the Larger Bench
decision of the Supreme Court in the case of Sahakari Khand Udyog Mandal
Ltd. v. CCE&C, 2005 (181) ELT 328 (SC) which have aptly and precisely
described this doctrine.
“31. Stated simply, ‘Unjust enrichment’ means reten-tion of a benefit by a person that is unjust or inequi-table. ‘Unjust enrichment’ occurs when a person re-tains money or benefits, which in justice, equity and good conscience, belong to someone else.
3.2 The doctrine of ‘unjust enrichment’, therefore, is that no person can be allowed to enrich inequitably at the expense of another. A right of recovery under the doctrine of ‘unjust enrichment’ arises where retention of a benefit is considered contrary to justice or against equity.
3.3 The juristic basis of the obligation is not founded upon any contract or tort, but upon a third category of law, namely, quasi-contract or the doctrine of restitution.
From the above discussion, it is clear that the doctrine of ‘unjust enrichment’ is based on equity and has been accepted and applied in several cases. In our opinion, therefore, irrespective of applicabili-ty of S. 11B of the Act, the doctrine can be invoked to deny the benefit to which a person is not otherwise entitled. S. 11B of the Act or similar provision merely gives legislative recognition to this doctrine. That, however, does not mean that in absence of statutory provision, a person can claim or retain undue benefit. Before claiming a relief of refund, it is necessary for the petitioner/appellant to show that he has paid the amount for which relief is sought, he has not passed on the burden on consumers and if such relief is not granted, he would suffer loss.”
Thus, in principle, it is just and fair that this doctrine is followed while granting a refund application. To better understand its applicability, it is necessary to briefly examine the relevant provisions of S. 11B of the Central Excise Act, as Chapter V of the Finance Act, 1994 dealing with the service tax law does not contain specific provisions for claim of refund, but through its S. 83, specific provisions of the Central Excise Act including S. 11B have been made applica-ble to service tax as they apply in relation to excise duty. Accordingly, claim of refund for service tax also is governed by the provisions of S. 11B of the Central Excise Act discussed below.
3. S. 11B of the Central Excise Act, 1944 :
Claim for refund of duty and interest, if any, paid on such duty
1) Any person claiming refund of any duty of excise and interest, if any, paid on such duty may make an application for refund of such duty and interest, if any, paid on such duty to the Assistant Commis-sioner of Central Excise or the Deputy Commissioner of Central Excise before the expiry of one year from the relevant date in such form and manner as may be prescribed and the application shall be accom-panied by such documentary or other evidence (in-cluding the documents referred to in S. 12A) as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty had not been passed on by him to any other person :
Provided that where an application for refund has been made before the commencement of the Cen-tral Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of Ss.(2) substituted by that Act.
Provided further that the limitation (of one year) shall not apply where any duty and interest, if any, paid on such duty has been paid under protest.
2) If, on receipt of any such application, the As-sistant Commissioner of Central Excise or the Dep-uty Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise and inter-est, if any, paid on such duty paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund.
Provided that the amount of duty of excise and interest, if any, paid on such duty as determined by the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to –
a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
b) unspent advance deposits lying in balance in the applicant’s account current maintained with the Commissioner of Central Excise;
c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;
d) the duty of excise and interest, if any, paid on such duty paid by the manufacturer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;
e) the duty of excise and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;
f)…………….
Provided ………..
Notwithstanding anything to the contrary contained in any judgment, decree, order or direc-tion of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in Ss.(2).
(4) & (5) ……………….
Explanation — For the purposes of this Section, :
A) ‘refund’ includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
B) ‘relevant date’ means, :
(a) to (f)……………………………………
Perusal of proviso (a) to Ss.(3) indicates that in spe-cific terms, excise duty paid on exported excisable goods or excisable inputs used in the manufacture of such exported goods outside India qualifies to be allowed as rebate or refund. The law has specifically provided for this to be in tune with the broader and outer framework of the fiscal policy of the Govern-ment viz. zero rating of exports, whether of goods or services. An exporter–manufacturer may have paid such duty in cash or from his CENVAT credit account he is entitled to receive refund/rebate, provided he has presented the required documentary evidence and has followed the prescribed proce-dure for claiming refund or rebate, as the case may be. Similarly, with reference to proviso (c) to Ss.2 of S. 11B above, refund of CENVAT credit of duty paid as inputs under Rule 5 of the CENVAT Credit Rules, 2004 is also available to an exporter. The question arises therefore is whether or not the doctrine of unjust enrichment is applicable to refund in case of export of goods as well as of services.
