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Category: Indirect Taxes

Construction services — Construction completed before the introduction of Service tax on such services — However, completion certificate obtained by the appellant after the introduction of the levy — Held, it is a very small part of the contract and for that reason Service tax cannot be demanded.

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42. (2012) 26 STR 367 (Tri.-Del.) Ashokumar Jain v. CCE, Indore.

Construction services — Construction completed before the introduction of Service tax on such services — However, completion certificate obtained by the appellant after the introduction of the levy — Held, it is a very small part of the contract and for that reason Service tax cannot be demanded.


Facts:

The appellant was a construction service provider (a civil contractor). The appellant had undertaken a works contract of constructing 10 flats prior to levy of Service tax. However, the payment was realised post levy of Service tax on construction services. The Department levied Service tax on the amount received post the introduction of the levy by the appellant.

Held:

The construction was completed long before Service tax was imposed on construction services. Even if the procuring completion certificate was the responsibility of the appellant, it was a very small part of the contract. For this reason, Service tax could not be levied.

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Penalty — Service tax registration not obtained and Service tax not paid — However, the details of commission paid available in the balance sheet — The details were submitted as soon as asked by the Department — Substantial portion of Service tax paid — Nonpayment not considered as wilful — Penalty set aside.

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41. (2012) 26 STR 359 (Tri.-Del.) DCM Textiles v. CCE, Gurgaon.

Penalty — Service tax registration not obtained and Service tax not paid — However, the details of commission paid available in the balance sheet — The details were submitted as soon as asked by the Department — Substantial portion of Service tax paid — Non-payment not considered as wilful — Penalty set aside.


Facts:

The appellant a manufacturer of cotton yarn, for procuring export orders, paid commission to various agents located in different countries. No Service tax was paid on the same under reverse charge. The Department levied penalties along with tax and interest. The appellant pleaded that non-payment of taxes was due to bona fide belief that services rendered by foreign agents are not taxable within India. The Commissioner (Appeals) upheld the levy of penalty.

Held:

To levy penalty u/s.78, it is necessary to prove the mala fide intention of the assessee. In the present case, the appellant disclosed all the relevant information in the balance sheet. Moreover, all the requisite details were provided on being asked by the Department. Relying on Cosmic Dye Chemical 75 ELT 721 (SC), the Tribunal held that the appellant had disclosed all the information and therefore, penalty u/s.78 could not be imposed.

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Cenvat credit — Service tax on group medical insurance policy — Mandatory requirement — Held, though a welfare measure, is in relation to business as defined in the definition of ‘input service’ — Eligible as credit.

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40. (2012) 26 STR 383 (Kar.) CCE, LTU, Bangalore v. Micro Labs Ltd.

Cenvat credit — Service tax on group medical insurance policy — Mandatory requirement — Held, though a welfare measure, is in relation to business as defined in the definition of ‘input service’ — Eligible as credit.


Facts:

The respondent claimed credit of Service tax paid on group medical insurance. It was mandatory on the part of the respondent u/s.38 of the Employees State Insurance Act, 1948. The credit was denied on the ground that insurance service was not specified in the definition of ‘input service’.

Held:

 Merely because the service is not specified in the definition, credit cannot be denied. Service tax on all those services which have been utilised by the assessee directly or indirectly in or in relation to the manufacture of the final products is eligible as CENVAT credit. Employee Mediclaim Insurance though a welfare measure, is a statutory obligation which the assessee needs to obey. CENVAT credit admissible.

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VAT on Builders and Developers

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Introduction

The historical background of works contract is very interesting. In a landmark judgment in the case of Gannon Dunkerley & Co. (9 STC 353) the Supreme Court held that it is the transaction of ‘sale’ within the meaning of the Sale of Goods Act, which can be covered by Sales tax legislations. It was held that the transactions of sale, which are completed by delivery, are sale transactions as per the Sale of Goods Act and such transactions can only be taxable under sales tax laws. Where there is a composite contract, like supply of materials and application of labour, it becomes a works contract transaction and cannot be covered by Sales tax legislations. After the above judgment, for number of years, the transactions of works contracts remained outside the scope of Sales tax legislations. It is in the year 1983, the Constitution was amended (46th Amendment), whereby, for enabling levy of Sales tax, deemed sale category was inserted. This was done by insertion of clause (29A) in Article 366 of the Constitution of India. One of such deemed sales category is ‘works contract’ transaction.

After getting powers to levy Sales tax on works contract transactions, States including Maharashtra made legislations for levy of Sales tax on works contract transactions. In Maharashtra, there was a separate Maharashtra Works Contract Act, 1989. Under the above Act, an issue arose, as to whether tax can be attracted on builders & developers, who come up with their own projects and while the construction is in progress, enters into agreement for sale of premises. In the DDQs issued at that time, it was held that such agreements cannot be liable under the Works Contract Act. Reference can be made to the DDQ in case of Unity Developer & Paranjape Builders (DDQ 1188/C/40/ Adm-12, dated 10-3-1988). It was held that there is no employer-contractor relationship between buyer of premises and builder. G. G. Goyal Chartered Accountant C. B. Thakar Advocate VAT Similar position is also repeated in DDQ in the case of M/s. Rehab Housing Pvt. Ltd. & Larsen & Toubro Ltd. (JV) (WC-2003/ DDQ-11/Adm-12/B-276, dated 28-6-2004). In this DDQ, the issue was about constructing tenements for contractee, where price was composite for land and construction. It was held that this is a contract for immoveable property and not covered by the Works Contract Act.

Change in situation

From 1-4-2005, the Works Contract Act is merged into the MVAT Act, 2002 and works contract transactions are covered by the said MVAT Act, 2002. However, still the above situation prevailed and there was no attempt to levy tax on builders & developers. However, in 2005, the Supreme Court delivered judgment in case of K. Raheja Construction (141 STC 298) (SC). In this case, noting that there is separate value for land and separate value for construction, the Supreme Court held the developer as liable to works contract. After the judgment in the case of K. Raheja Construction (141 STC 298) (SC), the VAT authorities held a view that ‘Under Construction Contracts’ are liable to VAT as works contract. The definition of works contract was introduced in the MVAT Act, 2002 on 20-6-2006. Thereafter, the Commissioner of Sales Tax issued Circular 12T of 2007, dated 7-2-2007 explaining that builders & developers, coming up with their own project but entering into agreements for sale of premises, when the construction is under progress, will be works contract transactions and accordingly liability as works contract will be required to be discharged under the MVAT Act, 2002. It was further explained that if the agreement is after completion of construction, then such agreements will not be covered.

In other words, ‘under construction contracts/ agreements’ were stated to be taxable under the MVAT Act, 2002.

 Matter before Bombay High Court After the above development, writ petitions were filed before the Bombay High Court challenging the above interpretation and proposed levy. The High Court has recently decided the said controversy by way of judgment in the case of the Maharashtra Chamber of Housing Industry & Ors. (51 VST 168). The short facts and gist of arguments before the High Court can be noted as under: On behalf of petitioners (a) The amendment in definition of ‘sale’ is unconstitutional, if it is contemplating to levy tax on immovable property. (b) It was shown that the provisions refer to conveyance of land or interest in land, which means immovable property. It was also argued that in works contract the property should pass while executing the contract and not after completion. In case of premises, property passes after construction and conveyance and hence it is a sale of immovable property and not execution of works contract. (c) The works contract contemplates two elements i.e., labour and materials. If third element like land is involved, there is no works contract under Sales tax laws. (d) It was argued that there is no transfer of property to individual buyer of premises, but it is transferred to society by conveyance. Under the above circumstances, no works contract for individual buyers. Provisions of the Maharashtra Ownership Flats (Regulations of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA) and Model Agreement thereunder, were also referred to. (e) Unlike in the case of K. Raheja (cited supra), in case of agreement under MOFA, there is no separate price for land/construction and hence transaction cannot amount to works contract. (f) Under the MVAT Rules, 2005, there is Rule 58(1A) to grant deduction towards cost of land.

However, deduction is restricted to 70% of contract value. It was argued to be unconstitutional, as, if land value is exceeding 70%, it will amount to levy of tax on land value, which is not permissible.

 On behalf of Government

(a) There is no restriction that if land is involved, the State cannot isolate sale of goods from such contract.

(b) There can be various species of contract and ‘under construction agreement for premises’ is one such specie.

(c) The main argument of the Government was that as per the MOFA Act and Model agreement, buyer gets protection from various aspects like builder cannot change plan, no mortgage of land, etc. Therefore, citing stamp duty judgments, it was argued that construction, after entering into agreement, till completion, will amount to works contract.

(d) Rule 58(1A) is only for measurement of tax and hence not unconstitutional.

 Judgment of High Court

The High Court, after considering the above arguments, held that under construction contract is works contract and VAT can be attracted on the same. The main thrust of judgment is that by making agreement under MOFA, buyer gets some interest in the said flat/premises. The Construction thereafter is therefore works contract. The reasoning of the High Court can be noted as under:

“29. In enacting the provisions of the MOFA, the State Legislature was constrained to in-tervene, in order to protect purchasers from the abuses and malpractices which had arisen in the course of the promotion of and in the construction, sale, management and transfer of flats on ownership basis. The State Legislature has imposed norms of disclosure upon promoters. The Act imposes statutory obligations. The manner in which payments are to be made is structured by the Legislature. As a result of the statutory provisions, an agreement which is governed by the MOFA is not an agreement simplicitor involving an ordinary contract under which a flat purchaser has agreed to take a flat from a developer, but is a contract which is impressed with statutory rights and obligations. The Act imposes restrictions upon a developer in carrying out alterations or additions once plans are disclosed, without the consent of the flat purchaser. Once an agreement for sale is executed, the promoter is restrained from creating a mortgage or charge upon the flat or in the land, without the consent of the purchaser. The Act contains a specific stipulation that if a mortgage or charge is created without consent of purchasers, it shall not affect the right and interest of such persons. There is hence a statutory recognition of the right and interest created in favour of the purchaser upon the execution of a MOFA agreement.

Having regard to this statutory scheme, it is not possible to accept the submission that a contract involving an agreement to sell a flat within the purview of the MOFA is an agreement for sale of immovable property simplicitor. The agreement is impressed with obligations which are cast upon the promoter by the Legislature and with the rights which the law confers upon flat purchasers.”

Holding the above view, the High Court held that ‘Under Construction Contract/Agreements’ will be covered under the MVAT Act, 2002.

Conclusion

Therefore, as on today the State can levy tax on under construction agreements. However, matter is subject to the Supreme Court. It can be noted here that similar controversy in relation to the Karnataka State is already before the larger Bench of the Supreme Court in the case of Larsen & Toubro Limited and Another v. State of Karnataka and Another, (17 VST 460) (SC). Therefore, the ultimate fate will depend upon the Supreme Court judgment.

CONCEPT OF MUTUALITY

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Relevance under Service tax

Though
the concept of ‘mutuality’ has been a subject-matter of extensive
judicial considerations under the Income tax Act and Sales tax laws, it
has been tested judicially to a very limited extent under Service tax.

However,
it assumed significance in the context of Club or Association Service,
the category introduced w.e.f. June 16, 2005, more particularly in the
context of co-operative societies, trade associations and clubs.

The
following Explanation was inserted at the end of section 65(105) of the
Finance Act, 1994 (Act) w.e.f. May 01, 2006: “For the purpose of this
section, taxable service includes any taxable service provided or to be
provided by any unincorporated association or body of persons to a
member thereof, for cash, deferred payment or any other valuable
consideration.” Attention is particularly invited to the following
Explanation inserted to newly introduced section 65B(44) of the Act
which now defines ‘service’ effective from July 01, 2012: “
…………………….

Explanation 2 — For the purpose of
this Chapter, — (a) An unincorporated association or a body of persons,
as the case may be, and a member thereof shall be treated as distinct
persons. ……………”

General concept

It is
widely known that no person can make a profit out of himself. The old
adage that a penny saved is a penny earned may be a lesson in household
economics, but not for tax purposes, since money saved cannot be treated
as taxable income. It is this principle, which is extended to a group
of persons in respect of dealings among themselves. This was set out by
the House of Lords in Styles v. New York Life Insurance Co., (1889) 2 TC
460 (HL). It was clarified by the Privy Council in English and Scottish
Joint Co-operative Wholesale Society Ltd. v. Commissioner of
Agricultural Income-tax, (1948) 16 ITR 270 (PC), that mutuality
principle will have application only if there is identity of interest as
between contributors and beneficiaries. It was the lack of such a
substantial identity between the participants, with depositor
shareholders forming a class distinct from the borrowing beneficiaries,
that the principle of mutuality was not accepted for tax purposes for a
Nidhi Company (a mutual benefit society recognised u/s.620A of the
Companies Act, 1956) in CIT v. Kumbakonam Mutual Benefit Fund Ltd.,
(1964) 53 ITR 241 (SC).

Distinction between Members’ Club/Association and Proprietary Club/Association

(i)
The concept of mutuality and distinction between ‘Members’ Clubs’ and
‘Proprietary Clubs’ has been discussed in detail in a 6-Member Supreme
Court Ruling viz. Joint CTO v. Young Men’s Indian Association, (1970) 26
STC 241 (SC). (‘YMIA’) The relevant extract of discussion is set out
hereafter for reference.

If a members’ club, even though a
distinct legal entity, acts only as an agent for its members in the
matter of supply of various preparations and articles to them, no sale
would be involved as the element of transfer would be completely absent.
Members are joint owners of all the club properties. Proprietary clubs
stand on a different footing. The members are not owners of or
interested in the property of the club. To show the difference of
characteristics between Members’ Club and Proprietary Club, the Supreme
Court held that where every member is a shareholder and every
shareholder is a member, then the same would be called a Members’ Club.

In
a Members’ Club what is essential is that the holding of the property
by the agent or trustee must be holding for and on behalf of and not a
holding antagonistic to the members of the club. (ii) In CIT v. Bankipur
Club Ltd., (1997) 226 ITR 97 (SC), it was held by the Supreme Court
that there must be complete identity between contributors and
participators. If this requirement is fulfilled, it is immaterial, what
particular form the association takes. Trading between persons
associating together in this way does not give rise to profits which are
chargeable to tax. Facilities were offered only as a matter of
convenience for the use of the members. (iii) It was further held in
Chelmsford Club v. CIT, (2000) 243 ITR 89 (SC) that the surplus from the
activities of a club is excluded from the levy of the income-tax.

Applicability to a co-operative society

Where
a co-operative society deals solely with its members, right to
recognition for exemption on grounds of mutuality has been recognised
under income-tax in the following High Court rulings:

  • CIT v. Apsara Co-operative Housing Society Ltd., (1993) 204 ITR 662 (Cal.);
  •  CIT v. Adarsh Co-operative Housing Society Ltd., (1995) 213 ITR 677 (Guj.) and;
  • Director of Income-Tax v. All India Oriental Bank of Commerce and Welfare Society, (2003) 130 Taxman 575 (Del.).

 Judicial considerations under Service tax

The
Service tax authorities had issued show-cause notices to various clubs
demanding Service tax under the service category ‘Mandap Keeper’ on the
ground that the clubs have allowed the members to hold parties for
social functions. Two of such clubs disputed the levy before the
Calcutta High Court viz.:

  • Dalhousie Institute v. AC, (2005) 180 ELT 18 (Cal.).
  •  Saturday
    Club Ltd. v. AC, (2005) 180 ELT 437 (Cal.). In Saturday Club’s case, a
    members’ club permitted occupation of club space by any member or his
    family members or his guest for a function by constructing a mandap.

On the principle of mutuality, there cannot be

(a) any sale to oneself,
(b) any service to oneself or
(c) any profit out of oneself.

Therefore,
the Calcutta High Court held that the same principle of mutuality would
apply to income-tax, Sales tax and Service tax in the following words:
“Income tax is applicable if there is an income. Sales tax is applicable
if there is a sale. Service tax is applicable if there is a service.
All three will be applicable in a case of transaction between two
parties.

