Subscribe to the Bombay Chartered Accountant Journal Subscribe Now!

Category: Indirect Taxes

2016 (41) STR 123 (Tri-Chennai) SRF Ltd vs. CCEx., Trichy

fiogf49gjkf0d
Penalty u/s. 77 cannot be imposed on the ground of non-endorsement of new service in registration certificate.

Facts
The Appellant was registered under category of GTA as a receiver of service for payment of service tax and was paying tax under that category. Subsequently, it has received BAS services from abroad and accordingly discharged service tax under BAS. However penalty u/s. 77 of the Finance Act, 1994 was imposed for not amending its registration certificate which is challenged before the Tribunal.

Held
The Appellant was a registered assessee and there was no default in payment of tax under the new category though endorsement was not done at that point of time. Since there was no deliberate default to evade the tax, penalty was waived.

[2016] 65 taxmann.com 282 (Mumbai-CESTAT) Lupin Ltd. vs. Commissioner of Central Excise & Service Tax, Mumbai

fiogf49gjkf0d
Even if exemption to education cess or secondary & higher secondary education cess are not specifically mentioned in notification, they are also eligible for exemption/refund in addition to basic excise duty.

Facts
Refund of Education Cess (EC) and Secondary & Higher Education Cess (SHEC) paid in cash claimed under Notification No. 56/2002-CE dated 14/11/2012 (area based exemption) was denied to the appellant on the ground that said notification exempts only basic excise duty. Appellant’s plea that its issue was squarely covered by Bharat Box Factory Ltd. vs. CCE 2007 (214) ELT 534 which was initially rejected by Commissioner (Appeals) on the ground that revenue has filed SLP in Hon’ble Supreme Court.

Held
The Tribunal held that since revenue could not obtain stay from Hon’ble Supreme Court and status of case is still shown as pending, mere filing of SLP should not result in denial of applying the ratio of a case which is in favour of appellant. In Bharat Box Factory Pvt. Ltd. (supra), the Tribunal had held that when for operationalizing exemption, exempted amount of duty is required to be refunded, there was no question of levying education cess and hence it is also required to be refunded. Following the same, it was held that appellant should be entitled to refund of EC & SHEC paid on clearances of goods under Notification No. 56/2002-CE. Decision of Cyrus Surfactants (P.) Ltd. vs. CCE 2007 taxmann.com 806 (New Delhi – CESTAT) was also relied upon.

[2016] 65 taxmann.com 128 (Ahmedabad-CESTAT) Commissioner of Central Excise, Ahmedabad- II vs. Nova Petrochemicals Ltd.

fiogf49gjkf0d
Recovery under Rule 14 of CENVA T credit Rules cannot be initiated merely because instead of making transfer through ST-3 return, manufacturer-cum-service provider assessee availed input service tax credit directly in ER-1 return.

Facts
The Assessee, a manufacturer availed service tax credit which was utilised for making payment of excise duty. The credit was directly claimed in ER-1 return without reflecting the same in ST-3. Department issued SCN for recovery of alleged wrong utilisation of CENVAT credit by invoking Rule 14 of CENVAT Credit Rules read with proviso to section 11A(1) of the Central Excise Act, 1944 and confirmed by adjudication. Commissioner (Appeals) decided the matter in favour of assessee, relying upon verification report of the department where the credits taken were verified and found in order. Aggrieved by the same, the department filed appeal before the Tribunal.

Held
The Tribunal observed that assessee was required to enter the credit of said amount in relevant ST-3 return and put a remark of transfer of the said credit in the ER-1 return utilised for payment of excise duty. Instead, input service tax credit was debited from the CENVAT account register and utilised in ER-1 return and it was not reflected in ST-3 return. However, it was noted that amount taken and utilised in ER-1 return of the respective month was deducted from total credit balance and only the balance amount was shown in respective column of ST-3 return and therefore the department’s appeal was dismissed.

[2015-TIOL-07-ARA-ST] M/s Emerald Leisures Limited

fiogf49gjkf0d
Post 01/07/2012, the relationship between club and members should be
considered as provision of service by one person to another. Further
refundable security deposit and notional interest thereon cannot be
exigible to service tax.

Facts
The Applicant is a
resident public limited company engaged in establishing and running an
indoor sports complex and club and proposes membership from prospective
members. A refundable interest free security deposit was proposed to be
collected from the members in a range depending upon the category of
membership. Further the Applicant has shareholders and dividends are
distributed to them.

The issue raised before the Authority is in
relation to whether the relationship between the Applicant and members
of the club could be considered as service by one to another for the
purpose of section 65B(44) of the Finance Act, 1994, accordingly whether
the membership fee, annual fee received from the members be liable for
service tax or will be excluded on the principles of mutuality and
whether refundable security deposit would be exigible to service tax.
The Applicant relied upon various High Court decisions in relation to
clubs and associations holding that principle of mutuality is applicable
and no service tax is leviable. The Revenue submitted that by virtue of
Explanation 3 to the definition of service, an unincorporated
association and the member shall be treated as distinct persons. It was
also argued that the applicant has a profit motive considering their
objects and the fact that dividends are distributed to the members and
thus is purely a business activity and not in the nature of a
conventional members’ club. Therefore, the principles of mutuality have
no relevance.

Held
It was argued by the Applicant
that there is no ‘activity’ undertaken by the Applicant for the members
and there is complete absence of identity between the contributors and
the beneficiaries being one and the same. The Authority observed that
the Applicant carries out the club as business and has shareholders, who
may not be members of the club. Thus the prime objective being profit
motive, the principles of mutuality would not apply. However, in
relation to the second issue, the Authority observed that the security
deposit is towards various facilities and amenities in the club and not
for any services rendered. Moreover it is not in the nature of
consideration as the same would be refunded to members. Further notional
interest on refundable security deposit will also not be liable for
service tax as section 67(1) of the Finance Act, 1994 provides that
service tax is chargeable with reference to value which is the gross
amount charged for the services provided or to be provided. Thus since
the notional interest is not a charge by the Applicant there is no
service. Moreover, it was also stated that the Revenue has not been able
to establish that the notional interest has led to depression or
reduction in value of taxable service.

[2015-TIOL-2315-CESTAT-MUM] M/s Chiplun Nagari Sahakari Patsanstha Ltd. vs. Commissioner of Central Excise, Kolhapur

fiogf49gjkf0d
Services provided by a co-operative society lub to its own members is not chargeable to service tax.

Facts
The Appellant is a Co-operative Society of members and is engaged in accepting deposits from their members and distributing the said amounts as loan to its own members and is not extending loans to outsiders. In order to process loan applications certain charges are levied from the members incurred for stationery and other expenses. The department contended that these charges are collected in the course of rendering services under the category of Banking and Other Financial services.

Held
The Tribunal, in order to determine the ratio of tax liability on the members of a society relied on the decision of the High Court of Gujarat in the case of Green Environment Services Co-op. Soc. Ltd. [2015 (37) STR 961 (Guj.)] wherein the Court declared “Club and Association” service ultravires to the extent the services are provided by the Club to its members. Accordingly, applying the said ratio the order was set aside and the appeal was allowed.

[2015-TIOL-2691-CESTAT-MUM] D S Chavan Engineering Works vs. Commissioner of Central Excise and Customs, Nasik

fiogf49gjkf0d
The scope of work order indicating a specific job to be undertaken by the Appellant cannot be considered as a supply of manpower.

Facts
The Appellant had contract on a firm rate basis for welding and gas cutting on various locations of NTPC. The department contended that the control is exercised by NTPC and welding machine, electricity and gas required was given by them and the Appellant was required to supply manpower and accordingly liable under “Manpower Recruitment and Supply Agency Service”. Further, a demand was also raised on the cleaning services.

Held
Relying on the decision of the Bombay High Court in the case of Commissioner of Customs & Central Excise & Service Tax vs. Godavari Khore Cane Transport Company P. Ltd [2015-TIOL-253-HC-MUM-ST], the Tribunal held that work order does not indicate supply only of the manpower, on the contrary, scope of work indicates a specific job of welding and gas cutting to be done. Accordingly the liability under ‘Manpower Recruitment and Supply Agency” is set aside. As regards cleaning services, without contesting service tax along with interest was discharged. Observing a genuine misunderstanding, the Court dropped the penalty by invoking section 80 of the Finance Act, 1994.

[2015] 63 taxmann.com 231 (New Delhi- CESTAT) Rohan Motors vs. Commissioner Service Tax

fiogf49gjkf0d
If penalty is imposed u/s. 77(1)(c)(ii) of the Finance Act, 1994 for failure to produce documents called for, the Department has to state specifically which document was called from the appellant.

Facts
Based on information from CERA Auditors, the Range Superintendent issued 5 letters/summons to the assessee, to submit the requisite information. Since no information was submitted the Show cause notice was issued to assessee, inter alia for imposition of penalty u/s. 77(1) of the Act for failure to furnish information/ documents. The assessee, on the other hand contended that, the department asked for repetitive information and that requisite details called for were provided by it, hence penalty u/s. 77 cannot be levied.

Held
The Tribunal noted that as per the adjudicating authority the appellant failed to respond to letters and submit desired information and therefore penalty was imposed u/s. 77(1)(c) of the Act; whereas the first appellate authority found that though information was supplied vide reply letters, it failed to submit documents and thus confirmed the penalty. Based on these contrary observations, the Tribunal expressed a view that the department itself is not sure whether the appellant is guilty of failure to furnish information or failure to produce documents. It held that, if penalty is imposed u/s. 77(1)(c)(ii), the Department has to state specifically which document was called from the appellant. The show cause notice does not specify the document that was called for. Imposition of penalty being in the nature of punishment, it cannot be imposed on flimsy and shaky evidence. It was further observed that, it is not a case where the department was obstructed from conducting a search or that a specific document was withheld resulting in particular revenue implication. Accordingly, it held that, though the appellant failed to reply to few letters, the explanation for failure that the appellant was under bona fide belief that necessary information was given cannot be rejected in toto and therefore imposition of penalty is not justified.