A manufacturer exporting excisable goods often does not have potential to use accumulated CENVAT credit on inputs, when he wholly or substantially exports all that he manufactures and eventually, he is necessitated to claim either rebate of duty paid on excisable goods by making a payment of duty from CENVAT account on exports and claiming rebate of CENVAT credit or opting to file a refund claim of CENVAT of duty paid on inputs under Rule 5 of the CENVAT Credit Rules, 2004 as the case may be. In the scenario, the Tribunal in CCE, Kolkata-VI v. Black Diamond Beverages Ltd., 2006 (200) ELT 317 relying upon the earlier decision in the case of Dura Syntex Ltd., 2003 (154) ELT 422 (Tri.) held that in case of re-fund related to input credit, the principle of unjust enrichment is not applicable. Recently in Balkrishna Textiles P. Ltd. v. CCE, Ahmedabad-I, 2009 (239) ELT 279 (Tri.-Ahmd.) also, it was held that the doctrine of unjust enrichment is not applicable in respect of exports and S. 11B of the Central Excise Act specifically provides that credit on duty paid can be given as cash refund if admissible and principle of unjust enrichment is not applicable. In case of CC&CE Ahmedabad v. Dura Syntex Ltd. (supra), it was categorically held that principle of unjust enrichment is not applicable in view of the proviso (c) to Ss.(2) of S. 11B of the Central Excise Act, which carves out an exception in respect of credit of duty. It is quite interesting to note that despite there being excep-tions in the proviso whereby the question of examining whether duty is passed on to the buyer does not arise as the refund relates to duty paid on Inputs and therefore arising out of input credit, the authorities while issuing show-cause notice repeatedly attempt to shift the onus to the assessee to prove that unjust enrichment has not arisen. In this frame of reference, the Supreme Court’s observation in Rochiram & Sons v. UOI, 2008 (226) ELT 20 (SC) is notable : “It is a cardinal principle of law which has been settled by a Bench of seven Judges of this Court in the case of Mafatlal Industries v. UOI, 1997
ELT 247 (SC) that refund of a claim made by the assessee can be denied on the principle of undue enrichment if the assessee has passed on the burden to consumers. The principle would be equally applicable to the Revenue as well as it cannot have the double advantage.” The Supreme Court in the case of Sandvik Asia Ltd. v. CIT I, Pune, 2007 (8) STR 193 (SC) held that even if the Revenue has taken an erroneous view of law, that cannot mean that withhold-ing of money is justifiable or not wrongful. Thus, it is imperative that the Government cannot withhold due refund to the claimants.
4. Exporters of services :
In the above background and given the fact that there are no separate provisions as regards refund in the service tax law, by merely making provisions of S. 11B of the Central Excise Act applicable to service tax, intangibles like services are placed on par with goods. When services are invoiced to clients, ‘costing’ in most cases is difficult or almost impossible. There can neither be MRP (Maximum Retail Price) concept, nor can there be cost plus profit concept, especially for services provided by all professionals including investment bankers, architects, chartered accountants, legal services, management consultants, consulting engineers, etc. Even in the case of various other services requiring skills, it may or may not be possible to attribute precise ‘cost’ of a service as service is provided based on mental skills. Consequently, when the value of a service is recovered without service tax, yet whether the burden of tax paid on input service is still passed on to the recipient cannot be put to judgment. For argument’s sake, a professional ‘A’ may charge $ 100 for a task and for the same task ‘B’ may charge $ 500 and ‘C’ may charge $ 120. Would it mean that ‘C’ or ‘B’ have included incidence of tax in their price for their service and therefore there is unjust enrichment ? In fact, ‘A’ may charge $ 100 to one person and another $ 75 or $ 125 and yet in no way one can prove that burden of tax is necessarily passed on in one or the other case.