Therefore, principally there should be existence of two
sides/entities for having transaction as against consideration. In a
members’ club there is no question of two sides. ‘members’ and ‘club’
both are the same entity. One may be called as principal while the other
may be called as agent, therefore, such transaction in between
themselves cannot be recorded as income, sale or service as per
applicability of the revenue tax of the country. Hence, I do not find it
is prudent to say that members’ club is liable to pay service tax in
allowing its members to use its space as ‘mandap’.”

While
quashing the proceedings, the High Court referred to the decisions in
the case of Chelmsford Club v. CIT, (2000) 243 ITR 89 (SC) & CIT v.
Bankipur Club Ltd., (1997) 226 ITR 97 (SC)

Principles laid down by the Calcutta High Court under Service tax

(a)
The principles laid down by the Calcutta High Court in Saturday Club
& Dalhousie Institute discussed above have been followed in a large
number of subsequently decided cases. Some of these are:

  • Sports Club of Gujarat Ltd. v. UOI, (2010) 20 STR 17 (Guj.)
  • Karnavati Club Ltd. v. UOI, (2010) 20 STR 169 (Guj.)
  •  CST v. Delhi Gymkhana Club Ltd., (2009) 18 STT 227 (CESTAT-New Delhi)
  •  Ahmedabad Management Association v. CST, (2009) 14 STR 171 (Tri.-Ahd.) and
  •  India International Centre v. CST, (2007) 7 STR 235 (Tri.-Delhi)
(b)In CST v. Delhi Gymkhana Club Ltd., (2009) 18 STT 227 (New Delhi-CESTAT) the Tribunal observed:

“using of facilities of club, cannot be said to be acting as its clients and hence, in respect of services provided to its members, a club would not be liable to pay Service tax in the category of club or association service.”

The Revenue’s appeal against the above ruling was dismissed by the Delhi High Court on technical grounds. It needs to be noted that, Explanation inserted at the end of section 65(105) of the Act w.e.f. May 01, 2006, has not been discussed in the aforesaid ruling.

Recent judgment in Ranchi Club Ltd. v. CCE & ST, (2012) 26 STR 401 (JHAR)

Background

A writ petition was preferred by Ranchi Club Limited for declaration that the Club was not covered under the Act and, therefore, was not liable to pay Service tax under ‘Mandap Keeper Service’ or under the ‘Club or Association Service’ categories and prayed for order of prohibition against Central Excise Division, Ranchi from enforcing any of the provisions of the Act.

Contention of the petitioner

Petitioner is a club which is a registered company under the Companies Act, 1956 and is giving service to its members but the club is formed on the principle of mutuality and, therefore, any transaction by the club with its member is not a transaction between two parties. When the club is dealing with its member, it is not a separate and distinct individual. It was submitted that in identical facts and circumstances, however, in the matter of imposition of sales tax, when the club was expressly included in the statutory definition of ‘dealer’ under the Madras General Sales Tax Act, 1959, so as to bring the club within the purview of taxing statute of the Madras Sales Tax, the Supreme Court, in YMIA case, considered the definition of the ‘dealer’ by which the club was declared as a ‘dealer’. The Court considered the definition of ‘sale’ as given in the Act of 1959 and Explanation-I appended to section 2(n), specifically declaring ‘sale’ or ‘supply or distribution of goods by a club’ to its members whether or not in the course of business to be a ‘deemed sale’ for the purpose of the said Act. In that situation, the Supreme Court considered the issue that when the club is rendering service or selling any commodity to its members for a consideration, whether that amounts to sale or not. The Supreme Court held that it is a mutuality which constitutes the club and, therefore, sale by a club to its members and its services rendered to the members, is not a sale by the club to its members. In sum and substance, the ratio is that for a transaction of sale, there must be two persons in view of this judgment as well as in view of the Full Bench judgment of this Court delivered in the petitioner’s own case i.e., Tax v. Ranchi Club Limited, (1992) 1 PLJR 252 (PAT) (FB) (‘Ranchi Club’). The Full Bench considering the identical issue in the matter of imposition of income-tax observed that no one can earn profit out of himself on the basis of principle of mutuality and held that income-tax cannot be imposed on the transaction of the club with its members.

With the help of these two judgments, it was submitted that the petitioner was a club and was rendering services to its members and the same principle of mutuality applied to the facts of the case in view of the reason that the language in the provisions of the Madras General Sales Tax Act, 1959 and the provisions under the Income-tax Act are pari materia with the provisions which are sought to be applied against the writ petitioner for levy of Service tax.

Contentions of the Department

The Department submitted that the sale has its own meaning and the service is entirely different transaction which cannot be equated with the sale in any manner. They relied upon the book ‘Principles of Statutory Interpretation’ by G. P. Singh, the then Chief Justice, M.P. High Court (3rd edition), wherein there is reference to a case wherein Bhagwati J observed that, for construction of fiscal statute and determination of liability of the subject to tax, one must refer to the strict letters of law. It was submitted that the statutory provisions are very clear which are sections 65(25a), 65(105)(zzze) as well as Explanation appended to section 65. It was also submitted that when the language of section is absolutely clear, then the meaning of the statute in fiscal matter should be given according to the language and words used in the section and cannot be interpreted on the basis of some ideology or some impressions or with the help of some other enactments. Each of the taxing statute may have its own definition and meaning and they are required to be given effect to, irrespective of the fact that meaning of the same word in different statute has been given differently. It was further submitted that the Supreme Court in the situation of imposition of Sales tax may have held that there cannot be sale by oneself to oneself and himself to himself, but the club can certainly render the service to its members and tax is on the service and the members are paying for the service to the club and, therefore, it is a service for consideration rendered by the club and is liable for tax.


Observations of the High Court

The question which was considered by the Supreme Court in YMIA case was that whether the supply of various preparations by each club to its members involves a transaction of sale within the meaning of the Sale of Goods Act, 1930. In para 15 of the judgement, the High Court quoted the Supreme Court as under:

“Thus in spite of the definition contained in section 2(n) read with Explanation 1 of the Act, if there is no transfer of property from one to another there is no sale which would be exigible to tax. If the club even though a distinct legal entity is only acting as an agent for its members in matter of supply of various preparations to them, no sale would be involved as the element of transfer would be completely absent. This position has been rightly accepted even in the previous decision of this Court”.

The Supreme Court held so after considering the English Law also and observed that the law in England has always been that members’ clubs to which category the clubs in the present case belong cannot be made subject to the provisions of the Licensing Acts concerning sale because the members are joint owners of all the club property including the excisable liquor. The supply of liquor to a member at a fixed price by the club cannot be regarded to be a sale. With regard to incorporated clubs a distinction has been drawn. Where such a club has all the characteristics of a members’ club consistent with its incorporation, that is to say, where every member is a shareholder and every shareholder is a member, no licence need to be taken if liquor is supplied only to the members. If some of the shareholders are not members or some of the members are not shareholders that would be the case of a Proprietary Club and would involve sale. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. The Supreme Court observed that the above view was accepted by various High Courts in India. The Supreme Court, relying upon other judgments held that members’ club is only structurally a company and it did not carry on trade or business so as to attract the corporation profit tax. Therefore, in spite of specific inclusion of the club in the definition of the dealer in the Madras General Sales Tax Act, 1959, the Supreme Court categorically held that , there cannot be transaction of transfer of property.

The Full Bench of the Patna High Court in the case of the petitioner itself (Ranchi Club case) after finding that the club was a limited company incorporated under the Indian Companies Act, considered various clauses of the main objects of the club and relying upon various judgments, observed as under:

    Therefore, by applying the principle of mutuality, members’ clubs always claim exemption in respect of surplus accruing to them out of the contributions received by the clubs from their members. But this principle cannot have any application in respect of surplus received from non-members. It is not difficult to conceive in case where one and the same concern may indulge in activities which are partly mutual and non-mutual. True, keeping in view the principle of mutuality, the surplus accruing to a members’ Club from the subscription charges received from its members cannot be said to be income within the meaning of the Act. But, if such receipts are from sources other than the members, then can it still be said that such receipts are not taxable in the hands of the club? The answer is obvious. No exemption can be claimed in respect of such receipts on the plea of mutuality. To illustrate, a members’ club may have income by way of interest, security, house property, capital gains and income from other sources. But such income cannot be said to be arising out of the surplus of the receipts from the members of the club. “

Conclusion by the High Court

“It is true that sale and service are two different and distinct transactions. The sale entails transfer of property, whereas in service, there is no transfer of property. However, the basic feature common in both transactions requires existence of the two parties; in the matter of sale, the seller and buyer, and in the matter of service, service provider and service receiver. Since the issue whether there are two persons or two legal entities in the activities of the Members’ Club has been already considered and decided by the Supreme Court as well as by the Full Bench of this Court in the cases referred above, therefore, this issue is no more res integra and issue is to be answered in favour of the writ petitioner and it can be held that in view of the mutuality and in view of the activities of the club, if club provides any service to its members, may be in any form including as mandap keeper, then it is not a service by one to another in the light of the decisions referred above as foundational facts of existence of two legal entities in such transaction is missing.” (para 18)

Taxability of mutual concerns (up to 30-6-2012)

    a) According to one school of thought, the scheme of Service tax envisages a contractual relationship between the service provider and service receiver. Under a service contract, money flows from the service receiver and service is rendered by the service provider. The Courts have held that relationship between a mutual association and its members is governed by the principle of mutuality and is not one between two different entities. When a facility or amenity is provided to the members, it is so done by the members to themselves through the medium of their agent, the association. There cannot be an independent commercial transaction between a principal and his agent. Therefore, the very scheme of service tax is not applicable to the relationship between the members’ association and its members. Hence, the club or association service category (introduced w.e.f. June 16, 2005) would not apply to mutual concerns.

The ruling of the Jharkhand High Court in Ranchi Club discussed above strongly supports this view and more importantly it has considered the Explanation inserted at the end of section 65(105) of the Act w.e.f. May 01, 2006 to nullify the Calcutta High Court rulings of Saturday Club (supra) and Dalhousie Institute (supra).

    b) According to another school of thought, the Calcutta High Court ruling in Saturday Club & Dalhousie Institute case discussed earlier was in the context of Mandap Keeper Services wherein the relevant taxable service definition u/s. 65(105) of the Act, the service recipient was specified as ‘Client’. However, under the club or association service category, the relevant taxable service definition u/s.65(105)(zzze) of the Act, the service recipient is specified as ‘members’.

The distinction made by the Government is reinforced, if one closely examines, the taxable services definitions of all the newly introduced taxable services through the Finance Act, 2005 which clearly demonstrates that in the context of club or association services ‘members’ have been specified as service recipients liable to tax. Hence the ratio of Saturday Club’s case would not apply in the context of mutual concerns like club, associations, etc. The aforesaid view is reinforced by the insertion of Explanation at the end of section 65 of the Act w.e.f. May 01, 2006.

    c) Though principle of mutuality is relevant, it would appear that taxability of mutual concerns under Service tax remains a highly contentious and litigative issue.

Taxability of mutual concerns under the ‘negative list’ based taxation of services (w.e.f. July 01, 2012)

The terminology employed in Explanation 2 inserted in section 65B(44) of the Act which defines ‘Service’ is identical to that employed in Explanation to section 65(105) of the Act (up to June 30, 2012). Hence, it would appear that, principles of mutuality upheld by the Calcutta High Court in Saturday Club and Dalhousie Institute and the Jharkhand High Court in Ranchi Club, would continue to be relevant.

Further, under Sales tax a constitutional amendment was carried out, to enable States to levy sales tax on sale of goods by a club or association to its members. The same has not been carried out for Service tax.

However, it needs to be expressly noted that the is-sue is likely to be subject of extensive litigations.

Further extension for filing half-yearly return —Order No. 1/2012 — Service Tax dated 9-1-2012.

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By this Order due date for submission of half yearly return for the period from April 2011 to September 2011, has been further extended from 6th January, 2012 to 20th January, 2012

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Further extension of last date for filing of e-return and e-refunds application — Trade Circular No. 2T of 2012, dated 24-1-2012.

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Due to non-availability of website from 27-12-2011 to 30-12-2011, due date for filing monthly return for the month of November 2011 and refund application in Form e-501 for the period from 1-4-2009 to 31-3-2010, earlier extended up to 31-12-2011 is further extended to 7-1-2012.

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(2011) 40 VST 240 (SC) Commissioner of Trade Tax, U.P. v. Varun Beverages Ltd.

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Exemption certificate — Fixed capital investment — Essential apparatus, equipment or components — For establishing and running factory — Bottles are essential for manufacturer of soft drinks — But not crates — Sections 4A and 4B of U.P. Trade Tax Act (15 of 1948).

Facts:
The dealer was engaged in manufacture and sale of soft drinks and beverages, and applied for an eligibility certificate u/s.4A of the U.P. Trade Tax Act, 1948, in relation to inclusion in fixed capital investments also of amounts invested towards purchase of bottles and crates. The Department filed appeal before Supreme Court against judgment of the High Court allowing writ petition filed by the dealer to include purchase of bottles and crates in fixed capital investment.

Held:
So far as bottles were concerned, they were an essential part of the components and equipment necessary for the running of the factory. Therefore the value of such investment would form part of the fixed capital investment and would be entitled to the exemption.

Whereas crates were used by the dealer only for the purpose of marketing, as such the value of crates would not form part of ‘fixed capital investment’ as defined u/s.4A of the U.P. Trade Tax Act, 1948.

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(2012) 25 STR 184 (SC) — Union of India v. IND-SWIFT Laboratories Ltd.

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The company, a manufacturer availed CENVAT credit on duty paid on material — Investigation indicated that CENVAT was taken on fake invoices — The company filed for settlement of proceedings — Paid entire duty/demand on wrongful availment. Consequently, appropriate interest liability under Rule 14 also was calculated by the revenue — The assessee contended that interest even if calculated cannot be from the date of availment of the credit but from the date of utilisation of the same — Held, No relief be given to the assessee — Interest be charged from the date of wrong availment — Orders passed by the Settlement Commission should not be intervened by High Court.

Facts:
The assessee-company was engaged in manufacture of bulk drugs, and availed CENVAT credit on the duty paid on inputs and capital goods. However, investigation conducted determined that such credits were availed on fake invoices and hence, duty was payable with interest. The duty was paid as directed by the settlement commission. However, the assessee objected to pay interest levied from the date of availment contending that interest if at all leviable, be levied from the date of utilisation. In short, interpretation of Rule 14 of the CENVAT Credit Rules, 2004 (Credit Rules) was the issue involved for determining the date from which the interest was leviable.

Held:
It was held that interest be levied from the date of availment of credit because once the credit is taken, the beneficiary is at liberty to utilise the same immediately thereafter, subject to rules. Also, it was held that the High Court had no authority to reject the order issued by the settlement commission and hence, the High Court should not have substituted its own opinion against the opinion of the Settlement Commission. As regards interpretation of Rule 14 of Credit Rules, the Apex Court observed that the High Court proceeded by reading down Rule 14 to interpret that interest cannot be claimed simply for the reason that CENVAT credit was wrongly taken, as such availment by itself does not create any liability of payment of excise duty. The Court further observed that it is not permissible to import provisions in a taxing statute so as to supply any assumed deficiency. Rules of reading down to be used for limited purpose of making particular provision workable and to bring it in harmony with other provisions of the statute. In the instant case, the attempt of the High Court is erroneous. The Revenue’s appeal was thus allowed.

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Exemption to small service providers — Notification No. 33/2012-ST, dated 20-6-2012.

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By this Notification, earlier Notification No. 6/2005-ST has been rescinded and exemption has been granted in relation to taxable services of aggregate value not exceeding ten lakh rupees in any financial year from the whole of service tax leviable thereon.

Further, the definition of ‘aggregate value’ is amended to mean the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year, but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under any other notification.

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Penalty — For not furnishing Vat Audit Report within prescribed time — Discretionary and not automatic — Failure to consider dealer’s explanation — Order set aside — Section 61(2) of The Maharashtra Value Added tax Act, 2002.

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Facts

The dealer could not file Vat Audit Report in time as such the penalty u/s.61(2) of the Act was levied by the Deputy Commissioner of Sales Tax without considering the explanation offered by the dealer for delay in filing the report and held that the penalty u/s.61 of the Act is automatic. Both the Tribunal and the Joint Commissioner of Sales Tax upheld the penalty order. The dealer filed appeal before the Bombay High Court against the order of the Tribunal.