[2015] 63 taxmann.com 20 (Mumbai – CESTAT) Hiranandani Constructions (P) Ltd. vs. Commissioner of Central Excise, Thane-I

fiogf49gjkf0d

Maintenance Charges collected by builders from prospective buyers for payment of local taxes and other charges would not attract service tax.

Facts
The adjudicating authority held that the maintenance charges recovered from the prospective flat buyers towards management, maintenance or repair service are liable for service tax.

Held
Relying upon decision of Tribunal in the case of Kumar Beheray Rathi vs. CCE [2013-TIOL-1806-CESTAT-MUM] and Goel Nitron Constructions vs. CCE [2015-TIOL-1787- CESTAT-MUM], it was held that no service tax liability arises on the appellant under the category ‘Management, Maintenance or Repair Service’ for the amounts collected by them from the prospective flat owners.

2015 (40) STR 509 (Tri. –Bang.) Kakinada Seaports Ltd. vs. C.C.E., S.T, & Cus., Visakhapatanam- II

fiogf49gjkf0d
Order cannot be set aside only on the grounds that the provision is not quoted properly in SCN specifically if the assessee is aware of the provisions of law. Service Tax cannot be demanded from service receiver under RCM if service provider has already discharged the same. CENVAT credit availed on the basis of Challan of service provider may be eligible document for availment of CENVAT Credit if it contains all the requisite details. CENAVT credit cannot be denied on the ground that service provider was eligible for exemption.

Facts
The appellant engaged in providing “other port services” in Kakinada Port were issued Show cause notice (SCN) for the period post negative list of services under Reverse charge mechanism (RCM) for business support services and also with respect to CENVAT credit availed on certain input services. It was contested that during the period under consideration, definition of Business Support Services had to be referred u/s. 65B as against section 65 of the Finance Act, 1994 as provided in SCN. Though there was nothing regarding introduction of negative list of services in SCNs and orders, there was no mention that section 65 ceased to have effect. Since RCM was introduced recently on such services, due to ignorance, service tax was already discharged by service provider in routine manner. Therefore, tax cannot be demanded twice on same transaction. Further CENVAT credit availed on the basis of acknowledgment of service provider was disallowed by department. However, the appellant contended that they had availed CENVAT credit on the basis of challan of service provider which must be considered to be valid document for availing CENVAT Credit. Further, CENVAT credit was denied on certain input services and capital goods were contested by the appellant. CENVAT credit was also denied on the ground that input services were eligible for exemption.

Held
The services were covered under business support services either before or after negative list. Even though specific provision were not quoted, the entire demand cannot be set aside especially in view of the fact that RCM and introduction of negative list were mentioned in SCNs and orders. In the scenario of self-assessment, the assessee would be aware of classification and the fact that the assessee contended that section 65 ceased to be in effect, reveals that the assessee was not prejudiced due to omission of section in SCN. Further since service provider had already discharged service tax, even though not liable, demand of service tax cannot be sustained on service receiver. In this case, as a remedy, penalty may be imposed for contravention of law but no penalties may be imposed for non-payment of service tax. It was held that CENVAT Credit was available on the basis of challan (containing all requisite details) under RCM and therefore, it was considered to be sufficient document for availment of CENVAT credit. CENVAT Credit was also allowed on health services, insurance services, Rent-a-cab services, works contract services in relation to erection and installation activity. It was also held that CENVAT credit cannot be denied on the ground that service provider was eligible for exemption.

2015 (40) STR 519 (Tri.-Del.) Mannat Farms vs. CCE & ST, Ghaziabad

fiogf49gjkf0d
The discretion to condone delay is not a personal discretion of the Appellate Commissioner but is discretion of law and should be exercised appropriately as law requires.

Facts
The appellant preferred an appeal to Commissioner (Appeals) with a delay of 29 days beyond the period of limitation. Since the Commissioner (Appeals) is granted discretionary powers to condone delay upto 30 days, the appellant pleaded to admit the appeal citing the reason that his wife was ill and provided medical certificate to this effect. The Commissioner (Appeals) dismissed the appeal observing that the wife of appellant had no specific role to play in day-to-day affairs of the firm and nothing was brought on record to show that illness of wife had affected the business of the firm.

Held
Having regard to the peculiar facts of the case, condonation of delay should be liberally considered. The discretion to condone delay is not a personal discretion of the Commissioner and the same should be exercised properly as dictates of law require. It was perverse for the Appellate commissioner to hold that care of a spouse and need to attend to her was not a relevant criterion. Accordingly, order was set aside.

2015 (40) STR 547(Tri. –Delhi) Coca Cola (I) Pvt. Ltd. vs. CST, Delhi

fiogf49gjkf0d
Best judgment order not sustainable if it is non-speaking, does not disclose reasons and is arbitrary.

Facts
The
adjudicating authorities confirmed demand of service tax on certain
foreign expenditure under reverse charge mechanism (RCM) and also on
certain incomes to be in the form of services liable to service tax.

A
‘Best Judgment Order’ was passed on the basis of documents submitted
vide section 72 of the Finance Act, 1994. Also certain expenses like
renting of immovable property and supply of movable property for use in
India were wrongly construed as income. Further share in the expenses
relating to marketing support were treated as income. On perusal of the
records and correspondence, it appeared that adjudicating authority had
just reproduced the facts and the definitions as given under law and no
speaking order was passed citing reasons for such best judgement
assessment without providing explanations.

Held
Adjudicating
authority merely reproduced assessee’s submissions and there were
hardly any reasons to justify demand. After analysing various paragraphs
of the impugned order which were either a reproduction or irrelevant,
the Tribunal observed that the analysis therein was cryptic and
inadequate to arrive at the findings. The order was completely
non-speaking about the methodology/reasons/grounds adopted for arriving
at ‘Best Judgment’ figures.

In fact, the authority was not even
sure whether it was justified to invoke best judgment assessment in the
present case which was evident from the phrase used in impugned order as
‘In order to safeguard the revenue, I find that section 73 appears to
be inviolable…”This was an arbitrary best judgment assessment and
therefore, was not sustainable quasi-judicially. Appreciating the
observations made by the Hon’ble Supreme Court in case of M. L. Capoor
(AIR 1974 SC 87), it was held that the adjudicating authority was
conspicuously non-speaking, non-reasoned, arbitrary and cavalier while
passing the impugned order. Accordingly, along with setting aside the
impugned order, costs were imposed on adjudicating authority to be
deposited in Prime Minister’s National Relief Fund.

2015 (40) STR 537 (Tri. – Mum.) Osho International Foundation vs. CCE, Pune

fiogf49gjkf0d

In case there is a change in the view of CBEC regarding taxability, the same shall be applicable from the date when such change took place and was informed to the assessee.

Facts
The appellants provided services relating to meditation, yoga and massage. The department contested the same to be “health and fitness services”. It was contended that the activities of meditation were spiritual in nature. Therefore, the same is not liable to service tax. In 2003, Chief Commissioner, Pune informed CBEC’s view to the appellants that the activities of meditation and yoga would not be taxable. Thereafter, CBEC, on request for clarification by Commissioner, Pune, informed that Service tax was leviable on the said activity. Therefore, even if services are adjudged taxable, tax shall be payable only from the day there is a change in view of the department. However, since the definition of health and fitness centre included meditation specifically, department strongly submitted that the activities were taxable.

Held
Though, the activities of Yoga and Meditation were taxable, since there was a change in view of the highest body of indirect taxes, the same would be applicable only from the date when the change of view took place and informed to the assessee. Therefore, the demand prior to such clarification was set aside.

2015 (40) STR 560 (Tri.–Mum.) Kunal IT Services Pvt. Ltd. vs. CCE, Pune-III

fiogf49gjkf0d
The franchisee may be liable to pay service tax only on the amount paid to him by the franchisor provided the total amount is first received by the franchisor.

Facts
The appellants took-up franchise and provided Commercial Coaching and Training Services. The course fees were collected and deposited in the accounts of Franchisor. Service tax was paid on 80% of fees received from the franchisor. Revenue authorities demanded service tax on full amount of the fees received. It was argued that the amount collected and deposited to Franchisor’s account was not in the nature of consideration. In contrast, Department was of the view that the fees received and was ‘gross amount received’ for provision of services.

Held
Appellant were service provider and students were service receiver. Having regard to section 67 of the Finance Act, 1994, it was observed that the gross value charged for provision of services was only 80% of the fees in view of the peculiar fact that the cheques issued by students were directly drawn in the name of Franchisor. Accordingly, appeal stood allowed.

2015 (40) STR 608 (Tri. –Del.) Tanay Landcon India Pvt Ltd. vs. CCE & ST, Jaipur

fiogf49gjkf0d
Adjudicating authorities should pass the orders only after considering evidences on record. In case of doubt regarding facts of the case, adjudicating authorities should resort to means to gather the correct facts of the case as against passing order without any basis. It is a misconception that the burden of proof is on assessee in case of allegation by department.

Facts
Show Cause Notice was issued proposing recovery of irregular availment of CENVAT Credit in violation of Rule 6 of CENVAT Credit Rules, 2004 for failure to maintain separate accounts of CENVAT credit on common inputs used for taxable as well as exempted services. It was submitted that it had only availed credit of inputs and input services used for providing taxable services. Further, Show cause notice (SCN) failed to reveal any basis for the allegation of irregular availment of CENVAT credit. The adjudicating authority completely disregarded the submissions and observed that it is not the duty of the Department to establish that the appellant have not maintained separate records.