In a recent decision of the Commissioner of Service Tax, Ahmedabad v. S. Mohanlal Services, 2010 (18) STR 173 (Tri.-Ahmd.) in its second round of litigation, the Tribunal fully endorsed observations of the Commissioner Appeals viz. “the adjudicating authority’s reliance on the judgment in the case of Mafatlal Industries [1997 (89) ELT 247] is misplaced inasmuch as it relates to sale of goods wherein cost of inputs are necessarily incurred, whereas in the present case it is provision of services especially as commission agents wherein mental inputs are incurred which cannot be compared in monetary terms.” The Tribunal further observed, “the refund claim has been made u/s.11B of the Central Excise Act, 1944 made applicable for service tax matters. S. 11B provides that where the amount is reliable to rebate of duty of excise on excisable goods exported out of India, the amount shall be paid to the claimant. This means that provisions relating to unjust enrichment are not applicable in respect of export of services.”
Although a single Member Bench decision, the intangible characteristic of service being aptly considered, it should serve as a useful guidance for all refund claims made by exporters of services to reduce the amount of litigation.
Whilst it is in fitness of things to require a claimant to provide chartered accountant’s certificate that tax was not recovered from recipient of services or buyer, it will be equally fair not to stretch application of doctrine of unjust enrichment to exports too far. Non-granting of legitimate refund claim under one or the other pretext is a burning issue that several assessees face from the Department and an early resolution being need of the day, it is high time that the Board does the needful in the matter to remove impediments in genuine claims of exporters.
Part B : Some Recent Judgments
I. High Court :
1.(a) Authorised Service Station : Whether C & F agency ?
CCE v. Amitdeep Motors, 2010 (17) STR 514 (All)
The assessee, an authorised dealer of cars was registered under the category of authorised service station. The assessee received commission from the manufacturer for sourcing orders for them from Government agencies, receiving the vehicles from them and delivering the same to the Government agencies. The Revenue sought to tax these servic-es as clearing and forwarding agent’s service. The Tribunal ruled that the services of arrangement of documentary requirements from the customers for principal, liaison with customers for timely delivery, delivery of vehicle to the consignees, sending of provisional receipt and inspection notes from con-signee to the principal and arrangement of way or entry permits required for dispatch of the vehicles, etc. could not be considered clearing and forward-ing services.
Not finding substantial question of law, the High Court dismissed the appeal.
b) Whether services to bank for loans exempt under Notification No. 25/2009 ?
CCE v. Car World Autoline, 2010 (17) STR 449 (Ker.)
The assessee aided a bank to advance loans to parties and for recovery of the same. The Tribunal in its order stated that the assessee’s services were tax-able as business auxiliary services. It also stated that the assessee discharged its service tax liability under business auxiliary services from September 11, 2004. The Tribunal had allowed the assessee’s exemption claim under clause (e) of Notification No. 25/2004– ST, dated September 10, 2004.
The Revenue questioned whether the claim of the assessee was justified in light of the facts of the case. The clause (d) of the said Notification awarded exemption to business auxiliary services while the clause (e) awarded exemption to the banking and financial services. The relevant clause (d) and (e) are reproduced for ready reference :
“(d) services provided to a client by a commercial concern in relation to the following business auxiliary services, namely :
i) procurement of goods or services, which are inputs for the client;
ii) production of goods on behalf of the client;
iii) provision of service on behalf of the client; or
iv) a service incidental or auxiliary to any activity specified in (i) to (iii) above;
e) services provided to a customer by any body corporate or commercial concern, other than a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services.”
The Court stated that the assessee did not provide banking and financial services and hence the clause was not applicable. The clause (d) was applica-ble, hence before declaring the eligibility, the Tribunal was required to consider it with reference to the agreement between the parties, the exact nature of service rendered by the assessee to the bank and whether any of the service so provided was covered under the categories (i) to (iii) and if so, whether any service rendered was incidental to the items of services mentioned in sub-clause (i) to (iii) of (d). Accordingly, the matter was remanded to the Tribunal for reconsideration after hearing both the sides and after calling for relevant records, etc.
2. Violation of principle of natural justice : Court exercises extraordinary jurisdiction :
Wasp Pump Pvt. Ltd. v. Union of India, 2010 (17) STR 613 (Bom.)