Held

The Deputy Commissioner of Sales Tax had not furnished any reasons for rejecting explanation offered by the dealer while levying penalty and the Joint Commissioner of Sales Tax in appeals had proceeded on the wrong premise that the levy of penalty is automatic and that the reasons furnished by the dealer need not be considered at all. The Tribunal also seems to proceed on that basis. U/s.61(2) of the act penalty is attracted as soon as the wrongful act was committed, but that does not conclude the exercise of the discretion by the assessing authority. The levy of penalty is not automatic. The assessing authority is duty bound to consider the reasons which are furnished by the dealer and to inquire in to whether those reasons are genuine and bona fide. The Tribunal also dealt with reasons, but its order is based on conjecture. The High Court accordingly set aside the order of the Tribunal and remanded back to the assessing authority to pass fresh order and to consider the reasons furnished by the dealer while passing the order.

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Installation charges not recovered separately in case of sale and installation of solar systems — The Department levied service tax on notional basis — 33% of the total consideration — Held, Service tax applicable on installation portion even if not charged separately — Matter remanded back to ascertain the correct amount of the installation service based on the data sheet submitted by the assessee.

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Facts:

The appellant a manufacturer of solar water heater systems sold the same and the value also included the installation of such system at the site of the buyer. Central excise duty was not charged on the same in view of the exemption to solar systems. No separate consideration was charged in the invoice for installation. Simultaneously, the appellant was selling solar systems to distributors also who were charging for installation separately from the end-customers. The Revenue levied service tax on notional value of activity pertaining to installation on the basis of 33% of the invoice amount. The appellant argued that no service tax should be levied. Alternatively, the service tax if at all levied must be on actual service element pertaining to installation activity based on cost data provided by the appellant.

Held:

In view of the collection of installation charges separately by the distributors in case of sales through such distributors, it was held that service tax is applicable on the installation portion even if charges for the same have not been collected separately. The matter was remanded back to the adjudicating authority to quantify the amount of installation charges on which service tax can be levied, based on the data provided by the appellant.

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CENVAT credit — Courier services for sending documents, cheques, demand drafts and business enquiries — Held, eligible for CENVAT credit.

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Facts:

CENVAT credit of service tax taken on courier services was denied and penalty was imposed.

Held:

The lower authorities had not considered the wide gamut of the definition of input service. In view of the wide gamut of the definition and the decisions of the Tribunal in cases of Cadila Healthcare, (2010) 17 STR 134 as well as Meghachem Industries, (2011) 23 STR 472, the Tribunal allowed the appeal of the assessee.

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Activity of retrofitting of CNG/LPG kits as authorised by Regional Transport Authority considered liable for service tax by Revenue — Paid service tax on receiving intimation through sales tax on same amount charged for kits fitted by them —Penalties set aside.

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Facts:

The appellant authorised by Regional Transport Authority retrofitted CNG/LPG engine kits. The Revenue took a view that this was liable for service tax as erection, commissioning and installation service. On being pointed out in August, 2008, the appellant obtained registration and paid the same in September 2008. This was done despite the fact that sales tax in the full value of kits was paid by the assessee and invoice did not show fitting charges separately. Four months later, a show-cause notice was issued proposing to levy penalty u/s.76, 77 and 78 of the Finance Act, 1994.

Held:

Considering the facts and circumstances wherein the assessee promptly paid service tax without contesting the liability on the ground of payment of VAT on full value established their bona fides. The case was considered fit one for which section 73(3) was applicable whereby no show-cause notice was required to be issued or section 80 could have been extended. Penalties were set aside.

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Obtained visa and passport for individuals — Matter covered under CBEC Circular — Appeal was allowed.

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Facts:

The appellant being a travel agent provided services of obtaining visa and passports for a fee/ service charge to individuals. The appellant pleaded that the matter was covered later by CBEC Circular No. 137/6/2011, dated 20-1-2011 which had clarified that these services do not fall under any category of taxable services.

Held:

The service was not taxable and the order was set aside.

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? Refund — Accumulated CENVAT credit — Not pertaining to the month of exports — Held, refund of credits pertaining to past periods can be allowed in subsequent months. ? Eligible documents — Input service invoices raised on head office — Held, credit can be allowed if the services received by the assessee. ? Ineligible documents — Photocopies of invoices, invoices not containing name of the assessee — Credit cannot be allowed. ? Eligible documents — Documents in the name of another entity but o<

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Facts:

The respondent was a 100% EOU engaged in the exports of silk fabrics. Most of their production was exported and therefore, the respondent was not able to utilise the accumulated credits and they filed refund claim for such credits under Rule 5 of the CENVAT Credit Rules, 2004 (CCR). The Department rejected the claim since the claim pertained to credits for the input services which had not been used in goods actually exported, while relying on certain Tribunal decisions in Ace Techniks v. Commissioner, (2009) ELT 92 (T). Moreover, certain credit was denied on input service invoices which were raised on head office or where only photocopies of invoices were available or where the invoices were not in the name of the respondent. The respondent argued that in view of CBEC Circular dated 19-1-2010 and the respondent’s own case reported in (2010) 20 STR 219 (Tri.-Bang.), the credit pertaining to a period can be claimed in the subsequent period.

Held:

Quoting Para 3.3 of CBEC Circular dated 19-1-2010, the Tribunal held that there is no bar on refund for the credits pertaining to the input services availed in the previous period. It was also observed that the case of Ace Techniks cited by the Revenue was in relation to inputs and not input services and therefore, not applicable to this case. Regarding eligible documents the Tribunal held as under:

  • Input service invoices raised on head office — held, credit can be allowed if the services are received by the respondent and the respondent can satisfy the authorities that the services have been received by them.
  •  Photocopies of invoices, invoices not containing name of the assessee — held, such documents are not eligible documents.
  •  Documents in the name of another entity but on account of the assessee — held, credit cannot be denied on such invoices in view of the Tribunal’s decision in the case of the respondent’s own case reported in (2010) 20 STR 219 (Tri.-Bang.).

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2012 (27) STR 462 (Tri.-Del.) Ernst & Young Pvt. Ltd. vs. Commissioner of Service Tax, New Delhi

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Though compliance services were part of management responsibility, such services per se were not covered under the expression “in connection with management of any organisation” of management consultancy services.

Since the appellants relied on CBEC Circular, there was no suppression of facts and extended period of limitation could not be invoked.

Facts:
The appellants were engaged in providing services such as management consultancy, manpower recruitment, consulting engineer services etc. During the period from 2001-2002 to 2004-2005, the appellants also provided compliance services i.e. assistance in relation to complying with the regulation of RBI, Foreign Investment Promotion Board etc., filing application for import export code, returns under Income Tax Act, returns with the office of Registrar of Companies, sales tax returns etc. The Revenue contended that such compliance services were covered under the management consultancy services and hence the appellant had short paid the service tax for the above mentioned period. The appellants put forth the following arguments:

Management covers both strategic and operational level functioning and would include tasks such as planning, organising, staffing, directing, controlling and co-ordinating. He argues that the primary purpose of complying with rules and regulations of the country is only a responsibility of Managers and does not fall within the functions which are considered to be the core of management functions. They placed reliance on the letter no. V/DGST/21-26MC/9/99 dated 28th January, 1999 which clarified that activities in relation to complying with rules and regulations would not be covered under the ambit of management consultancy services and also on TRU letter F. no. 341/21/99-TRU dated 28th January, 1999 clarifying that practitioners providing assistance in relation to ESI and PF regulations, would not be covered under the expression “management consultant”. They also relied on CBEC circular no. 1/1/2001-ST dated 27th June, 2001, wherein it was clarified that if the agency’s role is limited to the compliance of such act or regulations and not governed by any contractual relationship with the advisee company, then such services will not be covered under the scope of ‘management consultant’.” They further placed reliance on the Hon’ble Tribunal’s decision in case of CCE, Chennai vs. Futura Polyesters Ltd. 2011 (24) STR 751 (Tri.-Chennai) ruling that such services (compliance services) shall not be taxable u/s. 65(105)(zr). The appellants in response to the revenue’s argument of meaning of management services relied on the Supreme Court’s decision in case of CCE vs. Parle Exports (P) Ltd. 1988 (38) ELT 741 (SC), that it is laid down by the Hon’ble Supreme Court that a taxing entry should be understood in the same way in which these are understood in the ordinary parlance.

The revenue on the other hand contended that without the compliance services, the receiver of service could not have carried out its managerial function and contended that the definition of “management consultancy services” was extremely broad to cover any service directly or indirectly provided in connection with the management of any organisation in any manner and the ‘inclusive’ part of the definition though was specific, did not restrict the scope of the ‘means’ part of the definition. Further, since the appellants had not included the said details in the service tax returns, a suppression was alleged and therefore justified invoking of extended period of limitation.

Held:
Though compliance with laws was part of the responsibilities of management, such responsibility per se would not bring any activity within the phrase “in connection with the management of any organisation” as already decided in and Futura Polyesters (supra) was being followed. The decision of Parle Exports (supra) as relied upon by respondents, specified that a taxing entry should be understood in its common parlance. CBEC circular should not have been ignored by the adjudicating authority, which stated that compliance services were not management consultancy services.

Since the appellants had relied on the CBEC circular during the relevant period, the demand was held as barred by limitation also. If the public acted relying on such circulars and still the charge of suppression is slapped on them, it can be the worst travesty of justice. So, there was no case for invoking suppression.

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Refund — Service tax paid subsequently found not payable due to threshold exemption — Refund denied on the ground that nothing was indicated about service tax exemption in the invoice — Held, refund cannot be denied.

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Facts:

In the given case, service tax was demanded from the appellant on the ground that the appellant had exceeded the limit provided for exemption. The appellant immediately paid service tax along with interest. Subsequently, it was discovered that the appellant was within the limits of threshold exemption and therefore the tax was not payable. Consequently, the appellant claimed refund. The claim was rejected by the Dept. on the ground that the fact of exemption was not mentioned in the invoice, and therefore, the value indicated in the invoice was inclusive of service tax element. The Department in support of its claim also stated that since service tax paid had been debited to Profit and Loss account, therefore it had to be held that service tax liability had been included in the value of services charged in the invoice.

 Held:

The Tribunal held that the view taken by the Department is not appropriate. How can the appellant mention the amount of tax when the appellant was exempt? Moreover, mere non-mention of service tax exemption on the invoice does not mean that the appellant has collected any amount of service tax. Also, the fact that service tax paid was booked as expenditure does not mean the appellant was in fault. The order rejecting the refund claim of the appellant was held to be non-sustainable.

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CENVAT credit availed on capital goods — Goods destroyed by fire after availment and utilisation of such credit — Insurance claim paid by the insurance authority covered central excise duty — Revenue sought to recover the CENVAT — Held, Reversal can be sought only if the availment irregular — Appeal dismissed.

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Facts:

The respondent bought certain capital goods on payment of excise duty on the same. The duty portion was claimed as CENVAT credit and thereafter, the same was utilised for the discharge of duty liability on goods cleared. Five years thereafter, the goods got destroyed in fire. The respondent purchased new capital goods and put forward claim to the insurance company in terms of the insurance policy subscribed by them. The insurance company reimbursed the cost of goods including the excise duty element on the same. The Revenue directed the assessee to reverse the CENVAT credit on the ground that the assessee had double benefit. The substantial questions of law were

(a) whether the assessee was eligible to claim credit on goods which were claimed to be destroyed in fire and for which the insurance company had compensated equivalent value of goods along with duty, and

 (b) whether the Tribunal’s order encouraged unjust enrichment.

Held:

Citing the judgment in case of CCE, Pune v. Dai Ichi Karkaria Ltd. reported in (1999) 112 ELT 353 (SC), the Court held that there is no provision in the rules which provides for the reversal of the credit by the Excise Authorities except where it has been irregularly taken. Merely because the insurance company paid the assessee the value of goods including the excise duty paid, that would not render the availment of the CENVAT credit wrong or irregular. The appeal of the Department was dismissed.

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(2012) 25 STR 78 (Tri-Mum.) — Indoworth (India) Ltd. v. Commissioner of Central Excise, Nagpur.

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Appellant engaged in manufacture — Exported such goods to various countries — Filed refund under port services — Refund was rejected on ground that service provider registered under Business Auxiliary Services — Held, Once service tax is paid, the same cannot be disputed — Revenue cannot withdraw the refund — Refund allowed.

Facts:
The appellant engaged in manufacture of various types of textile worsted yarn and also exported the said products to various countries. By seeking benefit under Notification 41/2007-ST, the appellant claimed refund of the service tax paid by them on various specified services used in relation to export of goods. The refund claim so filed was rejected on the ground that when tax is collected considering the services as port service, refund cannot be granted considering it otherwise.

Held:
It was held that once the service tax paid on the eligible specified services and used the same for export, verification of registration certificate would not be required. Hence, the Revenue cannot withdraw the refund and appeal was allowed with consequential relief.

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(2011) 25 STR 68 (Tri.-Del.) — Em Pee Motors v. Commissioner of Central Excise, Chandigarh.

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Em Pee Motors provided BAS services — Promoted vehicle loans provided by ICICI — Commission received for the same — Out of commission received, appellant distributed incentives to customers opting for loan (subventions). Books of account reflected total of receipts against which payment is shown — This procedure followed due to inconvenience caused to banks as then they would have to issue TDS certificates to every customer — Credit of total amount claimed by appellant — However, service tax paid only on amount net of subventions — Held — Procedure followed to pay less tax — Service tax payable on gross amount.

Facts:
The appellant acted as an agent for ICICI bank and provided BAS services by promoting vehicle loan given by ICICI bank. Bank paid commission for the same. Out of the said commission, the appellant gave incentives to the customers for opting for the said loan scheme; this incentive is known as subvention. The appellant paid service tax on the amount net of subvention. The appellant argued that banks directly paid the incentive to the customers and the appellant never received the same. They contended that it was unjustified to pay service tax on the amount they never received. At the same time, banks did not issue TDS certificates to the customers opting for loans, rather issued it to the appellant. As a consequence of which the appellant could claim credit of the total amount from the Income-tax authority and paid service tax on the amount net of subvention.

Held:
Mere fact that the appellant chose to make payment out of the gross receipts cannot alter the gross amount received by them. It was held that service tax has to be paid on the gross amount received and reflected in the books. Hence, the order of the lower authorities was upheld.
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No. VAT 1512/C.R. 46/Taxation-1, dated 31-5-2012.

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This Notification rescinds with effect from the 1st April 2012, the earlier Notification, No. VAT 1507/CR- 44/Taxation-1, dated the 6th December 2007.

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(2012) 25 STR 46 (Tri.-Ahmd.) — Parekh Plast (India) Pvt. Ltd. v. Commissioner of Central Excise, Vapi.

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CENVAT credit of the service tax on invoices raised in the name of head office — Head office not registered as input service distributor — Defect in invoices — Procedural defect — Totally curable and condonable — Denial not justified — Also demand barred by limitation — Appellant cannot be impeached alleging misstatement or suppression of fact when no column for the fact to be disclosed in ER 1 itself.

Facts:
The assessee engaged in manufacture of excisable goods availed CENVAT credit of Rs.5,43,200. The Revenue contended that invoices issued by the service provider were in the name of head office. Such availment of credit was held unjustified as head office was not registered as input service distributor. The authority also alleged suppression for the fact that the information was not disclosed in ER 1 Form in order and justified invocation of longer period of limitation.

Held:
It was held that since the law itself does not require the assessees to disclose the above facts, failure to disclose the same cannot be equated with any suppression or misstatement. Invoices issued by the service provider in the name of head office are eligible documents for the purpose of claiming credit.

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Notifications w.r.t. Schedule D: No. VAT 1511/C.R. 142(1)/Taxation-1, dated 16-5-2012. No. VAT 1511/C.R. 142(2)/Taxation-1, dated 16-5-2012. No. VAT 1511/C.R. 142(3)/Taxation-1, dated 16-5-2012

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While by the first Notification changes are effected in entries in Schedule D effective from 1-6-2012, by the second Notification, areas and periods covered under Entry No. 5 of Schedule D and by the third Notification, areas and periods covered under Entry No. 10 of Schedule D are notified. All the notifications are effective from 1-6-2012.