Held
The Tribunal held that the adjudication order jumped to the conclusion of irregular availment of Cenvat credit without substantiating it by any material evidence or analysis. Even when the contention was not accepted, the adjudication order mentioned that the appellant did not dispute availment of CENVAT credit on common inputs and input services. In case of doubt by revenue authorities, it ought to have summoned the appellants’ records or should have verified from their premises whether the they had correctly pleaded to have maintained separate records or not. If no summons were issued and there was a failure to inspect records, conclusion regarding non-maintenance of separate accounts was without any basis. It was also held that It is a misconception that the burden of proof is on assessee in case of allegation by department. In the present case, in absence of clear findings regarding non-maintenance of separate accounts by the appellants without any evidence, the inference of failure to maintain separate records is perverse. In order to enable the adjudicating authority to pursue judicial discipline in recording adjudication orders and eschew perversity in adjudication functions, matter was remanded back for fresh adjudication on the basis of observations made in this order.

[2016] 65 taxmann.com 130 (Ahmedabad-CESTAT) Sunflag Filaments Industries vs. Commissioner, Central Excise & Service Tax, Vapi

fiogf49gjkf0d
Where exemption is granted subject to nonavailment/ non-utilisation of CENVA T credit, utilisation of CENVA T credit which was to lapse in terms of Rule 11(3) of CENVA T Credit Rules would not result in denial of exemption, but would only result in action under Rules 14 & 15.

Facts
The Appellant opted for Exemption Notification No. 30/2004-CE for duty free clearances of their finished product on 01/08/2005 which was on the condition of nonavailment of CENVAT credit of duty on inputs or capital goods. Therefore, credit on inputs available in stock on that date was reversed and duty was paid on clearance of finished goods in stock on 01/08/2005. However, they also had excess credit in CENVAT account which pertained to the credit of duty on inputs which were already utilised in the manufacture of the finished goods which were cleared on payment of duty before the said date. In the absence of any clarification regarding treatment for such excess, the same was not reversed.

Subsequently, Rule 11(3) of CENVAT credit Rules, 2004 was inserted from 01/03/2007 providing lapsing of such excess CENVAT credit available on date of opting exemption notification. The Appellant did not allow such credit lying in their account as on 01/03/2007 to lapse and utilised portion of it for payment of duty for some other purposes. The Adjudicating authority held that because of this utilisation of excess credit as on 01/03/2007, the benefit of exemption notification was not available.

Held
The Tribunal observed that the Appellant fulfilled the conditions of the notification on the date of their opting for the same and thereafter. However, the only lapse was that they had not expunged the excess credit they had in their account when Rule 11(3) of the CENVAT Credit Rules 2004 was introduced on a subsequent date. In such circumstances violation of Rule 11(3) should invite necessary action under Rules 14 & 15 of CENVAT Credit Rules 2004 only and cannot be extended to the extent of denying the benefit of the substantial notification for that mere reason.

[2016-TIOL-1104-CESTAT-MUM] Benzy Tours & Travels Pvt. Ltd vs. Commissioner of Service Tax, Mumbai-I

fiogf49gjkf0d
The provisions of section 11B of the Central Excise Act, 1944 applies to every case of refund irrespective of the fact that the payment is made without authority of law.
Facts

The Appellant wrongly paid service tax and made an application for refund. The refund claim was rejected stating that it was filed beyond one year from the relevant date as provided under section 11B of the Central Excise Act, 1944. It was argued that the payment made was without authority of law and therefore was not barred by limitation.

Held

The Tribunal noted that in every case of refund the amount is refundable only where it is not payable, accordingly the section will not apply for the reason that it is neither service tax nor excise duty. If this is accepted then section 11B will stand redundant. Therefore it was held that when payment is made under a particular head such as service tax, excise duty etc. the subsequent refund of the amount not payable should be treated as refund of service tax / duty only and therefore the time limitation provided under section 11B shall apply.

Note: (Readers may note that the decision has distinguished the decision of Geojit BNP Paribas Financial Services Ltd [2015-TIOL-1602-HC-KERALA-ST] reported in August-2015 issue of BCAJ, decision of Madhvi Procon P. Ltd [2015-TIOL- 87-CESTAT-AHM, Jyotsana D.Patel [2014-52 taxmann.com 255 (Mumbai-CESTAT )] referred to in February 2015 issue of BCAJ).

[2015] 60 taxmann.com 203 (New Delhi CESTAT) – CCE, Chandigarh vs. A.S. Financial

fiogf49gjkf0d
Marketing services provided to a Bank using their publicity material
cannot be regarded as service provided under brand name/trade name of
Bank – Benefit of small scale service provider’s exemption available.

Facts:
Assessee
in terms of agreement with ICICI Bank was providing service of
promotion and marketing. Threshold exemption was claimed for commission
received for said services. Department denied exemption on the ground
that assessee was acting as the franchisee of ICICI and was providing
services under their brand/trademark and hence was not eligible for
threshold exemption under notification no. 6/2005-ST.

Held:
The
Tribunal held that just promoting products of the Bank by using their
publicity materials or displaying banners showing “franchise of ICICI”
would not mean that assessee was providing business auxiliary services
to the Bank, under the brand of ICICI. Services provided by the assessee
are business auxiliary services and the services provided by the Bank
are banking and financial services and assessee is not the franchisee of
the Bank as it is not providing financial services by using business
model or the trade name of the Bank. It is not the case where assessee
was paying some amount to the Bank for using its brand name or trade
name. On the contrary, it is the Bank which is paying to the assessee
for providing the marketing services. Hence, benefit of threshold
exemption is available.

levitra

2015 (39) STR 612 (Tri.-Bang.) Embitel Technologies (India) Pvt. Ltd. vs. CST, Bangalore

fiogf49gjkf0d
Refund of CENVAT credit for want of registration at the time of exports and availment of CENVAT credit cannot be rejected. Subsequent registration shall also be considered sufficient compliance for refund of CENVAT credit.

Facts:
The Appellants claimed refund of accumulated CENVAT credit used for export of services. Refund claim was rejected on the premise that during the period of availment of CENVAT credit and making exports, the Appellants were not registered. It was contended that the issue is no longer res integra and it was squarely covered in case of mPortal India Wireless Solutions Pvt. Ltd. vs. CST, Bangalore 2012 (27) STR 134 (Kar.). The Department claimed that the said decision was not applicable to the facts of the case since the notification in the present case specifically requires export to be made from the registered premises. The Department placed reliance on the Hon’ble Supreme Court’s decision in case of CCE, New Delhi vs. Hari Chand Shri Gopal 2010 (260) ELT 3 (SC) wherein it was held that conditions of notification should be strictly followed and there cannot be any differentiation between substantive conditions and procedural conditions.

Held:
Para 3 of the said notification was related to submission of application and the reference to registered premises was for the limited purpose of determining where the refund claim shall be filed. There is no bar or prohibition in the law for making exports from unregistered premises. Relying on the decision of mPortal India Wireless Solutions Pvt. Ltd. (supra), the Tribunal observed that there is no condition of registration for availment of CENVAT credit in CENVAT Credit Rules, 2004. In fact, it is a settled law that an assessee is entitled to CENVAT credit even in cases of clandestine removal and during unregistered period. Once CENVAT credit is admissible and the same cannot be utilised and when the rule provides for refund, such refund cannot be rejected. In any case, subsequent registration, of the premises from where exports took place, is also enough. The decision in Hari Chand Shri Gopal (supra) was not applicable in the present case since there was no condition in the Notification which required the assessee to register the premises. Accordingly, refund claim was allowed. However, the matter was remanded to original authority for verification of the correctness of the amount claimed.

levitra

Canteen services are eligible input service for availment of CENVAT credit even if there is no statutory requirement of provision of food to workers in the factory

fiogf49gjkf0d
41. 2015 (40) STR 265 (Tri. – Del.) Paramount Communication Ltd. vs. CCE, Jaipur-I.

Canteen services are eligible input service for availment of CENVAT credit even if there is no statutory requirement of provision of food to workers in the factory

Facts

CENVAT credit on outdoor catering services relating to provision of food to less than 250 factory employees is disallowed. The Larger Bench’s decision in the case of CCE vs. GTC Industries Ltd. 2008 (12) STR 468 (Tri.-LB) is not followed on the ground that the assessee was not under a statutory obligation (more than 250 workers) to provide canteen services and therefore, CENVAT credit is denied.

Held

On perusal of the Larger Bench decision in the case of GTC Industries Ltd. (supra), the following points were observed: Though the number of workers was one of the criteria for eligibility of CENVAT credit, distinction cannot be made on the basis of reasoning adopted by the Larger Bench. What has to be seen is the ratio of law and if it is applicable, CENVAT credit is allowable. In the said case, outdoor catering service is held to be eligible input service irrespective of the fact that subsidised food was provided or not or whether the cost of the food was given by the worker or by the factory. Following the decision in the case of GTC Industries Ltd. (supra) and also Karnataka High Court’s decisions in the case of CCE, Bangalore vs. Stanzen Toyotetsu India (P) Ltd. 2011 (23) STR 444 (Kar) and CCE vs. ACE Designers Ltd. (Kar) 2012 (26) STR 193 (Kar) and appellant’s own case Paramount Communication Ltd. vs. CCE 2013 (287) ELT 70 (Tri.- Del.), the appeal is allowed.

Waiver from penalty u/s. 80 shall be available if levy on service was subject to dispute and retrospective amendments are made to the provisions of law.

fiogf49gjkf0d
40. 2015 (40) STR 280 (Tri.–Ahmd.) Sethi Tools Pvt. Ltd. vs. CCE. CUS & ST. Vadodara-II.