The petitioner manufactured pumps and also the inputs for the pumps. There was no dispute as to exemption for pumps or its classification. Later, the Revenue demanded duty on the CI castings holding that they were marketable goods. The assessee filed an appeal to Commissioner (Appeals), however beyond the time of limitation. The Commissioner (Appeals) held that he had no jurisdiction to condone the delay. Aggrieved by the order, the appeal was filed with the CESTAT and CESTAT confirmed that the Commissioner (Appeals) was right in not con-doning the delay. In view of that, the application for waiver was rejected and the appeal was dismissed.
Consequently a petition was filed with the High Court. Relying on the judgment of the Supreme Court in the State of U.P. v. Modh Nooh, AIR 1958 SC 86 which held that the Revenue before quantifying the demand ought to have given a hearing to the assessee and there being a violation of principle of natural justice, the Court could exercise extra-ordinary jurisdiction. Plea was also made that the inputs were exempt from tax under relevant Notification. In the rejoinder it was also explained as to why they could not file the appeal in time.
The Court observed that generally when the alternate remedy sought was exhausted and the Tribunal for some reason declined to entertain the same, the Court normally does not interfere and exercise extra jurisdiction unless the order is a nullity in law. However, the order suffered from violation of principles of natural justice and denial of ‘fair’ hearing and therefore rejecting Revenue’s objection to extraordinary jurisdiction, the Court decided to hear the petition on merits. The Court relied on the Modh Nooh case (supra) and the Notifications cited by the petitioner. The Court also placed reliance on the judgment of the Supreme Court in W.P.I.L. Ltd. v. CCE, 2005 (181) ELT 359 (SC) wherein pumps as well as parts thereof were held as exempted from excise duty. The case was therefore allowed quashing the order and remitting the matter back to the Tribunal to consider afresh assessment of duty after consid-ering the Notifications issued from time to time.
II. Tribunal :
3. Banking and Financial Services : Pre-closure charges :
Indusind Bank v. Commissioner of Service Tax, Chennai 2010 (17) STR 565 (Tri.-Chennai)
The assessee did not pay service tax on pre-closure charges treating this as charges for loss of interest.
As per the Revenue, in a similar case, in appeal No. S/152/08, the Tribunal had ordered pre-deposit of 50% of the tax amount. Relying on the case of GE Money Financial Services Ltd. CST, Chennai 2009 (15) STR 722 (Tribunal), it was held that since the asses-see had not furnished the details pertaining to pre-closure charges to the Department till the assessee was audited by the Department, the invocation of longer period was justified. Also held that the pre-closure charges could not be equated with interest and therefore pre-deposit of 50% of the liability was ordered.
4.(a) CENVAT Credit : Whether input service is required to be reversed on removal of inputs :
J. S. Khalsa Steels (P) Ltd. v. CCE, Chandigarh 2010 (17) STR 517 (Tri.-Del.)
The assessee a manufacturer was also registered under the category of GTA. The assessee claimed CENVAT on the inputs, capital goods and input services. The assessee reversed the CENVAT credit on inputs and capital goods in terms of Rule 3(5) on clearance of the inputs.
The Revenue issued a SCN for non-reversal of credit on input services. The original authority and the Commissioner (Appeals) upheld the demand.
It was contended by the appellant that Rule 3(5) provides for reversal of credit on capital goods or inputs and not for input services. It was also submit-ted that the Rule 2 defines input, input services and capital goods separately. Reliance was placed on the decision in the case of Chitrakoot Steel & Power Pvt. Ltd. v. CCE, Chennai (2008) 10 STR 118.
The Tribunal concurred with the appellant and set aside the order and held that no provision for rever-sal of input service existed in the law.
b) Input services : Credit not to be restricted to ‘manufacture’ alone :
Jaypee Rewa Plant v. CCE, Bhopal 2010 (17) STR 519 (Tri.-Del.)
The assessee availed CENVAT credit on the invoices issued by the input distributor. The Revenue denied CENVAT credit on the services like rent-a-cab service, courier service, air travel agent service, maintenance and repair service and telephone service on the ground that no evidence was submitted to show that the said services were utilised for the manufacture of the final product. It was alleged in the SCN that the input services have been taken in or in relation to the handling of marketing of goods after the place of removal and hence not admissible.