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(2012) 25 STR 39 (Tri.-Del.) — Bhootpurva Sainik Society v. Commissioner of Central Excise, & Sales Tax, Allahabad.

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Appellant an association of ex-servicemen — Registered under Societies Registration Act, 1860 — Engaged in welfare of ex-servicemen — E.g., assisting them in finding employment, etc. — Entered into an agreement with Bharat Sanchar Nigam Ltd. — Whereby monthly amount was paid by them for services of security guards — Revenue demanded service tax on the security agency services provided by appellant prior to 18-4-2006 — Old definition in force with term ‘commercial concern’ — Reference of various judgments considered — Held, Appellant not a commercial concern — Service tax not payable.

Facts:
The appellants were registered under the Societies Registration Act, 1860 acting for the welfare of ex-servicemen who were members of the society. They were engaged in various causes like helping ex-servicemen to get a job, assist them and make efforts to help families of deceased ex-servicemen, etc. For the said purpose, the society entered into an agreement with Bharat Sanchar Nigam Ltd. for the services of security guards. The Revenue issued a show-cause notice on 21-9-2004 demanding service tax of Rs.26,494 for the period April, 1999 to December, 2003. The appellants pleaded that the old definition of security agency services was applicable to them and not being a commercial concern they were not covered. However, as the term ‘commercial concern’ was not defined in the Finance Act, 1994 the Revenue applied the popular meaning of commercial concern. Decisions in Sikar Ex-Servicemen Welfare Co-op. Ltd., (2006) 4 STR 303 (Tri.) and BCCI v. CST, Mumbai (2007) 7 STR 384 (Tri.) were relied upon by the appellants and hence, it was contended that they cannot be referred to as a commercial concern.

Held:
It was held that the appellant did not carry any of its activities with an intention of earning profits, nor were they considered as commercial concern and hence, were not liable to pay service tax.

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(2012) 25 STR 36 (Tri.-Del.) — Hind Tele Links v. Commissioner of Central Excise, Jalandhar.

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Appellant providing promotion and marketing services to M/s. Bharti Cellular Ltd. — Taxable as BAS — Failed to pay service tax — Did not contest the demand and paid it as soon as it was brought to notice — Penalties imposed u/s.76, u/s.77 and u/s.78 for the non-compliance — Prayed for reduction in penalties imposed under different sections for the same offence — The option to deposit 25% of penalty within a period of 30 days granted — Penalty u/s.76 set aside.

Facts:
he appellant provided services relating to marketing and promotion to M/s. Bharti Cellular Ltd. taxable under the category of business auxiliary services. It was noted that the appellant did not contest the amount of service tax confirmed by the authority. However, the appellant prayed for reduction in the penalties imposed u/s.76, u/s.77 and u/s.78. Appellant pleaded for the option of payment of 25% of penalty within 30 days, which was not made available to the them before.

Held:
It was observed that penalties under two different sections for the same offence were not justified and hence, penalty u/s.76 was set aside. Penalty imposed u/s.78 was upheld with modification that only 25% of the amount to be deposited only if paid within 30 days from the receipt of the order. Lastly, penalty for non-filing of the return etc. u/s.77 was not interfered with.

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(2012) 25 STR 30 (Tri.-Delhi) — Agrim Associates Pvt. Ltd. v. Commissioner of Sales Tax, Delhi.

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Appellant engaged in provision of service classifiable as ‘Commercial or industrial construction service’ from time to time and availed benefit under Notifications No. 15/2004-ST and 1/2006-ST and availed abatement of 67% — Revenue of the opinion that the value of Free of Cost (FOC) materials should be included in the gross value before availing such abatement — Held that only value of materials supplied should be included and value of FOC material not to be included in gross value on which abatement of 67% is granted — Stay of pre-deposit granted.

Facts:
The appellant provided ‘Construction service’/ ‘Commercial or industrial construction service’ and availed benefit under Notification No. 15/2004-ST and Notification No. 1/2006-ST for respective period of time. The Revenue contested that appellant provided completing and finishing services and hence abatement under Notification 1/2006-ST could not be availed. Also, it was argued that in order to avail such abatement, the gross value of revenue should include Free of Cost (FOC) materials before availing abatement of 67%.

Held:
It was held that the appellant was eligible to claim exemption under the said Notification and a complete waiver of the demand before the appeal was allowed and a stay order was sustained on collection of all demands arising out of the order during the pendency of the appeal.

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(2012) 25 STR 24 (Tri.-Del.) — Fiitjee v. Commissioner of Sales Tax, Delhi.

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Valuation of study material for commercial training or coaching services — Appellant denied exemption claimed under Notification No. 12/2003 — Held that study material issued forms integral part of the coaching services — Notification No. 12/2003 relates to works contract — Commercial coaching cannot be brought under definition of works contract — Appellants were directed to make a pre-deposit of 13 lakh — Partial stay granted.

Facts:
The appellant provided commercial training or coaching services. Along with such services, a consideration for the study material issued to the enrolled students was also collected and claiming exemption under Notification No. 12/2003, no service tax was paid thereon. According to the Revenue, the study material is integral part of the coaching which becomes meaningful and complete only with the aid of such study material. They also pointed out the decision in Cerebral Learning Solutions Pvt. Ltd. v. CCE, (2009) 15 STR 343 (Tri.) wherein pre-deposit was ordered.

Held:
It was held that the issue of study material and the coaching services are inseparable. Also, no evidence brought to the notice of the authority to suggest that the study material could be sold as text books to the book sellers. At the same time holding that the exemption Notification relied upon by the appellant related to works contract and commercial coaching could not be called as works contract, the appellant was directed to make a pre-deposit of Rs.13 lakh.

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(2012) 25 STR 122 (P&H) — Punjab Ex- Servicemen Corporation v. Union of India.

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Appellant is a security agency service provider — Refused to pay tax on the ground that profit is not the motive behind the business – respondent disagreed and contended that service tax would be payable — Absence of profit motive was not a valid reason for non-payment.

Facts:
The appellant a statutory corporation under the provisions of the Punjab Ex-Servicemen Act, 1978 is providing Security Agency Service. Accordingly, the appellant contended that it was not liable to pay service tax as there was no profit motive to carry on the business. Further, since the notice was not sent within 1 year, dispute was also raised on limitation ground. The Revenue contended that service tax was payable as absence of profit motive is not a determinant factor for imposition of liability.

Held:
U/s. 65(94) service provider should be engaged in the business rendering specified service. There is no warrant for reading therein requirement of profit motive. Applicability of limitation law — Statutes of limitation are retrospective in so far as they apply to all legal proceedings brought after their operation for enforcing causes of action accrued earlier — But they neither have the effect of reviving a right of action which is already barred on the date of their coming into operation nor do they have the effect of extinguishing a right of action subsisting on that date — Assessee’s appeal is dismissed.

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No. VAT 1512/CR-61/Taxation-1, dated 1-6-2012.

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Act No. VIII has been gazetted on 25th April, 2012 and changes have been made in the MVAT Act vide Notification No. VAT-1512/CR-61, the Taxation-1. Consequential amendments are made in the MVAT Rules, 2005 by this Notification.

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(2012) 25 STR 16 (Kar.) — Essar Telecom Infrastructure Pvt. Ltd. v. Union of India.

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Appellant providing infrastructure services of erection and construction of towers to cellular telephone companies — Inclusive of operating and maintenance — Registered with service tax authority for the payment of service tax — Amounted to transfer of right to use the erected telecom network towers and other related equipments — VAT authority opined — The appellant liable to pay VAT as there is transfer of right to use the said goods — Mere fact that equipments are attached to earth in order to enable it to function does not detract the applicability of VAT — Treated as movable — Held appellant bona fide believed activity to be service — Paid service tax regularly — State directed to recover it through separate proceeding — VAT payable for subsequent period — No liability to pay penalty and interest.

Facts:
The petitioner was engaged in erecting and constructing tower sites and leased the same to various telecom operators such as BSNL, Airtel, and Vodafone, etc. According to the petitioner, the said structure was considered as immovable, as they are embedded in the earth and cannot be shifted without damage. Further, the act of dismantling the structure from the site would render them non-saleable. However, after the study of the agreement entered by them with various operators, the Revenue opined that there was a transfer of right to use the leased capacity and the consideration received by them was in the nature of monthly lease rentals.

Held:
It was held that the structure erected by the appellant was movable for the reason that on the expiry of the agreement or the termination of it, the same could be detached and fixed somewhere else. Having concluded that, it was held to attract VAT. However, the petitioner bona fide believed impugned activity to be service and paid service tax regularly on the same. In para 22 of the judgment, the Court held to the effect that upon the determination of VAT liability, the amount previously paid as service tax would be adjusted and it is for the State to seek recovery of the amount paid by the petitioner to the Central Government through a separate proceeding based on this judgment. However. No penalty or interest would be imposed.

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Notification w.r.t. Schedule A: No. VAT 1512/C.R. 62/Taxation-1, dated 30-5-2012.

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By this Notification changes are effected in Entry 59 in Schedule A: Raisins & Currants Nil Rates of tax : Period extended up to 31st May, 2013.

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(2012) 17 Taxmann.com 47 (Kar.) — CCE v. Tata Advanced Material Ltd.

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Assessee availed CENVAT credit of duty paid on capital goods on clearing goods — Capital goods destroyed in fire — Insurance company compensated assessee for the loss including duty — Revenue directed assessee to reverse the credit in respect of lost goods and confirmed demand — Issue, whether payment by insurance company renders regular credit as irregular — Held, No provision in Rules which empower reversal except in the cases when credit is taken irregularly.

Facts:
The assessee availed CENVAT credit of excise duty paid on capital goods bought and used in manufacturing excisable goods. About five years later, they were destroyed in a fire accident. Based on purchase invoice of new capital goods, a claim was put before the insurance company for reimbursement in terms of the policy taken. The reimbursed amount also included excise duty paid on the newly bought capital goods. The Department on getting such information directed the assessee to reverse the credit taken earlier on the lost goods. The assessee challenged it. The Tribunal held that the assessee had legally availed CENVAT credit. There is no legal provision which empowers the authorities to reverse CENVAT credit otherwise than in case of wrongful availment. The claim of the Department that assessee attained double benefit was also found without basis. The substantial question of law before the Court therefore was whether the impugned order amounted to encouraging unjust enrichment and whether or not credit can be claimed on goods lost in fire and for which they received compensation.

Held:
There is no provision in the Rules providing for reversal of credit except when it is irregularly taken and that was not the Revenue’s case. Merely because the assessee was compensated by the insurance company would not render legally taken credit irregular and it does not confer right on the authorities to demand reversal of credit. The assessee paid premium and covered the risk. It is not the case of double payment and the Department has no say in the matter.

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Compounding of Offences under the Service Tax — Notification No. 17/2012-ST.

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Service Tax (Compounding of Offences) Rules, 2012 have been introduced by which section 9A of the Central Excise Act, 1944 has been made applicable to Service Tax Law vide section 83 of the Finance Act, 1994.

Accordingly, an application for compounding of offences and getting immunity from prosecution may be made, either before or after the institution of prosecution. Rules also prescribe forms, procedure, authorities, fixation of amount and powers to grant and withdraw immunity granted from prosecution.

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Settlement of Cases under the Service Tax Law — Notification No. 16/2012-Service Tax.

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The Central Government has introduced Service Tax (Settlement of Cases) Rules, 2012 by which sections 31, 32 and 32A to P of the Central Excise Act, 1944 made applicable to Service Tax Law vide section 83 of the Finance Act, 1994 laying down the provisions of making application for the settlement of cases. The rules also prescribe form, manner of provisional attachment of property, etc.

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Rate of Tax – Entries in Schedule – Speakers for Car Stereos – Are Accessories of Car Stereos – Taxable as Electronic Goods and Not as Sound Transmitting Equipment – Entries 55 and 134 of Schedule I of the Kerala General Sales Tax Act, 1963.

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10. State of Kerala v. Sigma Inc, (2011) 42 VST 47 (ker)

Rate of Tax – Entries in Schedule – Speakers for Car Stereos – Are Accessories of Car Stereos – Taxable as Electronic Goods and Not as Sound Transmitting Equipment – Entries 55 and 134 of Schedule I of the Kerala General Sales Tax Act, 1963.


Facts

The dealer sold car stereos with or without speakers which was taxed @8% as electronic goods under Schedule Entry I 55 of the Act, whereas on sale of speakers without stereos, the tax was levied at 12% as sound transmitting equipment including loud speakers covered by the Entry 134 of Schedule I of the Act. The Tribunal allowed the appeal and held that speakers when sold without car stereos are also electronic goods taxable at 8% under Entry 55 of Schedule I. The Department filed revision petition before the Kerala High Court against the impugned order of the Tribunal.

Held

Under Entry 134 of Schedule I, ‘Sound Transmitting Equipment Including Loud Speakers are covered. The Department admitted that car stereos are not covered by Entry 134 and are covered by the general Entry 55 relating to electronic goods. The speakers suitable for attachment of car stereos will also be covered by Entry 55 of the Schedule I being accessories to electronic goods. The loud speakers which are not accessories to any electronic items like stereo, car stereos and radios are covered by Entry 55 and liable to tax @8%. The HC accordingly dismissed the revision petition filed by the Department.

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Rectification of Mistakes – Re-appreciation of Evidence on Records – Not Permissible – S. 37 of the Rajasthan Sales Tax Act, 1994.

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9. Assistant Commercial Taxes Officer v. Makkad Plastic, (2011) 42 VST 1 SC
    
Rectification of Mistakes – Re-appreciation of Evidence on Records – Not Permissible – S. 37 of the Rajasthan Sales Tax Act, 1994.

Facts

The Rajasthan Sales Tax Board, in an appeal filed by the Department, against the order in appeal passed, had allowed the appeal and upheld the assessment order passed by the assessing authority and confirmed the levy of tax at a higher rate as well as penalty. The Board, thereafter, upon application for rectification of mistake filed by the dealer, deleted the penalty, by passing order of rectification of mistake u/s. 37 of the Act. The Department filed revision petition, before the Rajasthan High Court against such order for rectification of mistake, which was dismissed by the High Court. The Department filed appeal before the SC against the judgment of the Rajasthan High Court.

Held

Under Section 37 of the Act, the Board has the power to rectify any mistake which is apparent on record, which is neither a power of review or nor is it akin to the power of revision. But it is only a power to rectify a mistake apparent on the face of the record for which a re-appreciation of the entire records is neither possible nor called for. While passing the subsequent rectification order, the Board had exceeded its jurisdiction by re-appreciating the evidence on record and held that there was no malafide intention on the part of the dealer for tax evasion. The SC set aside the orders passed by the Rajasthan High Court as well as the subsequent order for rectification of mistake passed by the Board and upheld the assessment order passed by the assessing authorities.

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Rent-a-cab service — Respondent having contract for making available various vehicles on request on hire to army — Held not liable for Service tax as the services similar to rent-a-cab scheme operator services, but not the same.

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44. (2012) 26 STR 219 (Tri.-Del.) CCE, Meerut-II v. Sapan Mehrotra.

Rent-a-cab service — Respondent having contract for making available various vehicles on request on hire to army — Held not liable for Service tax as the services similar to rent-a-cab scheme operator services, but not the same.


Facts:

The respondent had a contract with the Indian Army. The respondent was responsible for making available various means of transport such as buses, taxis, etc. on hire basis. The charges were defined in the contract. The Department levied Service tax considering the same as ‘rent-a-cab scheme operator service’ as the contract was for fairly long period. The CCE (appeals) held that the services of the respondent were not in the nature of rent-a-cab and therefore, set aside the demand of the Department. Against the Departmental appeal, the respondent argued that the vehicles were not given at disposal of the Indian Army and the services were similar to taxi services. The only difference was that the contract was for a longer period which is the prerequisite of rendering such services prescribed by the Indian Army. Moreover, the turnover in certain years was less than the basic threshold limit prescribed in Notification No. 6/2005, dated 1-3-2005.