Waiver from penalty u/s. 80 shall be available if levy on service was subject to dispute and retrospective amendments are made to the provisions of law.

Facts

Section 80(2) of the Finance Act, 1994 prescribed nonlevy of penalty for failure to pay service tax payable on renting of immovable property as on 6th March, 2012 subject to payment of tax and interest within 6 months from enactment of Finance Bill, 2012. The appellant paid service tax belatedly but before introduction of the said section 80(2). Penalty was imposed as section 80(2) was not in existence during the period under consideration. The Appellant relied on the case Camex Reality Pvt. Ltd. vs. CST, Ahmedabad 2014 (36) STR 444 (Tri.-Ahmd), and prayed for waiver of penalty.

Held

Assessee who had already paid taxes before introduction of section 80 (2) of the Finance Act, 1994 cannot be put to a disadvantage vis-à-vis taxpayer making delayed payment on the same service at a later date. In any case, chargeability of such service was in dispute. Therefore, there was a reasonable cause for non-payment of tax which shall get covered u/s. 80 even before introduction of section 80(2) of the Act.

Intention of Rule 6(1A) of STR is to grant adjustment of excess service tax paid in advance towards forthcoming tax liability. Non furnishing of intimation for advance payment is merely a procedural lapse and denial of adjustment on this ground is not justified.

fiogf49gjkf0d
39. 2015 (40) STR 247 (Tri. –Mumbai) Garima Associates vs. CC & CE, Chandrapur.

Intention of Rule 6(1A) of STR is to grant adjustment of excess service tax paid in advance towards forthcoming tax liability. Non furnishing of intimation for advance payment is merely a procedural lapse and denial of adjustment on this ground is not justified.

Facts

Rule 6(4A) of Service Tax Rules, 1994 as it stood then allowed adjustment for excess payment of service tax upto Rs.1,00,000/-. The appellant submitted that it was a case of advance payment of service tax covered under Rule 6(1A) of the said Rules wherein no such limit was prescribed. However, the department argued that it is covered under Rule 6(4A) of the said Rules as it was reflected so in the ST-3 return and therefore, due to procedural lapse of not furnishing requisite intimation within 15 days to jurisdictional Superintendent of Central Excise, the adjustment is denied.

Held

Excess payment is nothing but advance payment. Such excess payment and adjustment thereof is reflected in service tax returns. On scrutiny of the returns, these facts were evident. Therefore, it can be said that the appellant complied with the conditions prescribed under Rule 6(1A) of the Service Tax Rules though not scrupulously. Mere non-observance of procedure cannot be the sole reason for denial of adjustment. Intention of Rule 6(1A) is to grant adjustment of excess service tax paid in advance towards forthcoming tax liability. Denial of such adjustment would unjustly enrich Government with excess amount which cannot be the intention of law. It is no longer res integra that service tax cannot be recovered twice in respect of the same service and therefore the adjustment is allowed. [Note: It is to be noted that Rule 6(4A) of the Service Tax Rules has been amended and with effect from 1st April, 2012, there is no limit for the amount of adjustment of excess service tax paid].

Service tax is not leviable on marketing of mutual funds and bonds. The decision by Andhra Pradesh High Court has set aside CBEC circular dated 05/11/2003 clarifying that these services are Business Auxiliary Services.

fiogf49gjkf0d
38. 2015 (40) STR 187(Tri-Del.) Comm. of Service Tax Delhi vs. ABN Amro Bank.

Service tax is not leviable on marketing of mutual funds and bonds. The decision by Andhra Pradesh High Court has set aside CBEC circular dated 05/11/2003 clarifying that these services are Business Auxiliary Services.

Facts

The appellant was engaged in business of marketing mutual fund units and were also selling bonds issued by banking and non-banking companies. The first appellate authority on the basis of the Andhra Pradesh High Court judgement in case of Karvy Securities vs. Union of India 2006 (2) STR 481 granted relief. Revenue challenged the decision before the Tribunal citing the CBEC circular dated 05/11/2003 providing that the said activity is taxable.

Held

The Tribunal upheld the order and held that services are not taxable as CBEC circular dated 05/11/2013 was struck down by the Andhra Pradesh High Court in the case of Karvy Securities (supra).

Recovery u/s. 87 of the Finance Act, 1994 can be resorted to only after an amount is adjudicated to be due to the Central Government.

fiogf49gjkf0d
37. [2015-TIOL-2451-HC-AHM-ST] Gopala Builders vs. Directorate General of Central Excise Intelligence.

Recovery u/s. 87 of the Finance Act, 1994 can be resorted to only after an amount is adjudicated to be due to the Central Government.

Facts

Search operations were carried out at the Appellant’s premises. Several irregularities were noticed in the payment of service tax. Additional amounts were paid in the course of investigation. Subsequently notices were issued u/s. 87 of the Finance Act, 1994 to their debtors with a direction that monies payable to the Appellant be deposited in the Government treasury. Thereafter a Show Cause Notice was issued. Since notices were issued to their debtors for an amount determined unilaterally without issuance of Show Cause Notice, the present writ is filed.

Held

The Hon’ble High Court relying on the decision of the Uttarakhand High Court in the case of R.V. Man Power Solution vs. Commissioner of Customs and Central Excise [2014-69-VST-528] held that recovery u/s. 87 of the Finance Act, 1994 can be resorted to only after an amount is adjudicated to be due to the Central Government. Therefore, such drastic measures adopted

Service tax paid wrongly can be claimed as CENVAT credit.

fiogf49gjkf0d
Facts

The Assessee, a manufacturer, wrongly paid service tax on a non-taxable service and claimed CENVAT credit to that extent. The department argued that if tax was paid wrongly or in excess, the only course open was to claim refund and not to make use of CENVAT credit. The Tribunal ordered in favour of the Assessee and the department is in appeal.

Held

The High Court held that if the assessee had paid the tax that he was not liable to pay and is entitled to certain credits, the availing of the said benefit cannot be termed as illegal and accordingly dismissed the revenue appeal.

Services of restaurants, hotels, inns, guest houses or clubs with air conditioning facility are liable to service tax and Parliament is competent to levy it.

fiogf49gjkf0d
35. 2015 (40) STR 51 (Kar) Ballal Auto Agency vs. Union of India.

Services of restaurants, hotels, inns, guest houses or clubs with air conditioning facility are liable to service tax and Parliament is competent to levy it.

Facts

The appellant is engaged in business of running hotels and restaurants. They are registered under Karnataka VAT Act, 2003 and paid regular VAT on the said transactions. It was contended that the said transaction is covered under Article 366(29A) and therefore no service tax would be leviable as it is beyond the powers of the Parliament and the State Government is authorised to tax this transaction. Further, the Parliament has no legislative competence to amend the Finance Act, 1994 to include restaurant services in taxable services. The Respondent argued that service tax is leviable under entry 97, which deals with matters not enumerated in List II and III, which derives its power from Article 248.

Held

The High Court confirmed the legislative competence of Union by placing relevance on “aspects theory” whereby the same transaction can have two taxable events of different nature. Under this theory, the taxes are imposed by two different statutes for two different reasons. Therefore, in transactions of composite nature like restaurant service, both legislatures have power to tax it and not solely the State Government. Relying also on Bombay High Court’s decision in case of India Hotel and Restaurants Association, it is held that service tax is leviable on such transaction.

The main objective of Rule 6 of CENVAT Credit Rules, 2004 is to ensure that CENVAT credit is not availed in respect of inputs or input services used in or in relation to exempted goods or for exempted services. Rule 6(3) (ii) of the said Rules providing for payment of 5% on exempted services does not apply automatically, if the assessee fails to opt either of the options with respect to reversal of CENVAT credit.

fiogf49gjkf0d
42. 2015 (40) STR 381(Tri. – Mumbai) Mercedes Benz India (P) Ltd. vs. CCE, Pune-I.

The main objective of Rule 6 of CENVAT Credit Rules, 2004 is to ensure that CENVAT credit is not availed in respect of inputs or input services used in or in relation to exempted goods or for exempted services. Rule 6(3) (ii) of the said Rules providing for payment of 5% on exempted services does not apply automatically, if the assessee fails to opt either of the options with respect to reversal of CENVAT credit.

Facts

The appellant is engaged in manufacturing activities as well as trading activities (considered as exempt service with effect from 1st April, 2011). In March, 2012, the appellant filed an intimation with respect to their reversal of CENVAT credit along with interest on common input services under Rule 6(3A)(b) of CENVAT Credit Rules for Financial Year 2011-2012. The appellant neither maintained separate records for receipt and consumption of common input services nor availed CENVAT credit only to the extent of taxable activities. The Department denied availment of such option in view of non-observance of conditions of Rule 6(3A) read with Rule 6(3)(ii) on the grounds that intimation for availment of option under Rule 6(3A) was not conveyed giving respective particulars and the amount was not determined and paid provisionally every month. Consequently, huge demand equivalent to 5% of value of exempted services i.e. trading turnover along with interest and penalty was raised in terms of Rule 6(3) (i) of CENVAT Credit Rules. The demand was confirmed on the sole ground of non-observance of conditions provided under the said Rule 6(3A). Since there was no condition of intimation at the beginning of financial year, the appellant stated that they had legally opted to reverse CENVAT credit vide Rule 6(3A). Further, it was contended that manufacturer has to mention the date from which such option is exercised or proposed to be exercised. Therefore, the intention to grant benefit of such option was at the discretion of assessee. The intimation could be filed even after exercising such option. Further, the amount to be paid every month was on provisional basis and the final amount of reversal of CENVAT credit has to be made only before 30th June of next year. Therefore, none of the conditions were violated. Though intimation was not provided in the prescribed format, all the requisite information, directly or indirectly, were either furnished or available with the department. In any case, there was no provision in law that if the procedure as provided under Rule 6(3A) was not followed, automatically Rule 6(3) (i) would apply in such cases. Reliance was placed on the decision of the same Jurisdictional Commissioner in the case of Tata Technologies Ltd., wherein on identical facts, demand was dropped and no appeal was made thereafter.