Placing reliance on the decisions of the Larger Bench in the case of ABB Ltd. v. CCE & ST, Bangalore 2009 STR 468 (Tri.-LB) and also CCE Mumbai v. GTC Industries Ltd., 2008 (12) STR 468 (Tri.-LB) it was held that input service credit cannot be restricted only in relation to the manufacture and their clearance from the place of removal. Hence the matter was remanded to original authority to allow the credit, subject to the input services being used in relation to the business activities and in the light of the Larger Bench decisions.
c) Documents for claiming credit :
CCE, Vapi v. ITW India Ltd., 2010 (17) STR 587 (Tri.-Ahmd.)
The assessee claimed CENVAT credit on input services including CENVAT on mobile bills. The Revenue contended that the invoices which captured the address of the centralised registered office at Silvassa, was improper document for claiming credit. Further the credit was considered not allowable on the mobile phones.
The Tribunal stated that there was no dispute that the input services received were utilised by the respondent and therefore the benefit could not be denied on the ground that the invoices bear the name and address of the head office or any branch. Reliance was placed on the case of Electro Steel Castings v. CCE, Calcutta 2001 (136) ELT 929 (Tri.-Kolkata).
As regards the credit on the mobile phones, the Tribunal relied on the judgment pronounced in the case of Indian Rayon Industries Ltd. v. CCE, 2006 (4) STR 79 and CCE v. Excel Corp Care Ltd., 2008 (12) STR 436 (Guj.) and confirmed the Commissioner (Appeals)’ order.
5. CHA Services & Port Services :
Aspinwall & Co. Ltd. v. Commissioner of Central Excise, Cochin 2010 (17) STR 496 (Tri.-Bang.)
The demand of service tax was confirmed under port services and CHA services. Further, as regards CHA services, the order stated that the assessee was given a contract indicating agency commission separately and hence the assessee would not be entitled to claim the benefit provided by the Board’s Circular No. 843/1/17-TRU; dated 6-6-1997. However, the Tribunal found that the assessee prima facie discharged obligation of tax and the amount other than commission was towards reimbursable expenses and in identical issue of the very assessee, this Bench has granted waiver of pre-deposit of the disputed amounts.
In the case of port charges, the issue was squarely in favour of the assessee as held in the case of Kinship Services Pvt. Ltd. v. CCE, Cochin 2008 (10) STR 331 (Tri-Bang) and also in assessee’s own case as decided by the Bench in 2009 (15) STR 466 (Tri.-Bang.).
Considering that prima facie case in favour of the appellant was made out, waiver was granted.
6. Pre-deposit dispensed with for case on merits :
Aster Teleservices Pvt. Ltd. v. Commr. of Cus. & C. Ex., Hyderabad 2010 (17) STR 584 (Tri.-Bang.)
The assessee was rendering the following services :
a) Erection of telecommunication tower
b) Construction of petrol pumps, industrial buildings
c) Erection and painting of telecommunication towers
d) Erection and installation of telecom equipments (subcontractor)
e) Erection of railway signaling system (railways)
The Revenue demanded service tax on activities mentioned in (a), (d) and (e) under the category of erection and commissioning. According to the Revenue the activities could not be considered as works contract as the entire material was supplied by the principal. Plea was made by the assessee to grant stay till the matter pending before the Larger Bench could be decided. They further submitted that while determining the liability, the adjudicating authority considered the invoiced amount instead of actual receipts.
The Tribunal observed that the assessee contested the liability on the ground that the activity was works contract. Considering that the decision was pending before the Larger Bench, and further that the assessee had substantiated their claim by producing sales tax returns and they had deposited about 25% of the service tax liability, the deposit was held sufficient and waiver was granted for the balance.
7.(a) Penalty : U/s.78 : Whether non-filing and non-payment necessarily indicate suppression ?
Commissioner of Central Excise, Surat v. Star Crane Service, 2010 (17) STR 576 (Tri.-Ahmd.)
The Commissioner (Appeals) reduced the penalty levied u/s.78 of the Finance Act, 1994. The Appellate Authority stated in its order that neither the show-cause notice made any allegation of existence of any suppressions, mismanagement, etc. with the intention to evade any payment of duty nor did the adjudicating authority recorded any such finding. Further the Commissioner (Appeals) also observed that the quantum of penalty could not exceed the amount of liability.
The Revenue contended that the assessee failed to apply for registration, pay service tax and failed to file return and this has to be held as suppression on the part of the assessee.