Held:

The facts of the case were similar to that of taxi operator in the street. Such services were not liable to Service tax. Only the rates were for a fairly long duration, but the vehicles were not put at disposal of the army for a long duration. The appeal of the Department was dismissed.

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Allowance of input tax credit — Stand of the Department and related procedural aspects — Trade Circular No. 8T of 2012, dated 21-6-2012.

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This is a clarificatory Circular in nature in view of the Bombay High Court decision in case of M/s. Mahalaxmi Cotton Ginning Pressing and Oil Industries, Kolhapur in writ petition No. 33/2012. This Circular states in detail the stand of the Department regarding allowing/disallowing of Input Tax credit and related procedural aspects.

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Professional tax payment electronically — PFT.1012/C.R.29/Taxation 3, dated 14-6-2012.

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By this Notification every PTRC holder has to make payment electronically of tax, interest, penalty or any amount under the law with effect from 1-7-2012.

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Clarification on service tax on remittance from abroad to India — Circular No. 163/14/2012-ST, dated 10-7-2012.

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This Circular has clarified that no service tax will be leviable on the amount of foreign currency remitted to India from abroad as the service has been defined u/s.65B(44) and the definition specifically excludes a transaction in money or actionable claim.

As the remittance of foreign currency from abroad is a transaction in money, therefore, it will fall outside the ambit of service. It is further clarified that even the Indian counterpart bank or financial institution who charges the foreign bank or any other entity for the services provided at the receiving end, is not liable to service tax as the place of provision of such service shall be the location of the recipient of the service, i.e., outside India, in terms of Rule 3 of the Place of Provision of Services Rules, 2012.

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Clarification on point of taxation rules — Circular No. 162/13/2012-ST, dated 6-7-2012.

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This Circular has been issued to clarify issues relating to point of taxation in (i) continuous supply of service — dealing with the transition by way of changes in the Rules w.e.f. 1st April 2012; (ii) works contracts — the transition by way of changes in tax treatment w.e.f. 1st July 2012; and (iii) introduction of partial reverse charge in certain services w.e.f. 1st July 2012. Accordingly,

(i) In the case of continuous supply, where the invoice had been issued or payment received before or on 31st March 2012, the point of taxation is governed by Rule 6 of the Point of Taxation Rules, 2011 as it stood at that point of time.

(ii) In the case of works contracts, which have been subjected to certain changes in service tax treatment effective from 1st July, if there has been a change in the effective rate of tax, the point of taxation will be determined under Rule 4, and if not, it will be determined under Rule 3. Introduction of service tax for a service that was not exempted by Notification, but was outside the scope of taxable service, does not constitute a change in the effective rate of taxation, and will be dealt with under Rule 3. (iii) For services where partial reverse charge has been introduced from 1st July, it will apply only when the point of taxation is on or after 1st July.

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Clarification regarding cess — Circular No. 161/12/2012-ST, dated 6-7-2012.

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The CBEC has circulated the new single accounting code for all taxable services, which is 00441089 for service tax, 00441090 for other receipts, and 00441093 for penalties. The code for ‘deduct refunds’ is 00441094. These codes are effective from 1st July 2012. The old codes will continue to be operative for payment pertaining to the period prior to 1st July 2012.

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Clarification regarding cess — Circular No. 160/11/2012-ST, dated 29-6-2012 and Order N0. 2/2012, dated 29-6-2012.

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There has been some doubt regarding the applicability of provisions of the Finance Act, 2004 relating to education cess and the Finance Act, 2007 relating to secondary and higher education cess as the concerned Acts make reference to section 66 of the Finance Act, 1994, which shall cease to have effect from 1st July, 2012. In this connection, reference to the s.s (1) of section 8 of the General Clauses Act, 1897 is made for interpretation of statutes and thus any reference to section 66 of the Finance Act, 1994 shall be construed as reference to the newly re-enacted provision i.e., section 66B of the same Act. Despite the stated position of law, the matter has been settled by the issue of Removal of Difficulties Order No. 2/2012, dated 29-6-2012.

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Transport of passengers and goods by rail exempted from service tax — Notification No. 43/2012-ST, dated 2-7-2012.

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Vide this Notification, exemption has been granted from whole of service tax leviable on two kinds of services provided by Indian Railways, namely,

(a) Service of transportation of passengers (with or without accompanied belongings) in 1st class or in air-conditioned coach and

(b) Services by way of transportation of goods. The exemption would be effective up to 30th September 2012.

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Service of foreign commission agent utilised for export of goods exempted — Notification No. 42/2012-ST, dated 29-6-2012.

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By this Notification, the service of a commission agent located outside India and used for the export of goods is exempted from service tax up to a value of 10% of the FOB value of the goods exported. However, the exemption is not available for the export of canalised item, project export, export financed under lines of credit extended by the Government of India or by EXIM Bank.

It is also not available for export by the Indian partner with equity participation in an overseas joint venture or wholly-owned subsidiary. The said Notification also contains the procedure in detail and the forms in which the exporter is required to inform Dy. Commissioner/ Assistant Commissioner of Central Excise regarding before claiming exemption.

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Exemption of service provided to SEZ, etc. — Notification No. 40/2012-ST, dated 20-6-2012.

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Vide this Notification, exemption granted to services provided to an unit located in a Special Economic Zone or Developer of SEZ and used for the authorised operations, from the whole of the service tax, education cess and secondary and higher education cess leviable thereon, subject to complying with conditions and procedures.

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Rebate of service tax to exporter — Notification No. 41/2012-ST, dated 29-6-2012.

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This Notification deals with provision and procedure for rebate given in the form of refund of service tax paid on services utilised for goods exported. The rebate is available for export of both excisable and non-excisable goods.

For excisable goods, it applies to services used beyond the place of removal, for export of the goods. For non-excisable goods, it applies to services used for the export of the goods. Rebate is given as per the schedule of rates in the Notification; however if actuals are over twenty per cent more than the notified rate, the rebate can be claimed on the actuals as supported by documents.

The exclusions under definition of ‘input services’ in the Cenvat Credit Rules, as contained in clauses A, B, BA and C of Rule 2(l) apply to rebate also. Rebate is not available if Cenvat credit of service tax paid on specified service used for export of goods has been taken.

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(2011) 40 VST 141 (MP) Fairdeal Corporation v. Commissioner of Commercial Tax, Madhya Pradesh and Others

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Sales Tax — Rate of tax — Entries in Schedule — ‘Fan covers’ and ‘Terminal Boxes’ — Used for manufacture of monoblock pump sets — Accessories of pump sets — Not an accessories to electric motors — Sch. I — Entry 89, Sch. II, — Part IV — Entry 7 of Madhya Pradesh Vanijya Kar Adhiniyam, 1994 (5 of 1995).

Facts:
The dealer manufactured and supplied fan covers and terminal boxes according to specification for use as accessories in monoblock pumps. The question before the High Court was whether the fan covers and terminal boxes, manufactured and supplied by the dealer, to be used for manufacture of monoblock pump sets used for irrigation purposes, were covered by Entry 7 of Part IV of Schedule II to the Madhya Pradesh Vanijya Kar Adhiniyam, 1994 as parts and accessories of the electric motor, or under Entry 89 of Schedule I to the Act as accessories of pumping sets.

Held:
The electric motors on which these two items were fixed are an integral part of the monoblock pump and not separable from the pump. The items in question could be used as accessories to the electric motor, but when the electric motor itself was an integral part and inseparable from the monoblock pump, the items in question would not be accessories of the electric motor but accessories of the monoblock pump.

In the monoblock pump the electric motor has no separate existence as independent item, therefore, the items in question could not be said to be an accessories to electric motor when used in monoblock pump.

When these items are used as accessories to the monoblock pump sets of less than 10 horse-power capacity they are covered by Entry 89 of Schedule I and not by Entry 7 of Part IV of Schedule II which is a general entry in respect of electric machine, its part and accessories. However, if the same items were sold by the petitioner for use as accessories or otherwise to some other main item, then they would be taxed according to the relevant entry covering such items and accessories.

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(2011) 16 Taxmann.com 209 (Chennai-CESTAT) — Safety Retreading Co. P. Ltd. v. Commissioner of Central Excise, Salem.

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Appellant retreaders of tyres — Paying service tax under maintenance and repair services on labour charges — Material cost benefit under Notification No. 12/2003-ST, dated 20-8-2003 claimed — As per Revenue, under the notification benefit available for actual sale of material and not raw material consumed during course of provision of service available — Held, There is no evidence of sale of material in rendering maintenance and repair service — ‘Deemed sale’ relevant only in case of services under works contract and not in respect of maintenance and repair service — Satisfaction of conditions under Notification 12/2003-ST not proven — Hence benefit denied.

Facts:
The appellant is engaged in retreading of used tyres and thus providing repairs and maintenance service and paying service tax on the component labour charges involved. The tread rubber patches, bonding gum, etc. are purchased and used for redoing treading on them. The invoices for this job are prepared by indicating separately the actual cost of material used. Due VAT as per the Tamil Nadu VAT Act, 2006 is paid on this. Also filed returns with sales tax authorities which are duly assessed. The Revenue held that only in the case of actual sale of material, benefit of Notification 12/2003 is available and not in case of consumption of raw material during the course of providing service.

The Bench referred to many relevant decisions on the subject matter which inter alia included Bharat Sanchar Nigam Ltd. v. UOI, (2008) 200 STR 161 (SC), Rainbow Colour Lab. v. State of MP, (2000) 2 SCC 385, Shilpa Colour Lab, (2007) 5 STR 423 (Tri.-Bang.), Speedway Tyre Service v. CCE, (2009) 18 STT 293 (Delhi), PLA Tyre Works v. CCE, (2009) 19 STT 362 (Chennai), Idea Mobile Communication Ltd., (2011) 23 STR 433 (SC) and Aggarwal Colour Advance Photo System (2011) 23 STR 608 (Tri.-LLB), etc.

The two Members of the Bench differed in their views. The points of difference placed before the Third Member.

The Third Member recognised that the issue related to interpretation of Notification 12/2003-ST as well as benefit of deduction of cost of raw materials available considering the tread rubber patches and bonding gum used as ‘deemed sale’ on which VAT is paid.

Held:
There is no evidence of sale of material in rendering service of maintenance and repair.

The concept of ‘deemed sale’ relevant only in respect of services under the category of ‘works contract’ for service tax purpose.

‘Maintenance and repairs’ being a specific service cannot be treated as service under ‘works contract’ for service tax purpose.

The assessee did not prove that conditions under Notification 12/2003-ST were satisfied and therefore they are not entitled to the benefit under the said Notification.

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(2012) 25 STR 206 (Tri-Bang.) — Lanco Industries Ltd. v. Commissioner of Central Excise, Tirupathi.

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CENVAT credit availed and utilised on irregular basis — Such credit reversed before issuance of show-cause notice — Interest charged from the date of availment up to the date of reversal — Argued that interest if at all leviable — Should be from date of utilisation — Penalty — Imposed for suppression of facts in order to avail inadmissible credit — Penalty for irregular availment of inadmissible credit — Held, Appellant liable to pay interest on CENVAT credit irregularly availed — Penalty for suppression of facts set aside — Penalty for availment of inadmissible credit upheld.

Facts:
The appellant made wrongful/irregular availment and utilisation of CENVAT credit and voluntarily reversed the same. However, they were directed to pay interest under Rule 12/14 of the CENVAT Credit Rules, 2002/2004 for the period till the date of reversal. The appellant pleaded that the major part of the credit was not utilised. According to the appellant, interest was not payable for the fact that they had already reversed the credit before the issuance of the show-cause notice and against the allegation of suppression, the appellants argued that they had already disclosed all the material facts to Department through ER-1.

Held:
With regards to the interest payable on the wrong availment of credit it was held that reversal of credit before issuance of show-cause notice cannot take away the liability. Hence, appellant was held liable to pay the interest. However, it was concluded that there was no suppression of facts by the appellant and penalty on this count was withdrawn thus retaining penalty for wrong availment of credit.

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(2012) 25 STR 196 (Tri-Del.) — Praveen Jain & Co. Pvt Ltd. v. Commissioner of Service Tax, Delhi.

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Appellant availed CENVAT credit prior to making payment to service provider — Order confirming demand of duty by denying CENVAT credit of Rs.25,51,699 and imposition of penalty of Rs.10,000 — Appellant contended that it was mistake that happened and payment subsequently made to service providers — Denial of credit and demand of duty not justified — Claimed that it was clear violation of the CENVAT Credit Rules, 2004 — However taking into account subsequent payment, denial of the credit was set aside — However, interest was held payable for the period of wrong availment along with penalty of Rs.10,000.

Facts:
The appellant availed credit on input services prior to making payments to the service provider. However, it made payments before the issuance of the show-cause notice. The appellants argued that it was a mistake from their end and subsequent regularisation of the deficiency of the documents can be condoned. As per the Revenue, the payment of price and duty to the supplier of inputs and input services is different. Making the payment to the supplier of inputs was not a pre-condition for availing the credit. However, credit of the input services cannot be availed unless and until payment has been made to the service provider.

Held:
Held that the appellant had enjoyed monetary benefit and hence, was liable for the payment of interest and penalty. On the other hand, taking into account the subsequent payment made to the service provider denial of the credit was set aside.

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(2012) 25 STR 178 (Tri-Ahmd.) — Rahul Trade Links v. Commissioner of Central Excise, Rajkot.

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Penalty — Non-payment of service tax — Separate penalties imposed u/s.76 and u/s.78 — Finding that assessee not having requisite mens rea — Tax paid with interest and penalty — Commissioner rightfully reduced penalty — No infirmity in the impugned order.

Facts:
The appellant was inter alia engaged in distribution for Tata Teleservices Ltd. on a commission basis. The assessee failed to pay service tax for the services rendered. The adjudicating authority confirmed the penalty and interest u/s.76 and u/s.78, but reduced the penalty. The appellant challenged the order and vehemently argued that equivalent penalty u/s.78 is not attracted.

Held:
The Tribunal observed that the penalties imposed under the abovementioned sections are clearly distinct even if the offences are carried out in the same transaction. The Tribunal dismissing the appeal held that the finding of the adjudicating authority was not shown to be perverse in any manner.

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(2012) 25 STR 167 (Tri-Mum.) — Maharashtra Seamless Ltd. v. Commissioner of Central Excise, Raigad.

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Appellants manufacturing unit located in Raigad District — Input services for the maintenance of windmill located in Satara District — Electricity so generated was consumed for the manufacture of the final product — Such credit rendered ineligible — Proceedings initiated against appellant —As per appellant, there was no mandate in definition of input service that services be used in manufacturing factory alone — Maintenance of windmills — Eligible input credit — Appeal allowed.

Facts:
The appellant was a manufacturing unit engaged in manufacture of excisable good situated at Raigad. They took credit on maintenance services received for their windmill situated in Satara District and consumed electricity generated out of it for the production of final product. The credit taken for above-mentioned input service was disallowed. According to the revenue there was no nexus between the said input services and the final product manufactured by them and they placed reliance on the Tribunal’s decisions in the case of Rajhans Metals Pvt. Ltd. v. CCE, Rajkot, (2007) 8 STR 498 (Tri.-Ahd) and Indian Rayon Industries Ltd., (2006) 4 STR 79 (Tri.) wherein it was held that services used at the site of windmills cannot be considered as input services by unit situated at some other place.

Held:
Held that the input services were rendered for the maintenance of windmills for generation of electricity cannot be brought into dispute. Further, after the study of the input service definition, it was concluded that the said service falls under the definition of input service. As regards input service used at different place was concerned, it was pertinent that there was no mandate in law that it should be used in the factory. The cited decisions were distinguished stating that the decision in the case of CCE, Nagpur v. Ultratech Cement Ltd., (2010) 20 STR 577 (Bom.) was not available before the Tribunal including in the case of Rajhans (supra). Hence, appeals allowed.

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(2012) 25 STR 136 (Tri-Bang.) — Sobha Developers Ltd. v. Commissioner of Central Excise, Bangalore.