Held

There are 3 options available to the appellants vide Rule 6(3) of the Rules for reversal of CENVAT credit of common input services used in manufacturing as well as exempted services i.e. trading of goods and they were free to choose any option. Department cannot insist upon the appellants to follow one particular option. The foremost condition of payment of amount vide a formula was fulfilled though belatedly with interest. More or less all the particulars were intimated to department vide returns and letters, though not vide intimation in prescribed format. Though there is no time limit for filing intimation, the appellant should file intimation before exercising the option. Nonetheless, it can be considered a procedural lapse. F.Y. 2011-12 was the initial period for trading being condoned as exempted service. Admittedly, Rule 6(3)(i) of the Rules does not apply automatically if the assessee does not opt for any option available under the said Rules, Rule 6 is not enacted to extract illegal amount from the assessee. Its main objective is to ensure that CENVAT credit is not availed in respect of inputs or input services used in or in relation to exempted goods or for exempted services. The demand was accordingly quashed.

Secretary of Tamil Nadu vs. M/S. Chitra Timber Traders, [2013] 62 VST 277

fiogf49gjkf0d
Central Sales Tax – Inter-State Stock Transfer to Agent – Agent Supplying Goods Directly to His Customer for Sale in Other State – After Making Payment for Lorry Freight, Octroi, etc.- Is Consignment Sale and Not Inter-State Sale, section 3(a) of The Central Sales Tax Act, 1956.

FACTS
Respondent a dealer in Timber had supplied goods to his agent outside the State and claimed inter-state stock transfer against form F and was assessed accordingly under the CST Act. Thereafter, the Deputy Commissioner of sales tax, based on verification report received from the enforcement department, revised the assessment order under the CST Act and disallowed the claim of consignment sales on the ground that the goods were supplied directly to the buyer and goods were never reached to the agent. Therefore, the revising authority treated it as inter-state sales and levied tax under the CST Act. The Tribunal allowed the appeal filed by the respondent dealer against which State filed writ petition before the Madras High Court.

Held
It is very clear that the delivery note itself contains the name of the agent and it is also very clear that the payment made to the respondent by the agent was only a net amount after deducting commission amount from total sales. If it was not consignment where was the question of payment of commission? Further, the agent had paid lorry freight, octroi, unloading charges and measurement charges for the goods transported to another buyer. This fact was verified by the assessing authority while allowing exemption which was not considered by the first appellate authority. Hence, the Tribunal had rightly considered this matter and categorically came to the conclusion that it was a clear cut sale outside the State and rightly the exemption was granted. Accordingly, the High Court dismissed the writ petition filed by the Sate and confirmed the order of Tribunal allowing the appeal of the respondent dealer.

levitra

M/S. Mahabaleswarappa & Sons vs. Assistant Commissioner, [2013] 62 VST 241 (AP)

fiogf49gjkf0d
Central Sales Tax – Claim of Deemed Export – Form H – Need Not to be Submitted Quarterly, R.12(10)(a) of The Central Sales Tax (Turnover and Registration) Rules, 1957.

Facts
The petitioner filed Form H covering sales made to exporter for entire year of 2006-07 and claimed exemption from payment of tax as deemed export u/s. 5(3) of the act which was accepted in assessment. Later on, revising authority disallowed the claim of exemption from payment of tax against form H on the ground that H form for quarterly period was not submitted. The petitioner’s appeal was dismissed by appellate authority including tribunal. The dealer filed writ petition before the Andhra Pradesh High Court against the order of the Tribunal.

Held
The Rule 12(10(a) of The Central Sales Tax (Turnover and Registration) Rules, 1957 mandates dealer to file declaration in form H duly signed by the exporter. Plain and literal reading of this rule would not admit to any such interpretation that a dealer should submit declaration in H form quarterly. Accordingly, the High Court allowed writ petition filed by the dealer and directed the revisional authority to consider the revision taking in to consideration all the material filed by the petitioner including declarations in H form.

levitra

M/S. Aspick Engineering (P) Ltd. vs. State of Tamilnadu, [2013] 62 VST 216 (Mad),

fiogf49gjkf0d
Central Sales Tax Act – Local or Inter-State Sale – No written Agreement – Goods Delivered to Buyer Within State – That the Buyer Moved Goods At His Own Cost Not Decisive – Transaction is Inter-State Sale, section 3 of The Central Sales Tax Act, 1956.

FACTS
The petitioner company effected sale to the M/S. Vijayshree Colata Ltd., Warora, claimed it an inter-state sale. The assessing authority treated it as local sale as there was no written agreement, the goods were delivered locally, the price was ex-godown and the goods were moved out of the State by the buyer. The appellate authority including the Tribunal confirmed the assessment order. The appellant filed appeal before the Madras High Court against the order of the Tribunal upholding the assessment order treating it as local sale.

HELD
The terms of the agreement between parties are evidenced only by the dispatch details, indicative of the understanding between the parties. Given the fact that an agreement need not be in writing, the one and only ground on which the claim of inter-state sale could be considered is the factum of movement of goods pursuant to the contract of sale. If the sale effected by the assessee and the movement thereon are inextricably and intimately connected with each other, then the one and only interference that would flow from the same is that it is an inter-state sale. The fact that the purchaser has borne the insurance charges or the seller had born the insurance charges or that the purchaser had moved the goods at their own cost would not be a decisive factor for the purpose of determining the nature of sale as inter-State sale or not. The criteria for considering the transaction as an inter-state sale or not is the movement of goods intimately connected with the sale. The High Court further held that the Tribunal and the other authorities had misdirected themselves in placing emphasis on the transport and insurance made by the purchaser as indicators of the sale being local sale. With the movement and the sale inextricably connected, the High Court allowed the appeal and treated it as an interstate sale.

levitra

M/S. Katuri Medical College and Hospital vs. CTO, [2013] 62 VST 185 (AP).

fiogf49gjkf0d
Value Added Tax – Recovery Of Tax – Garnishee Proceedings – Issue of Notice Directing Bank to Remit the Tax – During the Pendency of Revision Petition – Against Order Rejecting Stay Application – Set Aside – Directed to Remit Back the Amount Recovered – Cost Awarded, section 29 of The Andhra Pradesh Value Added Tax Act, 2005.

FACTS
The Petitioner is a charitable trust and also registered under the AP VAT Act had filed appeal against the assessment order passed by the assessing authority and also file application for stay. The appellate authority rejected the application for stay by passing non speaking order. The Petitioner filed revision petition before the higher revisional authority. During the pendency of the revision petition, the assessing authority invoking power u/s. 29 of the Act issued notice directing the Bank, where the petitioner had account, to remit the disputed amount. The Bank remitted the amount to the assessing authority. The Petitioner filed writ petition before the AP High Court against the Garnishee order issued by the assessing authority directing the bank to remit the amount to the department.

HELD
If recoveries of disputed tax or penalty are made, where stay application is pending before the appellate authority, the appeal itself would be rendered infructous and that the assessee who is aggrieved by an order of assessment is given a statutory right of appeal which cannot be rendered infructous by being forced to pay the disputed amount pending the appeal. This will apply to a situation where the first appellate authority rejects the stay application and a revision is preferred by the assessee before the revisional authority seeking stay of the disputed amount. Therefore it would be just and proper for the assessing authority to await the disposal of the revision petition by the revisional authority. The High Court strongly deprecated the conduct of the assessing authority and held it to be arbitrary and high handed and awarded cost to the department of Rs. 10000/- payable to the petitioner. Accordingly, the High Court allowed the writ petition filed by the Trust and directed the department to remit back the amount recovered forcefully to the Bank account of the Petitioner and set aside the non speaking order passed for rejecting stay petition and remanded back for fresh hearing.

levitra

Allentis Pharmaceuticals Pvt. Ltd. vs. State of M. P. and Others, [2013] 59 VST 241(MP)

fiogf49gjkf0d
VAT- Agency – Supply of Goods to Agent – Thereafter by Agent to Buyer or Authorised Dealer of Principal For Commission – No Two Independent Sales-Supply of Goods to Agent – Not a Sale-Not Taxable, Section 2(4), Explanation (c ), of The Madhya Pradesh Value Added Tax Act, 2002.

FACTS
The Petitioner Company entered into an agreement with M/s. Rahul Pharma and appointed him as carry forward agent to supply the goods to the authorised distributors or dealers appointed by the Company. While assessing the petitioner company the assessing authority relying on Explanation (c ) to section 2(4) of the Act, treated supply of goods by the petitioner to its agent as first sale liable to VAT and thereafter when the selling agent further sold or transfers the goods to buyers, then also it was treated as sales taxable under the Act. The petitioner company objected to it as it amounted to double taxation. The petitioner company filed writ petition before the Madhya Pradesh High Court against the aforesaid action of the assessing officer.