The Tribunal stated that in a number of cases it is held that non-application for registration does not construe suppression with an intent to evade duty in the light of fast-changing service tax law. The Revenue did not refer to any evidence of non-payment of tax due to any mala fide intention. Hence the order reducing penalty was good in law.
b) Bona fide reasons : Penalty not leviable :
Bureau of Indian Standards v. Commissioner of Custom and Central Excise, Nodia 2010 (17) STR 527 (Tri.-Delhi)
The assessee is a national standard body under the administrative control of the Ministry of Consumer Affairs and availing benefit under the Income-tax Act as charitable institution. The assessee’s training programme for development and implementation of quality environment, occupational health and safety, etc. on payment of fees was treated as commercial coaching & training by the Revenue and service tax, interest, penalty, etc. were demanded.
The assessee took up the issue with its Ministry and was advised to pay service tax with interest.
The Tribunal held that the facts and circumstances of the case indicated that the cause was reason-able for their failure to pay service tax undertaken by them and in absence of any intention to evade service tax, it is a fit case for invoking the provision of S. 80 of the Finance Act, 1994.
c) Bona fide reasons :
Adani Enterprises Ltd. v. Commissioner of Service Tax, Ahmedabad 2010 (17) STR 457 (Tri.-Ahmd.)
Penalty was imposed on the appellant receiving GTA services for several payments made delayedly. The reason for delay was explained as occurred on account of operational difficulty in implementation of new SAP software. The appellant paid interest of its own volition and several times made excess payment rather than short on account of software difficulty. The appellant relied on the decisions of C. Ahead Info. Technologies India Pvt. Ltd. v. CCE (A), Bangalore 2009 (14) STR 803 (Tri.-Bang.) and Santhi Casting Works v. CCE, Coimbatore, 2009 (15) STR 219 (Tri.-Chennai) as well as on the Board Circular No. 341/18/2004-TRU (Pt.), dated Dec 17, 2004 wherein the Department was directed not to impose penalty for procedural lapses in respect of GTA services till 31-12-2005. It also stated that no penalty would be levied unless default was on account of deliberate fraud, collusion, suppression, etc. Further the action of payment of service tax as a service recipient although they were not liable to pay it prior to 18-4-2006 indicated its bona fides. Further, the assessee contended that they were covered u/s.73 and not u/s.76 of the Act.
The Revenue’s contention was that the delay was very high as compared to the excess payment, as it ranged from 20 days to 166 days which was indicative of other reasons than mere software problem and that the SCN imposed penalty u/s.76 and u/s.73 was not invoked at all.
The Tribunal set aside the case holding that the assessee’s case was fit for waiver of penalty u/s.80 of the Act.
d) In absence of suppression, penalty u/s.78 not leviable :
Sahara Power Products v. CCE, Mangalore 2010 (17) STR 463 (Tri.-Bang.)
The assessee was rendering repair and maintenance services of faulty distributor transformers of different capacities to Mangalore Electricity Supply. The Revenue issued a SCN as the assessee was not registered and also did not pay service tax. The Revenue demanded service tax from 1-7-2003 to 31-3-2006 invoking longer period of limitation along with interest and penalty u/s.76, u/s. 77 and u/s.78 of the Act. In response to the assessee’s appeal, the Commissioner (Appeals) remanded the matter with certain directions. The adjudicating authority in the de novo order confirmed the service tax liability, interest and penalty u/s.76, u/s.77 and u/s.78. In the second round of appeal, the Commissioner (Appeals) confirmed service tax along with interest and penalty u/s.76, u/s.77 and u/s.78 although in an earlier order, the Commissioner (Appeals) did not confirm any existence of suppression.
The Tribunal held that for the defaults of non-registration and non-payment of tax, penalty u/s. 76 and u/s.77 is leviable. However, the assessee paid service tax with interest without contesting and the Commissioner (Appeals) in his earlier order levied service tax from 1-6-2005 onwards, thus indicating non-invoking of longer period of limitation and non-existence of fraud or suppression, no penalty was leviable u/s.78 of the Act.
8. Rebate : Export of Services :
Dell International Services India P. Ltd. v. CCE, Banga-lore 2010 (17) STR 540 (Tri.-Bang.)