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CENVAT credit — Appellant service provider to SEZ units/developer — Issue — Appellant of the opinion that provision of service to SEZ units is export of service and cannot be considered as exempted service — Demand raised on ground that service provided was exempted service and the availment of CENVAT credit of input service credit would fall under restriction/ demand under Rule 6 of CENVAT Credit Rules, 2004 — Noted that supplies to SEZ were free of all the taxes considering them at par with exports — Appeal allowed with consequential relief.

Facts:
The appellant provided services to SEZ units/ developers and contended that services provided should be considered as export of service and the demand raised through impugned orders should be set aside. Whereas, according to the Revenue the two basic conditions to hold a service as exports are that service should be provided outside India and payment for such services be received in convertible foreign exchange are not fulfilled. The appellant relied upon the decision in the case of Shyamraju & Co (I) Pvt. Ltd. V. UOI, 2010 (256) ELT 193 (Kar) wherein it was clearly noted that provision of services to SEZs are free of all taxes and this could be done by treating them at par with exports. In this case the issue does not, relate to whether the tax is to be levied or not but to decide whether the appellant is eligible to utilise CENVAT credit and whether they are eligible to pay an amount equal to 8% for the period prior to 1-4-2008.

Held:
By applying ratio of the decisions laid down in the various cases cited which inter alia included Bajaj Tempo Ltd. v. Collector, (1994) 69 ELT 122 and Steelite Industries Ltd., (2009) 244 ELT A89 (Bom.), it was held that the provisions of service to SEZ units were to be made applicable either on payment of tax or without tax and which cannot be equated with exempted services. Also, that services provided to SEZ units were covered by Rule 6 of the CENVAT Credit Rules, 2004, and hence, there stood no inconsistency between the Special Economic Zones Act, 2005 and the Finance Act, 1994. Therefore, considering all the arguments it was held that the restriction under the CENVAT Credit Rules, 2004, would not apply and services would be considered at par with exports and all the appeals were allowed.

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CENVAT credit — The respondents availed 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.

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(2012) 26 STR 187 (Tri.–Mumbai) — Commissioner of Central Excise, Kolhapur v. Shah Precicast P. Ltd.

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.


Facts:

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.

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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.

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(2012) 26 STR 184 (Tri.–Del.) — Ranbaxy Laboratories Ltd. v. Commissioner of Central Excise, Chandigarh.

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.


Facts:

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.

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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 CENVA<

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(2012) 26 STR. 117 (Tri.-Del.) — Rajratan Global Wires Ltd. v. Commissioner of Central Excise, Indore.

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.


Facts:

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.

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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 duri<

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(2012) 26 STR 36 (Tri.-Del.) — Commissioner of Central Excise, Kanpur v. Heera Panna Guest House.

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.


Facts:

 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.

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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 fo<

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(2012) 26 STR 33 (Tri.-Mumbai) — Quadrant Communications Ltd. v. Commissioner of Central Excise, Pune-III.

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.


Facts:

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.

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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.

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(2012) 26 STR 14 (Tri.–Del.) — Harveen & Co. v. Commissioner of Central Excise, Chandigarh.

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.


Facts:

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.

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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 — Predeposits of the dues were waived.

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(2012) 26 STR 12 (Tri.-Bang.) — Thomas Cook (India) Ltd. v. Commissioner of Central Excise, Hyderabad.

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.


Facts:

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.

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Pre-deposit by way of debiting CENVAT Account allowed.

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(2012) 26 STR 354 (Tri.-Kolkata) — Nicco Corporation Ltd. v. CCEC&S.

Pre-deposit by way of debiting CENVAT Account allowed.


Facts:

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.

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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.

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(2012) 26 STR 87 (P & H) — Commissioner of Central Excise, Chandigarh v. Raghav Alloys Ltd.

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.


Facts:

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’.

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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.

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(2012) 26 STR 3 (Kar.) — CCE & ST, LTU, Bangalore v. Adecco Flexione Workforce Solutions Ltd. and (2012) 26 STR 4 (Kar.) — Commissioner of Service Tax, Bangalore v. Prasad Bidappa.

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.


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.

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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.

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(2012) 26 STR 299 (Bom.) — Amidev Agro Care Pvt. Ltd. v. UOI.

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.


Facts:

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.

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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<

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(2012) 26 STR 284 (SC) — Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ramsaran

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.


Facts:

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.

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(2011) 40 VST 81 (AP) Tirupati Chemicals v. Dy. Commercial Tax Officer and Others, and ABC Constructions v. Commercial Tax Officer, Vijay Wada

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Advance Ruling — Binding on applicant as well as on others — Provisions not arbitrary — Not unconstitutional — Sections 32(2), 33(1)(c), 47(d) and 67(4) of Andhra Pradesh Value Added Tax Act, 2005 and rr. 17(4) and 66 of Andhra Pradesh Value Added Tax Rules, 2005.

Facts:
The petitioners filed two separate writ petitions before the AP High Court challenging the constitutional validity of section 67(4) of the Andhra Pradesh Value Added Tax Act, 2005 providing for binding effect of order passed by the Advance Ruling Authority (ARA), on the applicant, in respect of goods and/or transactions for which the clarification is sought and also binding on to all the officers other than the Commissioner.

According to petitioners the order of ARA was not binding on other dealers.

Held:
(1) U/s.67(4), the order of the ARA is binding on the applicant who sought clarification, in respect of the goods and transactions in relation to which it was sought and it is binding on all the officers other than the Commissioner. If the order of the ARA is to bind only the applicant and not to other dealers, in respect of goods or transactions in relation to which clarification was sought, then clauses (i) and (ii) of the said sub-sections would overlap , thereby rendering either clause (i) or (ii) inapposite surplusage.

(2) It is true that such ruling would bind other dealers who had not sought a clarification, without their being heard by ARA. That, by itself, would not necessitate the Court reading words ‘the applicant’ in to clause (ii) of section 67(4). It is no doubt harsh that the ruling of the ARA would bind other dealers. This however is matter essentially for the Legislature.

(3) Section 67(4)(iii) makes it clear that the order of the ARA would not bind the STAT, or Court in the exercise of its jurisdiction u/s.34 of the Act.

(4) The remedy of an appeal is provided under the Act u/s.33(1)(c) of the Act to other dealers in whose case the orders are passed following the order of the ARA.

Accordingly, the High Court dismissed the writ and upheld the constitutional validity of provisions of section 67(4) of the Act.

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(2012) 25 STR 245 (Tri. Del.) — Indian Institute of Forest Management v. Commissioner of Central Excise, Bhopal.

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Management consultant — Organising short-term courses for officers on topics related to Forestry Management, Environment Management System, Social Forestry, Water Resources Management, etc. — Held, it merely improved skills and knowledge level of officers attending courses — It could not be called rendering advice, directly or indirectly, in connection with management — In that view, it could not be made liable to service tax as Management Consultancy Service.

Facts:
The appellant an Institute under the Ministry of Environment and Forest, Government of India is a premier institute for education research, training and consultancy in the area of Forest Management. The appellant also conducted classes for various degree and diploma courses and organised short-term courses in various subjects relating to Forest Management, Social Forestry, Water Shed Management, Environment Management System, etc. for which no degree or diploma was given. The Department was of the view that this activity is covered under ‘Management Consultancy Service’ and the same would attract service tax. According to the Department, during the period from 1999-02 to 2002-04, the appellant provided services of management consultancy for various organisations for which service tax was not paid. Service tax was demanded and penalty was imposed. The show-cause notice was adjudicated. The order reviewed by the Commissioner confirmed the demand of some amount as additional service tax liability along with interest and penalty.

Held:
It was held that the activity of organising the short-term courses is not covered by the definition of ‘Management Consultancy Service’ as the appellant does not conceptualise, device, develop, modify, rectify or upgrade any working system of any organisation and that the shortterm courses organised meant for senior officers of Indian Forest Service, National Afforestation and Ecodevelopment Board, Department of Science and Technology, etc. are not rendering any consultancy, advice or technical assistance to any organisation in connection with management of that organisation and hence the orders upholding the service tax demand and penalty was held not sustainable.

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Central Sales Tax- Declared Goods-Iron and Steel- Stainless Steel Wire-Does Not Fall under Entry “Tool, Alloy and Special Steels”- section 14((iv) (ix) of the Central sales Tax Act, 1956.

1. M/S Bansal Wire Industries Ltd. and another v. State of U.P. and others, [2011] 42 VST 372 (SC).

Central
Sales Tax- Declared Goods-Iron and Steel-Stainless Steel Wire-Does Not
Fall under Entry “Tool, Alloy and Special Steels”- section 14((iv) (ix)
of the Central sales Tax Act, 1956.


Facts

The
appellant is engaged in manufacture and sale of Stainless Steel Wire,
and was assessed under the UP sales tax Act and CST Act for the period
1999-2000 in which the assessing authorities levied tax @ 4% on sales of
Stainless Steel Wire by treating it declared goods covered by entry(ix)
of clause (iv) of section 14 of the CST Act, relating to “ Tool, Alloy
and Special Steels of any one of the above categories”. Subsequently,
the revising authorities issued notice to reopen the assessment to levy
higher rate of tax on sales of such Stainless Steel wire being not
covered by the term iron and Steel as defined in section 14(iv) of the
CST Act. The appellant filed writ petition in the Allahabad High Court
against issue of the said notice. The High Court dismissed the writ
petition holding that “stainless steel wire” is not covered under the
item “tool, alloy and special steels” in entry (ix) and, therefore, does
not fall under “iron and steel” as defined under clause (iv)of section
14 of the Central Act and therefore the provision of section 15 of the
Central Act does not apply. The appellant filed an appeal to the Supreme
Court against the said judgment of High Court.

Held

The
language used in entry no. (ix) is plain and unambiguous and that the
items which are mentioned there are “tool, alloy and special steels”. By
using the words “of any of the above categories” in entry no. (ix),
would refer to entries (i) to (viii) and it cannot and does not refer to
entry No. (xv). However, entry (xvi) of clause (iv) would be included
in entry (xvi) particularly within the expression now therein any of the
aforesaid categories. Therefore, the specific entry “tool, alloy and
special steels” being not applicable to entry (xv). Therefore, it was
held that the stainless steel wire is not covered within entry (ix) of
clause (iv) of section 14 of the Central Sales Tax Act, 1956.

Sale in course of import vis-à-vis sale from duty-free shop

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As per Article 286 of the Constitution of India, transactions taking place in the course of import and export are made immune from levy of sales tax. In pursuance of the said Article the transactions of sale/ purchase in course of import/export are defined in section 5 of the CST Act, 1956. The transaction of sale in course of import is defined in section 5(2) of the CST Act, 1956. The said sub-section is reproduced below.

“S. 5. When is a sale or purchase of goods said to take place in the course of import or export.

(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the Customs frontiers of India.”

It can be seen, from the above, that there are two limbs. As per the first limb, the sale/purchase occasioning the movement of goods from foreign country is considered to be in the course of import. Therefore, the transaction of direct import is covered by this category. In addition to the above, there is scope to cover further transaction also as in the course of import under this limb.

The second limb covers transactions which are effected by transfer of documents of title to goods before the goods cross the Customs frontiers of India.

In a recent judgment, the Supreme Court had an occasion to specify the scope of the above section. Reference can be made to the judgment in the case of M/s. Hotel Ashoka v. Assistant Commissioner of Commercial Taxes & anr., (Civil Appeal No. 2560 of 2010 decided on 3-2-2012).

Facts of the case

The assessee (appellant) was M/s. Hotel Ashoka, a hotel managed by India Tourism Development Corporation Limited (ITDCL). The assessee had duty-free shops at international airports in India. At duty-free shops, the assessee sold several articles including liquor to foreigners and also to Indians going abroad or coming to India by air. The issue arose, under Karnataka Sales Tax Act, in respect of dutyfree shop at international airport at Bengaluru. For sales effected at the said place, the assessee took a stand that no tax was payable under the sales tax laws, as the goods were sold before importing the goods or before the goods had crossed the Customs frontiers of India. The sales tax authorities levied sales tax and raised demand. A writ petition was filed before the Karnataka High Court. However, the High Court rejected the writ petition holding it to be not maintainable on the ground of availability of alternative remedies. The matter came before the Supreme Court.

In respect of maintainability the Supreme Court observed that since the SLP was already admitted and the matter pertained to the year 2004-05, it would not be in the interest of justice to relegate the assessee to statutory authorities especially when the legal position is very clear and the law is also in favour of the appellant.

Judgment on merits
On merits, the Supreme Court examined the legal position. In para-18, the Supreme Court observed as under:

“18. It is an admitted fact that the goods which had been brought from foreign countries by the appellant had been kept in bonded warehouses and they were transferred to duty-free shops situated at international airport of Bengaluru as and when the stock of goods lying at the duty-free shops was exhausted. It is also an admitted fact that the appellant had executed bonds and the goods, which had been brought from foreign countries, had been kept in bonded warehouses by the appellant. When the goods are kept in the bonded warehouses, it cannot be said that the said goods had crossed the Customs frontiers. The goods are not cleared from the Customs till they are brought in India by crossing the Customs frontiers. When the goods are lying in the bonded warehouses, they are deemed to have been kept outside the Customs frontiers of the country and as stated by the learned senior counsel appearing for the appellant, the appellant was selling the goods from the duty-free shops owned by it at Bengaluru international airport before the said goods had crossed the Customs frontiers.”

Further in para 23 and 24 the Supreme Court has observed as under:

“23. Looking to the aforestated legal position, it cannot be disputed that the goods sold at the duty-free shops, owned by the appellant, would be said to have been sold before the goods crossed the Customs frontiers of India, as it is not in dispute that the duty-free shops of the appellant situated at the international airport of Bengaluru are beyond the Customs frontiers of India i.e., they are not within the Customs frontiers of India.”

“24. If this is the factual and legal position, in our opinion, looking to the provisions of Article 286 of the Constitution, the State of Karnataka has no right to tax any such transaction which takes place at the duty-free shops owned by the appellant which are not within the Customs frontiers of India.”

The Sales Tax Department contented that the sale, to be in course of import, should take place beyond the territories of India and not within the geographical territory of India. Further, it was also contented that there was no evidence about sale by transfer of documents of title to goods for effecting the sales before the goods have crossed Customs frontiers of India. Both the objections were rejected by the Supreme Court observing as under:

“30. They again submitted that ‘in the course of import’ means ‘the transaction ought to have taken place beyond the territories of India and not within the geographical territory of India’. We do not agree with the said submission. When any transaction takes place outside the Customs frontiers of India, the transaction would be said to have taken place outside India. Though the transaction might take place within India but technically, looking to the provisions of section 2(11) of the Customs Act and Article of the Constitution, the said transaction would be said to have taken place outside India. In other words, it cannot be said that the goods are imported into the territory of India till the goods or the documents of title to the goods are brought into India. Admittedly, in the instant case, the goods had not been brought into the Customs frontiers of India before the transaction of sales had taken place and, therefore, in our opinion, the transactions had taken place beyond or outside the Customs frontiers of India.”

“31. In our opinion, submissions with regard to sale not taking effect by transfer of documents of title to the goods are absolutely irrelevant. Transfer of documents of title to the goods is one of the methods whereby delivery of the goods is effected. Delivery may be physical also. In the instant case, at the duty-free shops, which are admittedly outside the Customs frontiers of our country, the goods had been sold to the customers by giving physical delivery. It is not disputed that the goods were sold by giving physical possession at the duty-free shops to the customers. Simply, because the sales had not been effected by transfer of documents of title to the goods and the sales were effected by giving physical possession of the goods to the customers, it would not mean that the sales were taxable under the Act. Thus, we do not agree with the aforestated submissions made by the learned counsel appearing for the Revenue.”

Thus, the Supreme Court has finally decided the scope of section 5(2) of the CST Act, 1956.

Conclusion
This judgment can be said to be a comprehensive judgment deciding the scope of section 5(2) of the CST Act, 1956. It has resolved the issue once for all. The judgment will also be useful in respect of sale effected from bonded warehouses.

(2011) 24 STR 723 (Tri.-Del.) — Moon Network Pvt. Ltd. v. Commissioner of Central Excise, Kanpur.