HELD
Under clause ( c) of Explanation to section 2(4) of the MP VAT Act, for the purpose of Act, two independent sales or purchases are deemed to have taken place when the goods are transferred from principal to his selling agent and from the selling agent to the purchaser or when the goods are transferred from the seller to buying agent and from the buying agent to his principal. This, clause (c) applied only when there is transfer of property in goods. M/s. Rahul Pharma was an agent of the petitioner, company which was evident from the agreement. It only supplied the goods to the authorised dealer of the petitioner company for a commission not as his own property but as the property of the principal, who continued to be the owner of the goods. The supply of goods by the petitioner company to the agent was not a sale as per the interpretation of clause (c) of Explanation to section 2(4) of the Act therefore not liable to tax. When the agent supplied goods to the buyer of the petitioner company or to its authorised distributor on behalf of the petitioner, the petitioner company was liable to pay the tax. Consequently, the petition was disposed by the court with the direction that the delivery of goods to the agent of the petitioner for delivery of goods to the buyer or to the authorised distributer shall not be taxed under the provisions of VAT Act by treating it as an independent sale.

levitra

M/S. Milk Food Ltd. vs. Commissioner, VAT and Others, [2003] 59 VST 1 (Delhi).

fiogf49gjkf0d
Sales Tax – Deduction Claimed Based on Declaration Furnished By Purchasing Dealer – Whether Form Genuine or Conditions Complied With- Burden of Proof – Not on Selling Dealer. Sections 4(3)(a)(v), 50 (1)(a), 56(2) of The Delhi Sales Tax Act, 1975.

FACTS
The appellant engaged in business of manufacture of ghee and milk powder of different kinds in its factory at Patiala and having its offices all over India. The appellant had sold goods against form ST-1, in Delhi, and claimed deduction from payment of tax u/s. 4(2) (a)(v) of the Delhi Sales Tax Act. In assessment the claim of deduction was disallowed and confirmed by the Tribunal. The appellant filed appeal before The Delhi High Court against the impugned order of the Tribunal.

HELD
The Tribunal appeared to have placed the burden wrongly upon the appellant dealer. It is not the burden of the selling dealer to show that the declarations in form No ST-1 were not spurious or were genuine or that the conditions to which the forms were issued to the purchasing dealer by the department were complied with. The burden will shift to the selling dealer only if it is shown that the selling dealer and the purchasing dealer had acted in collusion and connived with each other to evade tax by obtaining spurious forms of deduction. The claim was disallowed in assessment due to certain discrepancies between form ST-1 and the accounts given by the purchasing dealers in form ST-2 or colour of form was different. This was not for the selling dealer to explain. The fact of different colour of form gave rise to the suspicion that the forms are not genuine could be a starting point for further inquiry but by itself does not establish any guilt on the part of the selling dealer. There appears to have no further query conducted by the sales tax authorities to show that the forms are spurious; neither is there evidence to show that the appellant was in any was connected with the alleged fraud committed by the purchasing dealer. Accordingly, the High Court allowed the appeal filed by the appellant.

levitra

2015 (38) STR 1220 (Tri.-Mum.) Deloitte Haskins & Sells vs. CCE, Thane-I.

fiogf49gjkf0d
Unlike Central Excise laws, there is no compulsion to avail benefit of exemption compulsorily under service tax laws. Further, CENVAT credit cannot be denied in case of procedural lapse of wrongly addressed invoices.

Facts:
Availment of CENVAT credit was under dispute as firstly invoices were addressed to the registered unit and the credit was taken in another unit. Further the Appellants had provided taxable as well as exempted services and thus the department contended that CENVAT credit could be utilised only to the extent not exceeding 20% of service tax payable vide Rule 6 of CENVAT Credit Rules, 2004 in the absence of maintenance of separate records. It was argued that though invoices were raised at another unit, the input services were received and consumed and a CA certificate was produced to this effect. Accordingly, it was merely a procedural defect. On the second issue, it was stated that in absence of a specific column in the service tax return, amount received for exempted services of prior period was shown under “exempted services” and actually, no services were claimed to be exempted during the period under consideration. Therefore, restriction on utilisation of CENVAT credit was not warranted. Moreover, it was argued that exemptions available were conditional and they had billed a consolidated sum including representational services without taking benefit of exemption and in respect of services provided to SEZ it was difficult to ensure fulfillment of conditions by service receiver and thus the said exemption was also not claimed. The department argued that firstly in view of separate registrations cross availment was not possible and secondly since unconditional exemption with respect to representational services and services provided to SEZ were available, service tax cannot be paid on such exempted services on their own volition. Accordingly, restriction of CENVAT credit was applicable. The Appellants argued that unlike section 5A of Central Excise Act, 1944, under service tax laws, availment of benefit of unconditional exemption is not mandatory.

Held:
Relying on the decisions of the Ahmedabad Tribunal in the case of DNH Spinners [2009 (16) STR 418] and Modern Petrofils [2010 (20) STR (627)], it was held that CENVAT credit cannot be denied on the grounds of procedural lapse as long as the services are eligible input services. Thus, CENVAT credit on principle was allowed subject to verification of the fact by the adjudicating authority that the input services were actually used. On the second issue, it was held that in absence of specific breakup of total amount for each job undertaken in the invoice, it cannot be concluded that the Appellants availed exemption regarding representational services. Revenue authorities cannot demand service tax on a composite amount, and it did not attempt to do any segregation, if at all it was possible, in consolidated invoices. Further, notification granting exemption to services provided to SEZs was conditional and the Appellants had opted to pay service tax. Relying on various decisions, it was held that under service tax laws, there is no compulsion to avail exemptions. Therefore, since this was not a case of provision of taxable as well as exempted services, restriction on CENVAT credit was not applicable.

levitra

2015 (38) STR 1191 (Tri.-Mum.) Automotive Manufacturers P. Ltd. vs. CCE, Nagpur.

fiogf49gjkf0d
No service tax can be levied on handling charges forming part of sale of goods especially when VAT/sales tax is levied.

Facts:
The Appellants were authorised dealers and a service station of Maruti Udyog Ltd. For the purpose of servicing the cars, spare parts were used which were procured from the depot or warehouse of the manufacturer. Appellants incurred octroi, freight, loading and unloading charges for procurement of these parts which was termed as handling charges. Service tax was demanded on these handling charges considering the activity of servicing as a composite activity of sale and service. It was argued that the handling charges were part of value of goods sold and VAT /sales tax was paid on them and such expenses had no relation with servicing and repairs. Board’s Circular No. 96/7/2007 clarifying that service tax would not be levied on transactions treated as sale of goods, subject to VAT / sales tax, by service station was also referred to.

Held:
The Tribunal held that the invoice clearly stated the value of goods and services rendered. Handling charges will not be subject to service tax, especially when VAT /sales tax had been paid on it. Such charges were incurred for procurement and bringing the goods to Appellants and hence, it was included in value of goods. Section 67 of the Finance Act 1994, levied service tax on consideration received for rendering services and not for supply of goods. Hence, it was held that no service tax was payable.

levitra

2015 (38) STR 1162 (Tri.-Del.) Piramal Healthcare Ltd. vs. CCE & ST, Indore.

fiogf49gjkf0d
Penalty imposed was exorbitant as compared to service tax demand and was unjustified in view of revenue neutrality and interest burden already suffered on account of non-payment. Non-filing of ST-3 returns does not attract penalty u/s. 77.

Facts:
After adjudication, to buy peace of mind, the Appellants paid service tax along with interest. However, penalty u/s. 77 of the Finance Act, 1994 levied for non-filing of service tax returns was appealed against. It was argued that the amount of penalty was exorbitant compared to service tax demand and penalty cannot be levied u/s. 77 for nonfiling of returns. Further, service tax was not paid due to improper knowledge of law and it was a revenue neutral case since the amount was available to them as CENVAT credit. Department contested that penalty u/s. 77 of the Finance Act, 1994 was leviable in absence of registration.

Held:
In view of revenue neutrality and interest burden already suffered on account of non-payment, penalties were dropped. The Tribunal observed that there was nonapplication of mind by the original adjudicating authorities since penalty could be levied u/s. 77 of the Finance Act, 1994 for failure to file service tax return.

levitra

2015 (38) STR 980 (Tri.-Del.) Mohan Poddar vs. CCE, Raipur

fiogf49gjkf0d
In absence of any evidence proving mala fide intention, penalties cannot be levied.

Facts:
The appellants were providing construction services, and were unaware of their service tax liability. On being pointed out by DGCEI, service tax liability was discharged. Accordingly, it was contended that in absence of any evidence proving mala fide intention, willful suppression or misstatement, penalties should be waived off u/s. 80 of the Finance Act, 1994.

Held:
There were no observation at all regarding sustainability of allegation of suppression of facts in “discussion and finding” portion of the order and the adjudicating authority had jumped to the conclusion of suppression of facts. Further, since section 80 was invoked for waiving off penalty u/s. 76, the said section should apply mutatis mutandis to section 78 of the Finance Act, 1994 as well. Furthermore, in any case, in absence of malafides, penalty u/s. 78 could not be imposed.

levitra

[2015] 58 taxmann.com 343 (New Delhi – CESTAT) – Suzuki Motorcycle (I) (P) Ltd. vs. Commissioner of Central Excise, Delhi-III.

fiogf49gjkf0d

CENVAT credit of service tax paid by the assessee cannot be denied merely because part of cost of input services is reimbursed by parent company – Financial arrangement between subsidiary and parent company has no connection or relevance for legality of CENVAT credit.

Facts:
The assessee procured the service of advertising agency for purpose of advertising their final product. Entire value of service of advertising agency along with service tax was paid thereby making them eligible for CENVAT credit. A part of the advertising expenditure incurred by the assessee was reimbursed to it by its parent company located abroad. Department denied credit on ground that the assessee’s foreign holding/parent company had reimbursed part of such advertisement expenses.