The assessee, a 100% EOU call centre filed five rebate claims which were rejected primarily on the ground that they did not export taxable service and input services were not used for exported services. In assessee’s own case, earlier the Assistant Commissioner on detailed scrutiny found that services were taxable and this fact was not disputed. Similarly, in another claim of the assessee, the Commissioner (Appeals) held that the assessee provided taxable services. In case when an issue is settled between the parties, the same cannot be argued again by the Department. Reliance was placed on the decision of the Apex Court in the case of Suptd. of Central Excise v. D.C.I. Pharmaceuticals Pvt. Ltd., 2005 (181) ELT 189 SC.
In order to determine whether the assessee was rendering business auxiliary services or the services rendered by the assessee were excluded from the definition of business auxiliary services i.e., information technology services, the cases of CCE, Hyderabad–IV v. M/s. Deloitte Tax Service (I) Pvt. Ltd., 2008 STR 266 (Tri.-Bang.) and Circular No. DOF No. 334/1/2008-TRU, dated 29-2-2008 were relied upon.
To refute the contention of the Department that the services exported were not taxable services but exempt services and hence the rules of export were not applicable, it was submitted that Rule 3 of the Export Rules applied to taxable services. In other words, there was no restriction on the exempted services from being eligible for benefit under the Export of Rules, 2005.
For the status of services as input services, decision of CCE, Mumbai-V v. M/s. GTC Industries Ltd., 2008 STR 468 (Tri-LB) among others was relied upon, which held that CENVAT was allowable on input services utilised for business.
It was accordingly held that the conditions under the Notification 12/2005 were satisfied and rebate was allowed.
9.(a) Valuation : Inclusion of amount declared to Income-tax Department :
CCE, Chandigarh. v. Bindra Tent Service, 2010 (17) STR 470 (Tri.-Del.)
The assessee, a pandal and shamiana keeper pursuant to an Income-tax Department survey, deposited certain amounts, based on which, the Revenue demanded service tax on the amount deposited contending that the surrender of monies without explaining the source implied that the amounts related to the taxable services and the burden of proof to prove contrary was with the assessee.
The assessee pleaded that the amount deposited pertained accumulation in the previous six years and not of the particular year in question. In order to compute the undisclosed income only, it was taken as income in that particular year by the IT Department.
The Commissioner (Appeals) in his order placed reliance on the judgment in the case of Kipps Education Centre, Bhatinda v. CCE, Chandigarh wherein it was held that the income voluntarily disclosed before the Income-tax authorities could not be added to the taxable value merely based on presumption without evidence. The burden to prove evasion lay on the Department. Since no inquiry was conducted by the Department as to the assessee’s claim that monies deposited were of earlier period, no tax could be levied and accordingly, cross objections were disposed of.
b) Club or Association Service : Membership deposit :
Adarsh Realty & Hotel Pvt. Ltd. v. Commr. of S. T. Bangalore, 2010 (17) STR 569 (Tri.-Bang.)
The Revenue demanded service tax under the Club or Association Services. The appellant paid service tax on the annual subscription of the members, health club and spa services, guest charges, banquet halls, laundry service, internet service and travel desk except on membership deposit and service tax was demanded on the entire revenue streams. They also deposited a sum of Rs.12,44,722, pursuant to the order of the Adjudicating Authority pertaining to membership deposit in dispute.
The Tribunal held that there being no dispute over other revenue streams, whether membership deposit is refundable or not, shall be considered at the time of the final disposal and since the assessee has deposited an amount disputed under the membership services, the pre-deposit of balance amount was waived and recovery was stayed.
c) Simultaneous availment of CENVAT with abatement :
CCE, Vadodara v. Ram Krishna Travels Pvt. Ltd., 2010 (17) STR 487 (Tri.-Ahmd.)
The assessee availed abatement under Notification No. 1/06-S.T. and CENVAT credit simultaneously. The Revenue demanded service tax due to non-availability of benefit of abatement. The assessee subsequently reversed the credit so availed.
The Commissioner (Appeals) by taking note of the judgment of the Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. v. CCE, 1996 (81) ELT 422 (All) and the High Court’s order in the case of Hello Minerals Water (P) Ltd. v. UOI, 2004 (174) ELT 422, held in favour of the assessee. The Tribunal found no infirmity in the order of the Commissioner (Appeals) as the assessee had admittedly reversed the credit.