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Appellant a multi-system cable operator provided cable services, whether liable as broadcasting service — Appellant’s balance sheet disclosed higher figure of sales for imposing tax — Revenue of the opinion that appellant is liable to pay service tax on the balance sheet figure — Appellant disagrees — Tax liability was discharged on receipt basis — Appellant’s plea partly allowed — Adjudicating Authority directed to re-compute tax liability.

Facts:
The appellant was a multi-system cable operator providing cable services. An order for payment of service tax was issued to the appellant since the figures seized from their records and the figures submitted by them did not reconcile. However, the appellant contended that service tax was computed on receipts basis for the period when services were taxable viz. 9-7-2004 till 31-7-2005. The appellant, further contended that their services did not fall under the category of broadcasting service, and hence it was not liable for service tax for the impugned period. The Department alleged that according to Prasar Bharti Law, cable operators providing transmission service provided broadcasting service.

Held:
The impugned service provided by the appellant fell under the taxable category of ‘Broadcasting Service’ after withdrawal of Notification No. 8/2001-ST and service tax was leviable for the period 9-7-2004 to 31-7-2005. Direction issued to adjudicating authority to re-compute the liability accordingly. No mala fide intention of the appellant, hence penalty was waived. Only penalty for delay in payment of service tax to be imposed.

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(2011) 24 STR 721 (Tri.-Mumbai.) — Commissioner of Central Excise, Kolhapur v. Helios Food Additives Pvt. Ltd.

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A show-cause notice proposing demand of service tax and interest thereon sent by Asst. Commissioner, Ratnagiri to the assessee — Service provided by the assessee in Mumbai — Registered office also situated in Mumbai — Commissioner in whose territorial jurisdiction registered office of the service provider is located, has jurisdiction over them.

Facts:
The assessee along with manufacture of the food products in the district of Ratnagiri was also engaged in providing taxable services of renting of immovable property in Mumbai. The service tax on the same was not paid. The show-cause notice demanding service tax of Rs.2,62,032 and interest and penalties thereon was issued to the assessee by the Assistant Commissioner at Ratnagiri. The assessee’s Mumbai office had separate registration with the service tax authorities much prior to the issuance of the show-cause notice. Hence, taking into account the judgment in the case of C.C.E., C. & S.T., BBSR-II v. Ores India (P) Ltd., (2008) 12 STR 513 (Tri.), they contended that the proceedings initiated by the Assistant Commissioner at Ratnagiri are unsustainable.

Held:
It was held that the order confirming the demand of service tax and interest and penalty, etc. could not be sustained in law as held by the lower Appellate Authority as the adjudication authority at Ratnagiri had no jurisdiction over the Mumbai office of the Noticee.

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State Finance Bill, 2012 enacted.

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The Government of Maharashtra has gazetted the Maharashtra Act No. VIII [Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2012] on 25th April, 2012 after receiving consent of the Governor.

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TDS — Payment to Unregistered Contractor — Notification No. JC(HQ)1/VAT/2005/97, dated 4-4-2012.

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W.e.f. 1st April, 2012 rate of MVAT TDS on amounts payable to unregistered contractors has been increased from 4% to 5%.

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Clarification reg. submission of annexures by dealers not required to file audit report in Form 704 — Trade Circular No. 7T, of 2012, dated 24-4-2012.

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In this Circular certain clarifications regarding submission of annexures by the dealers who are not required to file MVAT Audit Form 704 are given.

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Carry forward of the refund up to Rs.1 lakh of FY 2011-12 — Trade Circular No. 6T of 2012, dated 21-4-2012.

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By this Circular carry forward of the refund claim up to rupees one lakh for the return period ending at March 2012 to the first return of the next financial year i.e., 2012-13 has been allowed.

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Clarification reg. taxability of market fees collected by APMCs — Circular No. 157/08/2012- ST, dated 27-4-2012.

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It has been clarified that the services provided by APMC for which the ‘market fee’ popularly known as ‘mandi shulk’ is collected from the licensees does not fall under the category of ‘Business Support service’ as the services provided are not in the nature of ‘outsourced service’ and development and maintenance of agricultural market infrastructure undertaken by APMC in accordance with the statute is for the benefit of all users rather than activity solely in the interest of licensees.

APMCs provide basic facilities in the market area out of the ‘market fee’ collected by them mainly to facilitate farmers, purchasers and others and a host of services to the licensees in relation to procurement of agricultural produce, which are ‘inputs’ as per section 65(19) of the Act; therefore, services provided by the APMCs are classifiable under ‘Business Auxiliary services’ and hence, benefit of exemption under Notification No. 14/2004-ST is available. However, any other service provided by the APMCs for a separate charge (other than ‘market fee’) either to the licensees or to the farmers or to any other person, e.g., renting of shops in the market area, etc. would be liable to tax under the respective taxable heads.

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Sale price — Turnover of sales — Separate charges for amenity facilities and supply of food or liquor — Served in hotel and restaurants — Entire amount forms part of sales price and turnover of sales — Separation of sale price between cost and amenity charges immaterial — Section 2(xxvii) of the Kerala General Sales Tax Act, 1963.

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(2011) 41  vST 500 (Ker.) State of Kerala v. Mukkadan’s Hotel

Sale price — Turnover of sales — Separate charges for amenity facilities and supply of food or liquor — Served in hotel and restaurants — Entire amount forms part of sales price and turnover of sales — Separation of sale price between cost and amenity charges immaterial — Section 2(xxvii) of the Kerala General Sales Tax Act, 1963.

The State of Kerala filed the revision petition before the Kerala High Court against the decision of the Tribunal allowing the claim of the hotelier for deduction of amount collected separately in sale bill for providing lot of facility like lawn, air-conditioning, parking space for vehicles, etc., enjoyed by the customer, from determination of sale price for the purpose of levy of turnover tax under the Kerala General Sales Tax Act. The State contended before the High Court that no customer is charged for any amenity separately, but all what the dealer does is bifurcation of sale price showing substantial amount towards amenities only to avoid tax.

Held:

The question to be considered is whether the amenities separately charged without any facility or service provided is to be excluded from turnover. The dealer has no case that separate tariff is provided in hotel — one for those who do not want to avail of special amenities and the other for those who want to avail so. On the other hand, what is shown is sale price bifurcated between cost and amenities and the dealer is claiming exclusion of amenity charges from turnover for the purpose of levy of sales tax.

The turnover tax is payable on turnover which includes all amounts received for sale of goods. In fact, under Explanation 2 to section 2(xxvii) of the Act “the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of goods sold at the time of, or before, the delivery of thereof”. The words ‘anything done’ includes any service provided therefore, the charges levied for amenities provided in a bar or restaurant for the customer to enjoy the foods or liquor, form part of the price for which goods are sold.
The dealer could not correlate the charges levied and the amenity provided to any customer in any given case. Therefore, it is only dubious method to evade payment of tax.
Accordingly the High Court allowed the revision petition filed by the State and restored the assessment order passed by the assessing authorities holding the amenity charges as part of turnover of sale of goods for the purpose of levy of tax.
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Exemptions — Classification of goods — Sale of pan masala in single pouch having two parts — One containing tobacco and other containing pan masala — Sold under brand name ‘Double Maza’ — Is a single commodity — Exempt as pan masala containing tobacco, Entry 82 of Schedule I, West Bengal Sales Tax Act, 1985.

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(2011) 41  vST 463 (Cal.) Dharampal Satyapal Ltd. v. Asst. Commr., CT

Exemptions — Classification of goods — Sale of pan masala in single pouch having two parts — One containing tobacco and other containing pan masala — Sold under brand name ‘Double Maza’ — Is a single commodity — Exempt as pan masala containing tobacco, Entry 82 of Schedule I, West Bengal Sales Tax Act, 1985.


Facts:

The dealer sold an item under the brand name Double Maza in a single pouch having two parts — one containing tobacco and the other, ‘Pan Masala’ without containing tobacco. The dealer claimed exemption form payment of tax on sale of the above item considering it as a ‘Pan Masala’ containing tobacco, although sold in a separate part, without mixing with each other, but packed in single pouch, duly covered by entry 82 of Schedule I of The West Bengal Sales Tax Act, 1985. The assessing authority held it taxable under Schedule IV not treating it as ‘Pan Masala’ containing tobacco, being poured in a single pouch making two parts separately, but customer has no option to buy it separately and therefore the item was considered as taxable. The dealer filed writ petition before the Calcutta High Court against the decision of the West Bengal Taxation Tribunal.

Held:

 The disputed item manufactured by the dealer containing two separate folders, one for ‘Pan Masala’ and the other for tobacco, but not offered to sale separately, is really a ‘Pan Masala’ containing tobacco classified in Chapter 24 under the tariff heading 2404.49 of First Schedule of Excise Tariff, although the same is presented as unassembled or disassembled article which has the essential character of the complete or finished article. The High Court accordingly held it as covered by Entry 82 of First Schedule of the West Bengal Sales Tax Act, 1944 as such exempt from payment of tax and set aside the orders passed by the Taxation Tribunal and assessing authorities.

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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-àvis such manufacturer of vehicle and services provided in respect of those vehicles.

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(2012) 26 STR 145 (Tri.-Del.) — Commissioner of Central Excise, Chandigarh v. Dynamic Motors.

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.


Facts:

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.

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Refund through ECS — Trade Circular No. 11T of 2012, dated 17-7-2012.

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With effect from 1-10-2012 refund through Electronic Clearing Service facility will be optional to the dealers in Mumbai only. The scheme has been explained in this Circular.

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Administrative relief in respect of importexport licences covered in Schedule Entry C-39 — Trade Circular No. 10T of 2012, dated 2-7-2012.

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The Circular explains the scheme as contained in State Government Resolution providing administrative relief for the period 1st April, 2005 to 31st December, 2010 to the dealers who have collected and paid tax in respect of duty paid scrips which were tax-free prior to 1st January, 2011 under the MVAT Act, 2002.

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Amendments to the Schedule entries — Trade Circular No. 9T of 2012, dated 30-6- 2012

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Changes in the various Schedule entries under the Maharashtra Value Added Tax Act, 2002 are briefly explained in this Circular.

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(2011) 24 STR 719 (Tri.-Del.) — BSNL v. Commissioner of Central Excise, Chandigarh.

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Appellant is a public sector unit — Adjusted the excess tax paid in a previous period against current liability — This treatment was opposed to —Appellant’s plea held invalid — However appellant’s plea was accepted in the light of amended rules and the fact that the appellant is a PSU.

Facts:
The appellant is a public sector unit which adjusted the excess payment of service tax against the tax liability of a subsequent period. The appellant held a view that this adjustment was allowable as per the provisions of Rule 6 of the Service Tax Rules, 1994. As per the said Rule 6, excess payment of service tax can be adjusted against future liability on a pro-rata basis, but only under specific conditions mentioned therein.

Held:
Though the appellant’s plea for adjustment was held invalid, it was found that subsequently the Service Tax Rules were amended. As per the amended rules the appellant could adjust his excess payment.

However, the amended rules were not in force during the material time and therefore did not apply to the case at hand. But considering the spirit of the amended rules and the fact that the appellant was a public sector unit, a lenient view was taken and the adjustment was allowed fully.

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(2011) 24 STR 717 (Tri.-Del.) — Commissioner of Central Excise, Allahabad v. A.P.S.M. Study Centre.

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The assessee provided commercial training and coaching service — The service taxable w.e.f. 1-7-2003 — Respondent received consideration towards services to be provided after 1-7-2003 — Show-cause notice for the period April to September 2003 issued on 20-7-2006 after extensive communications of the respondent with the department — Held, the demand was barred by limitation.

Facts:
The assessee provided commercial training and coaching services. The appeal was filed in relation to the fees received by the respondent during April, May and June, 2003 for the period after 1-7-2003, when the service was brought under the tax net. Show-cause notice was issued to the respondent on 20-7-2006 for the period April-September 2003. The Revenue claimed that the assessee suppressed facts since they had not disclosed the amount of consideration received prior to 1-7-2003 and also not filed ST-3 return for the relevant period.

Held:
It was held that the longer period could not be invoked on the grounds that an audit was conducted in 2004 and also, there was extensive communication with the Department, but a show-cause notice was issued only on 20-7-2006. Hence the demand was barred by limitation and the Revenue’s appeal was rejected.

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(2011) 24 STR 705 (Tri.-Del.) Commissioner of Central Excise, Ludhiana v. Municipal Council.

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A show-cause notice for non-payment of service tax on renting of property and open ground; as Mandap Keeper services — Show-cause notice failed to divulge the nature of such receipts i.e., whether any official, social or business functions performed on the immovable property, so as to make the property mandap — Finding no substance in the show-cause notice — Stay application and appeal dismissed.

Facts:
The appellant received a sum of Rs.4,26,000 for letting out of land and open ground for the period 12-2-2003 to March, 2005 and receipt of Rs.6,000 each for the financial years 2005-06 and 2006-07 and Rs.93,000 for the financial year 2007-08 upon which no service tax was paid.

Held:
However, since the notice issued failed to bring out the nature of the receipt and the nature of functions performed over rented immovable property, the show-cause notice was rendered unjustified and hence, the stay application and the appeal were dismissed.

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(2011) 24 STR 702 (Tri.-Chennai) — K. K. Academy Pvt. Ltd. v. Commissioner of Service Tax, Chennai.

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Demand made involved three issues (i) coaching given to the students held to be recreational activity (ii) Abacus training imparted to teachers would either get employed or could opt for self-employment held in the nature of vocational training (iii) with respect to franchisee services the demand was confirmed after adjustment and penalty accordingly reduced.

Facts:
The appellants hold franchisee for ‘Abacus’ training which is an ancient Chinese tool to solve arithmetical calculations with speed and accuracy without calculator. They are engaged in imparting such training to students as well as teachers who could be either employed by them or had an option for self-employment after such training and to train students at various centres run by themselves. They also receive amounts towards granting franchise for imparting training through Abacus. For all the three revenues, service tax was demanded.

The appellant contended that the training imparted to the students could not be taxed under the category ‘Commercial Training or Coaching Services’ for it was recreational in nature as held by the Bangalore Bench in Fast Arithmetic v. Asst. Comm. of Central Excise & ST, (2010) 17 STR 158. Also, no service tax was payable for training which is recreational in nature vide Notifications Nos. 9/2003 and 24/2004. Similarly, the above Notifications also exempted such vocational training provided to teachers.

Held:
In terms of the Notifications and case cited above the demand with respect to training given to students and teachers was set aside along with the penalty.

On the other hand the amount received towards franchisee services was held liable to service tax. The appellant did not dispute this and had paid service tax on the franchise fee received. The penalty stood reduced only to the extent of delayed payment towards franchise fee and the cost was waived.

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(2011) 24 STR 662 (Tri.-Bang.) — Sri Bhagavathy Traders v. Commissioner of Central Excise, Cochin.

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Valuation — Whether amount incurred by a service provider as reimbursements is to be included in the assessable value — Conflicting views of the Tribunal — Matter referred to Larger Bench to settle the issue.

Facts:
The appellant, a ‘Clearing and Forwarding Agent’, during the period 2003-04 to 2005-06 did not charge service tax on the reimbursable receipts, such as transportation charges, loading and unloading charges, rent, salary to staff, electricity, courier charges, stationery charges, etc. According to the adjudicating authority, such charges were liable for service tax and were includible in the gross amount of value of service. The appellant submitted a series of Tribunal decisions wherein it was held that the gross value for the discharge of service tax liability would not include reimbursement charges. The Revenue relied upon a contrary decision in the case of M/s. Naresh Kumar & Co. Pvt. Ltd. v. Commissioner of Service Tax, Kolkata, (2008) 11 STR 578 (Tri.).

Held:
It was previously held in various cases that service tax is restricted to amounts received by the assessee for carrying C&F only and other charges such as loading, unloading should be excluded. Similarly, it was also proposed that transportation expense collected by such an agent was not liable to tax along with the actual expenses such as labour, freight, telephone, electricity reimbursed by the principal. However, in the case referred by the Revenue (cited above), it was concluded that those expenses which are indispensable and inevitable for providing such services and which would essentially make value addition to the services be liable to service tax. Since there were two different stands taken by the Co-ordinate Benches, it was decided to refer the matter to the Larger Bench.