Held:
The Tribunal observed that the Commissioner had not given a finding that advertising cost was not incurred by the appellants. Therefore, it was held that merely because the appellants’ parent company reimbursed part cost of the advertising expenses, it did not mean that the appellants would become disentitled to the service tax actually paid by them. The financial arrangement between the subsidiary company and the parent company had no connection for the purpose of availability of credit of service tax paid by the assessee. Procurement of finances for running any business was the subject matter between two individuals. Thus, credit is allowed.

levitra

[2015] 58 taxmann.com 94 (Ahmedabad – CESTAT) Cema Electric Lighting Products India (P.) Ltd. vs. Commissioner of Central Excise, Ahmedabad-III

fiogf49gjkf0d
CENVAT credit – Outdoor catering service in factory canteen – Proportionate credit to the extent service tax portion is embedded in recoveries made from employee is not admissible – burden of proof is on assessee to show that incidence of service tax is not passed.

Facts:
The assessee availed of an outdoor catering services for its employees and took CENVAT credit. Department denied credit of service tax proportionate to amount recovered from employees/beneficiaries. The assessee argued that no element of service tax was recovered.

Held:
Relying upon the decision of the Hon’ble High Court of Bombay in the case of Ultratech Cement Ltd. [2010] 29 STT 244, the Tribunal held that once proportionate service tax is borne by the ultimate consumer of the service, namely the worker/beneficiary, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. Hence, proportionate credit, to the extent it is embedded in the cost of food recovered from the employee/beneficiary, is not admissible to the appellant. It further held that like a concept of unjust enrichment for refunds u/s. 11B of the Central Excise Act, 1944, the onus is on the appellant to establish with documentary evidence that the element of service tax paid by the appellant is not recovered from the beneficiary/employees of the appellant.

levitra

2015] 58 taxmann.com 189 (Mumbai – CESTAT) – CST, Mumbai vs. Reliance Capital Asset Management Ltd

fiogf49gjkf0d
Position prior to 01/04/2011 – CENVAT credit of outdoor catering service provided to its employees by provider of output service is allowed.

Facts:
The appellant is a service provider under the category of “Banking and Other Financial Services” and also “Business Auxiliary Services”. Show Cause Notice was issued alleging therein that the appellant was wrongly availing CENVAT credit in respect of outdoor catering service. The adjudicating authority held that the appellant had incurred expenditure by providing “canteen facility services” for its employees. As the appellant was not in a business which required “24 x 7 operations” like BPO service, the claim was not allowable as input service. At best, the “outdoor catering service” was in the nature of fringe benefits to the employees and had no relationship with the output services rendered. Accordingly, demand was confirmed. Before the Tribunal, assessee relied upon ruling of the Hon’ble Bombay High Court in the case of CCE vs. Ultratech Cement Ltd. [2010] 29 STT 244. The revenue relying upon the decision of IFB Industries Ltd. vs. CCE 45 taxmann.com 28 (Bang. – CESTAT) distinguished the judgment of Bombay High Court, emphasising that it was rendered having regard to mandatory requirements under the Factories Act, 1948.

Held:
Relying upon Ultratech Cement (supra), the Tribunal held that, legislation (i.e. the Factories Act) appreciates the need of canteen service for the workers at the place of work. Only to avoid the hardship for an essential need, the legislation has provided, that factories having employees more than 250, should provide a canteen service. That did not mean that the service was not required for any industrial service or organisation having less than 250 workers. Even the employees of a smaller organisation having less than 250 workers would be hungry and required to be provided with canteen facility. Therefore, the ruling in the case of IFB Industries Ltd. (supra) is per incuriam, as the provisions of the Factories Act have been wrongly interpreted, with respect to the provisions of input service. Accordingly CENVAT credit was allowed.

levitra

[2015] 58 taxmann.com 8 (New Delhi – CESTAT) – Binani Cement Ltd vs. Commissioner of Central Excise & Service Tax, Jaipur-II.

fiogf49gjkf0d
CENVAT – Manpower supply services availed for maintaining a health centre in compliance with Rajasthan Factory Rules eligible for input service as directly in relation to manufacture

Facts:
The Assessee was a manufacturer of cement and clinker chargeable to excise duty. It sourced trained persons from manpower supply agents for maintaining medical/ health centre at its factory. Department denied CENVAT credit on the grounds that services had no nexus with manufacture.

Held:
The Tribunal observed that appellant in terms of Rule 65T of the Rajasthan Factories Rules was required to maintain an occupational health centre as its employees were more than 500 and they carried out hazardous operations. Unless the appellant complied with this provision of the Rajasthan Factories Rules, they would not be allowed to carry on their manufacturing activity. Accordingly, it was held that the service of receiving trained medical personnel through manpower supply agency for maintaining the occupational health centre has to be treated as in or in relation to manufacture of final product and would be eligible for CENVAT credit as input service.

Note: Readers may also note a similar decision in the case of Commissioner of Central Excise vs. M/s Lucas TVS Ltd. [2015-TIOL-1466-CESTAT-MAD} wherein it has been held that manpower supply to a canteen in the factory which is an obligation under the Factories Act is an eligible input service.

levitra

[2015-TIOL-1471-CESTAT-MUM] M/s. Gateway Terminals (I) Pvt. Ltd. vs. Commissioner of Central Excise, Raigad

fiogf49gjkf0d
Garden Maintenance, Event Management, Brokerage, Telephone and
Outdoor Catering services being essential for business are eligible
input services

Facts:
The Appellant was engaged
in the business of providing “port services” and has availed CENVAT
credit of service tax paid on garden maintenance, event management,
telephone charges and of brokerage paid for arranging the residential
accommodation for their employees for the period before April 2011. They
had also availed services of outdoor catering pre and post April 2011.
CENVAT credit was denied on the ground that there was no nexus between
the input services and the output services provided and that these
expenses were in the nature of a welfare activity.

Held:
For
the period before April 2011, it was argued that the definition of
input service comprising of two parts ‘means’ and ‘inclusive’ should be
read harmoniously as it enhances the scope of the definition. Further
the term “such as” signifies that any activity related to the
functioning of a business and not confined merely to the provision of
output service or manufacture of the final product should be considered
an input service. Accordingly, garden maintenance which is a requirement
cast by the Maharashtra State Pollution Central Board upon the Port,
event management services incurred at ceremonial occasions, brokerage
services, being essential for ensuring the availability of staff,
telephone and outdoor catering services being essential services to run
the business are allowable as input services. Further, for the period
post April 2011, it was argued that the Appellant was regulated by the
dock workers (safety, health & welfare) Act, 1990 and the employees
being more than 250, it was a statutory obligation to maintain adequate
canteen facilities. Thus, catering services being a part of the business
need and obligation to the employees who are essential hands of the
business had a direct bearing on the output services and were eligible
input services even post April 2011.

Note. Readers may
also note the decision in the case of Hindustan Coca Cola Beverages P.
Ltd vs. CCE, Nashik [2014]-TIOL-2460-CESTAT-MUM reported in the
BCAJFebruary 2015 issue wherein it has been observed that outdoor
catering services forming a part of cost of manufacture of final product
is allowable as CENVAT credit post 01/04/2011.

levitra

Processing of Registration applications submitted along with scanned documents

fiogf49gjkf0d
Trade Circular 13T of 2015 dated 14.8.2015

The new office procedure for the grant of new registrations under the MVAT Act, 2002, The CST Act, 1956 and the Professional Tax Act, 1975 has been explained in the Circular issued by the Commissioner of Sales Tax.

levitra

The Computerized Desk Audit (CDA) for the period 2012-13

fiogf49gjkf0d

Trade Circular 12T of 2015 dated 14.8.2015

The department has generated Computerized Desk Audit (CDA) report for the period 2012-13 and made the same available on website www.mahavat.gov.in from 20.8.2015. Compliance to the CDA can be made on or before 18.9.2015. List of dealers in whose cases discrepancies have been found mentioned in CDA Dealer list 2012-13 is available on the website. Detailed procedure to comply electronically with CDA system has been explained in the Circular issued by the Commissioner of Sales Tax.

levitra

Notification

fiogf49gjkf0d

N O . VAT . 1 5 1 5 / C . R . 7 4 / Ta x a t i o n – 1 . d a t e d 12.8.2015

Maharashtra Government has issued Notification under Entry no. 12A in Schedule A dated 12.8.2015 and notified drugs for cancer for the purpose of this Entry.

levitra

M/S. OMIL- JSC – JV vs. Union of India, [2013] 61 VST 370 (Gauhati),

fiogf49gjkf0d
Central Sales Tax Act-Writ Petition – Jurisdiction of Court – Issue of C Form Declaration by Purchasing Corporation To Petitioner – Jurisdiction of Court – Not Barred – Direction to Issue C Form to Petitioner, Art 226 of The Constitution of India.

FACTS
The petitioner filed writ petition under article 226 of The constitution of India praying for issue of an appropriate writ directing the respondent, North Eastern Electric Power Corporation Ltd. (in short NEEPCO) to issue declaration form C under the Central Sales Tax Act, 1956 to the Petitioner who had executed works allotted by NEEPCO. The respondent had objected to issue C forms on the ground that there is no provision in the agreement for issue of C forms.