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Procedure for rebate of duty on export of services — Notification No. 39/2012-ST, dated 20-6-2012.

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Vide this Notification, rebate has been granted of whole of duty paid on excisable inputs or service tax and cess paid on all input services used in providing services exported in terms of Rule 6A of the Service Tax Rules, subject to complying with conditions and procedures.

The said Notification also contains conditions and limitations of such rebate along with procedures and forms of application for rebate claims.

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Amendment in provisions of continuous supply of services Notification No. 38/2012-ST, dated 20-6-2012.

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Vide this Notification provision of (a) taxable services of telecommunication service, and (b) service portion in execution of a works contract will be treated as continuous supply of service, for the purpose of Rule 2(c) of the Point of Taxation Rules, 2011.

The other three services which were also notified as continuous supply of service vide Notification No. 28/2011-ST, but now removed are

 (i) Commercial or industrial construction;

(ii) Construction of complex and

(iii) Internet telecommunication.

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Amendment in Point of Taxation Rules, 2011 Notification No. 37/2012-ST, dated 20- 6-2012.

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By this Notification, the Point of Taxation Rules, 2011 are amended by

(i) omitting the definition of associated enterprises and taxable services as given in sub-rule 2(b) and 2(f), respectively, from the said rules and

(ii) substituting the words ‘provided or to be provided’ wherever they occur in the said rules, with the words ‘provided or agreed to be provided’.

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Amendment in Service Tax Rules, 1994 — Notification No. 36/2012-ST, dated 20-6-2012.

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Vide this Notification, Service Tax Rules, 1994 have been amended in light of introduction of negative list of services and to facilitate various changes made by the Finance Act, 2012. The new amended rules shall be known as Service Tax (Second Amendment) Rules, 2012. The gist of changes made in the said rules is given below:

(i) Various definitions of the terms used in Rules are inserted in Rule 2.

(ii) Changes brought in Rule 2(1)(d) for effecting the revised reverse charge mechanism.

(iii) Substitution of the word and figures ‘Section 66B’ for the word and figure ‘Section 66’ wherever used in the said rules.

(iv) Insertion of new Rule 6A for determining whether the service is exported or not.

(v) Omission of Rule 5B-Date for determination
of rate.

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State of Tamil Nadu V. Lakshmi Opticals [2011] 43 VST (Mad)

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Sales Tax – Sale – Spectacles Made to Prescription for Customer – Not a Works Contract but a Sale Of Goods, Manufacture-Second Sale – Sale of Lens Along with Frames – Resale of Frames and First Sale of Lens – S/s. 3B(2), 12(3)(B) and Entry 54 of Part C of Schedule I Of The Tamilnadu General Sales Tax Act, 1959

Facts:
The respondent/assessee is a dealer in opticals, and sold frames after having purchased frames as such without fitting them into spectacles, while the assessing authority has given categorical finding that the frames had not been sold as such without fitting them in spectacles to its customers as a product through separate bills for (i) frame and (ii) lens.

Before the Tribunal, the respondent/assessee contended that the manufacture of spectacles based on a specific description issued by the Doctors and choosing the lens pertaining to the power prescribed, the same is handed over to the skilled labourers for processing and sizing the lens such as grinding the shape of the lens, etc., before fitting the same into frames. It was therefore contended that such a process of manufacture according to the specific requirement is based on prescription issued by the Doctor, which would fall within the concept of “works contract” falling u/s. 3B of the Tamil Nadu General Sales Tax Act and as such eligible for claim of second sale not liable to tax. The Tribunal allowed the appeal filed by the assesse and set aside the order of assessment and first appeal. The Department filed Revision Petition before the Madras High Court challenging the order of the Sales Tax Appellate Tribunal, for the period 1994-95.

Held:
In the first place, what is sold by the respondent/ assessee to their customers is the spectacle. The spectacle is manufactured to the requirement of each of the customers based on a prescription of an ophthalmologist. What is being carried out by the respondent/assessee falls within the expression “manufacture”, i.e., manufacture of spectacle based on the orders placed by the customers. Even such manufacturing activity is carried on by the respondent/assessee in their workshop. Therefore, in every respect, the necessary ingredients of works contract are absent. The contract is of sale and not a works contract.

The spectacle manufactured by the respondent/ assessee which contains a frame and lens and certain other parts, can be independently analysed in order to find out whether any tax is leviable on such different parts contained in the spectacles. Therefore, the action of the respondent/assesse in having raised two separate bills, one for the frame and the other for the lens and thereby, there would be collection of tax on sale of lens alone and not on the frame was permissible and cannot be questioned.

Accordingly, the HC dismissed the revision petition filed by the Department and answered the question of law in favour of the respondent/assessee.

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Scholars Home Senior Secondary School vs. State of Uttarakhand and another and other cases [2011] 42 VST 530 (Utk)

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VAT – Dealer – Residential School – Main Activity of Imparting Education – Not Business – Activity of Providing Food in Hostel – Incidental Activity Also Not Business-School not a Dealer- S/s.2(6),(11),(27) and (40) of the Uttarakhand Value Added Tax Act, 2005

Facts:
Petitioners were educational institutions providing boarding and lodging facilities to students staying inside the campus in the hostel and they were provided food. The supply of foodstuff was sought to be assessed as a sale under the Act. The petitioner managing the institution on a non-profit basis as a charitable organisation without there being any profit-motive involved and, in this regard, also registered u/s. 12A of the Income-tax Act as a charitable organisation. Many students of the petitioner-institution are using the boarding facilities provided by the institution and, for this purpose, the petitioner charged a lump sum amount towards tuition fee and boarding fee. The petitioner was not charging any separate amount or cost for food supplied to the students, who were using the hostel facility. The mess was run by the institution itself and was not being done by any catering contractor. It was alleged that before the promulgation of the Uttarakhand Value Added Tax Act, 2005 (hereinafter referred as “the Act”), the U.P. Trade Tax Act was applicable in the State of Uttarakhand and, while the said Act was in force, the petitioner was not subjected to any tax for the supply of food to its residential students nor was the petitioner recognised as a “dealer” under the Act, but after coming into force the Act of 2005, the petitioner received a notice dated 2nd June 2009, for the assessment years 2005-06, 2006-07, 2007-08 and 2008-09 from the Assistant Commissioner Commercial Tax to show cause as to why the petitioner should not be liable to pay value added tax on the supply of food to its students, which amounted to a sale under the Act.

The petitioner, being aggrieved by the issuance of the notice, filed the writ petition before the High Court praying for the quashing of the notice for assessment years 2005-06, 2006-07, 2007-08 and 2008-09, for a direction restraining the respondents from making any assessment pursuant to the notice dated 2nd June 2009, as it is not carrying on the business of sale of foodstuff and, therefore, is not liable to be taxed, nor the Act is applicable and consequently, the issuance of the notice is wholly illegal and without jurisdiction.

Held:
Merely because there is a deemed sale or the fact that the deemed sale is incidental or casual, the tax could only be imposed if the person is a dealer and is engaged in a business activity of purchase and sale of taxable goods. The main activity of the petitioner is imparting education and is not business. Any transaction, namely, supply of foodstuff to its residential students which is incidental would not amount to “business” since the main activity of the petitioner could not be treated as commerce or a business as defined u/s. 2(6) of the Act. Consequently, since no business is being carried out and there is no sale, the petitioner would not come within the meaning of the word “dealer” as defined under the Act.

Accordingly, the HC allowed all writ petitions and said notices were consequently quashed.

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2012 (28) STR 150 (Tri.-Chennai) T V S Motor Co. Ltd. vs. Commissioner of Central Excise, Chennai-III

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In cases of import of services, service tax is leviable on consideration inclusive of tax deducted at source.

Facts:
The appellants had received consulting engineering services from outside India for the period March, 2004 to September, 2007 and had paid service tax under reverse charge u/s. 66A of the Finance Act, 1994 read with Rule 2(1)(d)(v) of the Service Tax Rules, 1994. However, service tax was paid on the value of services excluding tax deducted at source (TDS) under the Indian Income Tax laws. The appellants contended that there should not be any tax on the amount of TDS specifically in view of the fact that the payment to foreign consultant should be the basis of service tax levy. The revenue contested that the agreement stated that the consideration was net of all Indian taxes and such taxes were payable by the appellants in addition to the amount payable to foreign consultant and therefore, forms part of the contract price. Further, vide section 66A of the Finance Act, 1994, the recipient was treated as service provider and therefore, by legal fiction, the consideration inclusive of TDS, shall be the assessable value. It was also the case of the respondents that the appellants could not prove its contention as to why TDS should not form part of the “gross amount charged” vide Rule 7 of the Service Tax (Determination of value) Rules, 2006, according to which, service tax was leviable on actual consideration charged for services provided or to be provided.

Held:
The Tribunal held that the appellants were not liable to pay service tax under reverse charge prior to 18/04/2006 in absence of statutory provisions in this regard as had been upheld by the Hon’ble Supreme Court in case of Union of India vs. Indian National Shipowners Association 2010 (17) STR J57 (SC). In the present case, as per the terms of the contract, TDS formed part of the contract price and therefore, was includible in the value of taxable services. The benefit of cum-tax should be available to the appellants while raising the modified demand on the basis of the observations made by the Tribunal. In view of the law being at the stage of inception, penalty u/s. 78 of the Finance Act, 1994, was set aside.

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2012 (28) STR 182 (Tri.-Ahmd.) Bloom Dekor Ltd. vs. Commissioner of Central Excise, Ahmedabad

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CENVAT Credit is available on the basis of an invoice issued on registered office instead of the factory if the services are received in the factory.

Facts:
The appellants availed CENVAT credit on the basis of an invoice issued on registered office and not on factory. Revenue relied on various Tribunal and High Court decisions and contended that the registered office should have taken input service distributor registration and thereafter, should have issued a separate invoice on factory for availment of CENVAT credit. However, the appellants contended that they had only one factory and therefore, there was no question of distribution by taking input service distributor registration. Further, it was not disputed by the department that the services were received in the factory of the appellants and relying on Tribunal precedents in case of CCE, Vapi vs. DNH Spinners 2009 (16) STR 418 (Tri.) and Modern Petrofils vs. CCE, Vadodara 2010 (20) STR 627 (Tri.-Ahmd.) the credit should not be disallowed.

Held:
The Tribunal observed that the decisions relied upon by the revenue were not applicable to the facts of the present case. All those cases dealt with the effective date of registration of an input service distributor, whereas the dispute in the present case is totally different. The dispute is whether the registered office of the appellant is required to be registered at all when they have one factory and where the credit has been taken by the factory on the basis of invoices issued by service providers. The Tribunal also observed that the case laws cited by the appellants squarely covered the present case. Therefore, the Tribunal held that CENVAT credit was available to the appellants since the appellants had only one factory and the services were received in the factory, though the invoice was in the name of the registered office.

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2012 (28) STR 174 (Tri.-Ahmd.) Venus Investments vs. Commissioner of Central Excise, Vadodara

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Services used for construction of immovable property are not eligible input services to avail CENVAT Credit.

Facts:
The appellants were engaged in providing renting of immovable property services. The appellants availed CENVAT credit of industrial or commercial construction services for construction of an immovable property. The department contested that vide Circular no. 98/1/2008-ST dated 04-01-2008, commercial or industrial construction services or works contract services, were input services for immovable property which was neither goods exigible to excise duty nor service leviable to service tax and therefore, CENVAT credit was not available to the appellants. The appellants argued that the Circular clarified the position contrary to law and was required to be ignored as held in the case of Ratan Melting and Wire Industries 2008 (12) STR 416 (SC).

Held:
As observed by this Tribunal in case of Mundra Port and Special Economic Zone Ltd. vs. CCCE, Rajkot 2009 (13) STR 178 (Tri.-Ahmd.), the phrase “used for providing output services” has to be differentiated from the phrase “used in or in relation to the manufacture of the final product”. The Hon’ble Supreme Court’s decision in case of Ratan Melting and Wire Industries (Supra) was misconstrued. In the said case, the Hon’ble Supreme Court had only held that departmental circulars and instructions issued by the board were binding on the authorities of respective statute and not on Hon’ble Supreme Court or High Courts and rejected the appellant’s claim of CENVAT credit.

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2012 (28) STR 166 (Tri.-Ahmd.) Navaratna S. G. Highway Prop. Pvt. Ltd. vs. Commr. Of S. T., Ahmedabad.

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Services used for construction of mall are eligible input services to avail and utilise CENVAT credit for output service of renting of immovable property.

Facts:
The appellants were engaged in the business of construction of malls and renting out spaces in such constructed malls and providing space for advertisement in malls. The appellants availed CENVAT credit of input services such as tours and travel agent services, security services, etc. during the year 2007-2008 and utilised the same against renting of immovable property services during the year 2008-2009 once the mall was opened commercially.

The contention of the department was that the appellants were not eligible to avail CENVAT credit, since input services were not used by the appellants for providing taxable output service. The appellants in response to the department’s contention argued that input services were used for construction of mall which was owned and leased by the appellants. The appellants further added that without a mall, there could not be any output service and therefore, services were eligible input services vide provisions of CENVAT Credit Rules, 2004. The department contested that vide Circular no. 98/1/2008-ST dated 04-01-2008, commercial or industrial construction services or works contract services, were input services for immovable property which was neither goods exigible to excise duty nor service leviable to service tax and therefore, CENVAT credit was not available to the appellants.

Held:
The definition of input and input services are pari materia as far as service providers are concerned and therefore, following the decision delivered by the Andhra Pradesh High Court in case of Sai Samhita Storages (P) Ltd. 2011 (23) STR 341 (AP), the Tribunal held that without utilising services, the mall would not have been constructed and renting would not have been possible and therefore, the services used for construction of malls were eligible input services for availment of CENVAT credit even when the output service was renting of immovable property services.

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2012 (28) STR 135 (Tri.-Mumbai) DHL Lemuir Logistics Pvt. Ltd. vs. Commissioner of C. Ex., Mumbai

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Notification no. 4/2004-ST dated 31-03-2004 grants exemption to services only when the same are consumed within Special Economic Zone.

Facts:
The department issued a SCN for the period from 01-12-2005 to 31-07-2007 contesting that the appellants wrongly availed benefit of exemption Notification no. 4/2004-ST dated 31-03-2004 in respect of CHA services rendered outside SEZ. The appellants contended that during the period under consideration, services provided to SEZ unit were exempted vide the said Notification. Further, as per section 26 of the Special Economic Zone Act, 2005 and Rule 31 of the Special Economic Zone Rules, 2006, every developer and entrepreneur was entitled for exemption from service tax on the taxable services provided to a developer or a unit to carry out the authorised operations in a SEZ. Accordingly, Notification no. 4/2004-ST dated 31-03-2004 should be read alongwith the said section and Rule and interpreted to provide service tax exemption to the appellants.

The department submitted that the said Notification was a conditional exemption and was available only with respect to services provided within SEZ. Since the services were not provided within SEZ, benefit of the said exemption was not available to the appellants.

Held:
The Tribunal observed that in terms of various decisions of the Hon’ble Supreme Court, an exemption notification has to be interpreted as per the language used therein and the notification should be interpreted strictly to ascertain whether a subject falls in the notification. Accordingly, exemption under Notification no. 4/2004-ST dated 31-03-2004 was available only if the services were consumed within SEZ. The cannon of interpretation “Expresso unius est exclusion alterius” was applicable to the said notification which meant express mention of one thing excluded all others and in the present case, services consumed within SEZ were only covered by the said notification which was a conditional exemption. Further, the notification was issued in 2004 whereas the SEZ Act and Rules were introduced in 2005 and 2006 and therefore, the notification cannot be interpreted on the basis of SEZ Act and SEZ Rules. If the intention of the legislation was to align the exemption with SEZ Act or Rule, then the notification would have been amended to reflect the same. In view of no prima facie case in favour of the appellants and no pleading for financial hardship and taking into consideration the interest of revenue, the appellants were directed to pre-deposit part of the service tax demand.

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