HELD
The issue is with regard to issue of declaration form ‘C’ by the respondent – NEEPCO to the Petitioner for availing concessional rate of tax under the Central Sales Tax Act, 1956, which is a statutory exaction and not the breach of any of the terms of the contract. Therefore, the jurisdiction of the Writ Court is not barred in taking up matters of taxation and liabilities under taxation statutes and cannot refuse to interfere on the ground that the question raised arises out of contractual agreement and is one of enforcement of contractual obligation and the same should be referred to arbitration. The Writ Court, under such circumstances, cannot deny a party of its right to have the issue decided by Writ Court. On perusal of rule 12 of the CST (Registration and Turnover) Rules, 1956, it becomes clear that the purchaser of the goods shall issue C form to the seller and that obligation is a statutory exaction of the CST Act and other specific provisions made in this behalf in regard to obtaining of the declaration form C and issue of duplicate, etc. There is no scope of defeating the intention of the Legislature stated in its provision at the sweet will and pleasure of the purchaser of goods. There is also no scope for denying the benefit available to a selling dealer as introduced by the Legislature upon the refusal of the purchaser to issue C form and it is made clear by providing under sub rule (3) of rule 12 that in case the original form issued by the purchasing dealer is lost, the selling dealer can demand from the purchasing dealer to issue a duplicate form. This necessarily implies that there exist an obligation to issue C forms by the purchasing dealer. Merely because, the contract agreement does not stipulate issue of C forms, it cannot refuse to issue the form to the petitioner who is entitled to the benefit u/s. 8 (1) of the Act only upon production of such forms. Moreover, the High Court found that the respondent NEEPCO through its correspondence to the petitioner, even prior to awarding the contract work, requested to avail of concessional rates of taxes, gave assurance to the petitioner time and again to issue C forms and even communicated to the Commissioner of Sales Tax, West Bengal. It cannot be allowed to deny the same and reject the claim of the Petitioner on the pretext of absence of any provision in the contract agreement to issue C form. Accordingly, the High Court allowed the Writ Petition and directed the respondent NEEPCO to issue the required C forms to the Petitioner within a period of one month from the date of receipt of a certified copy of the order.

levitra

M/S. Prathista Industries Ltd. vs. CTO, [2003] 61 VST 158(AP).

fiogf49gjkf0d
Central Sales Tax – Provisions for Advance Ruling – Contained in
Local VAT Law – Substantive Provisions – Not Applicable to Proceedings
Under Central Sales Tax Act, section-67 of The Andhra Pradesh Value
Added Tax Act, 2005 and section 9 (2) of The Central Sales Tax Act,
1956.

FACTS
The Petitioner Company, registered
under the VAT and CST Act and engaged in manufacturing of eco-friendlyfertilisers etc., had made an application u/s. 67(1) of the AP VAT Act,
for advance ruling with regard to classification of its 17 products. The
advance authority passed order on 16th November 2011 holding it covered
by entry 19 of Fourth Schedule against which appeal before the Tribunal
was filed. Meanwhile, assessing authority made assessment for the years
2005-2006 and 2006-07 under the VAT and CST Act which were set aside by
appellate authority. The assessing authority framed assessment for the
period 2007-2008 and 2008-2009 under the CST Act and levied tax at the
rate determined by Advance Ruling Authority despite appeal pending
before the Tribunal against the order of Advance Ruling Authority. The
Petitioner Company filed writ Petition before the Andhra Pradesh High
Court challenging the assessment order passed under the CST Act during
the pendency of appeal before the Tribunal.

HELD
The
provision for “advance ruling” is a mechanism introduced by the
legislature to ensure uniformity in orders of assessment, appellate and
revisional order, with regard to the classification of goods under
various entries of the schedule to the Act or rate applicable to such
goods, etc thereby avoiding conflicting orders being passed by different
assessing/ appellate/ revisionary authorities. Such a mechanism can
only be introduced by way of substantive provisions in a statute and
cannot be implied. Sub-section (2) of section 9 of the CST Act only
makes applicable provisions of the State sales tax law relating to
assessment, reassessment, collection and enforcement of tax including
any interest or penalty. Provisions relating to “advance ruling” would
not fall into any of the above categories. An advance ruling may be an
“aid” to an assessment, reassessment, collection of payment of tax but
it is not in itself a mechanism for it which are normally done under the
provisions of Central Sales Tax by the competent authorities under the
VAT Act. The above activities, it cannot be denied, can be done by such
authorities without benefit of advance ruling also (subject to appeal,
revision, etc.) in the hierarchy of authorities provided under the VAT
Act. The assessing authority is entitled to initiate and complete the
assessment under the Central Sales Tax Act in respect of the petitioner
when its application for “advance ruling” was pending before the
authority for advance ruling and pendency of its appeal against the said
ruling before the Tribunal would also not impede or operate disentitle
the assessing authority in any way in initiating or completing
assessment under the Central Sales Tax Act as the provisions of section
67 of the VAT Act would not apply to assessment made under the CST Act.
Accordingly, the High Court dismissed the writ petition filed by the
Petitioner Company.

levitra

[2015-TIOL-1716-CESTAT-MUM] M/s Mahindra Ugine Steel Co. Ltd vs. Commissioner of Central Excise, Raigad

fiogf49gjkf0d

CENVAT credit of service tax paid on construction services used for
construction of hostel/quarters for employees being in relation to
manufacturing business is admissible.

Facts:
The
Appellant is a manufacturer having a factory in a small town with meagre
transport facilities and other infrastructure. The Adjudicating
authority denied credit of service tax paid on construction services
used for construction of hostels/ quarters made for employees alleging
suppression and invoking extended period of limitation.

Held:
The
Tribunal considering the definition of input service provided under
Rule 2(l) of the CENVAT Credit Rules, 2004 held that construction of
hostels/quarters for employees being in relation to manufacturing
business is allowable as CENVAT credit. The Tribunal also noted that
since the show cause notice was issued after two and a half years of
taking the credit, the same was barred by limitation. Moreover, since
the credit availed was disclosed in the EA-3 returns, there was no
suppression and accordingly extended period was not invokable.

levitra

[2015 – TIOL – 1628 – CESTAT- MUM ] M/s Tilaknagar Industries Ltd vs. Commissioner of Central Excise, Aurangabad

fiogf49gjkf0d
Mere taking credit without utilising will not attract interest as well as penalty.

Facts:
The Appellant, a manufacturer wrongly availed CENVAT credit on certain input services during the year 2005- 06.On being pointed out by the Central Excise officers, entire credit availed was reversed without utilisation. Show Cause Notice was issued demanding interest and penalty relying on the Board’s Circular No. 897/17/2009- CX dated 03/09/2009 wherein it was clarified that in view of the ruling of the Apex Court in the case of Ind-Swift Labs Ltd [2011-TIOL-21-SC-CX] interest is leviable in case of wrong taking of credit or utilisation.

Held
The Tribunal, relying on the decision of the Madras High Court in the case of Strategic Engineering (P) Ltd. [2014-TIOL-466-HC-MAD-CX] wherein it was held that the amendment to Rule 14 of the CENVAT Credit Rules, 2004 substituting “taken or utilised” by the term “taken and utilised” for the levy of interest being clarificatory in nature will apply retrospectively, allowed the appeal.

levitra

[2015] 60 taxmann.com 227 (Mumbai CESTAT) – Mineral Exploration Corporation Ltd vs. CCE, Nagpur

fiogf49gjkf0d
Grants received from Government towards reimbursement of expenses
incurred for survey does not amount to ‘service’, if entire amount is
expended without charging any consideration and “survey report” thus
prepared is retained by assessee and not supplied to Government.

Facts:
The appellant, a 100% Government of India undertaking is engaged
in the activity of making preliminary exploration report, based on
survey and detailed exploration report of mineral deposit for which they
were paid grant-in-aid by the Government of India. The second activity
involved, providing detailed survey and exploration reports on
contractual basis to various clients. The appellant paid service tax on
the second activity. As regards the first activity, the reports were
kept by them and could be sold to private users later, on payment of
fees on which service tax was discharged. Department sought to levy
service tax on grant-in-aids received from the Government under
Scientific and Technical Consultancy Services.

Held:
The Tribunal held
that activities undertaken are primarily classifiable under the Survey
and Exploration of Mineral Service and not as Scientific & Technical
Consultancy services. It was further held that the activity undertaken
by the appellant on the basis of 100% grant received from the Government
and the grant is totally expended on the expenses involved in various
activities as reflected in the balance sheet. For any service, there has
to be a service provider, a service receiver and a consideration. Where
the records show that no consideration has been paid by the Government
to the appellant for undertaking the said work and what has been
received from the Government is only the reimbursement of the actual
expenses involved; the activity is not liable for service tax. The
Tribunal further held that it is also not a matter of dispute that the
reports prepared on the basis of Grant received were kept with them and
may be sold to clients or customers on payment of charges and service
tax is paid on such charges. Therefore, clearly there cannot be
duplication of service tax payment. Accordingly, it was held that no
service has been provided by the appellant to the Ministry of Mines.

levitra

[2015] 60 taxmann.com 455 (Mumbai CESTAT) – CCE, Nagpur vs. Jain Kalar Samaj

fiogf49gjkf0d
Donation received by a Mandap Keeper from decorator/caterer for grant of monopoly rights to provide decoration/catering services not taxable as business auxiliary service.

Facts:
Assessee provided Mandap Keeper’s services by leasing out its hall/lawns for ceremonial functions. Decoration and catering for the hall/lawns was carried out by a contractor. Assessee received donation of decoration tender from caterer/decorator and granted monopoly rights in its premises to a contractor. According to the department, the donation was taxable as Business Auxiliary services provided by it to the decorator.

Held:
The Tribunal considered the definition of “commission agent” as provided under Business Auxiliary service u/s. 65(19) of the Finance Act,1994 and held that commission agent must act on behalf of another person for provision of service. The Tribunal observed that the first appellate authority did not explain as to how the said definition is applicable in the present case and that he did not establish that the appellant while acting as a commission agent was actually acting on behalf of the decorator for providing or receiving service. It was held that the appellant provided the services of Mandap Keeper independently to his clients and decorator provided decoration services to his clients. The two services were independent of each other. The appellant is not acting on behalf of the decorator to provide service to his clients, nor is he acting on behalf of his clients to provide services to the decorator. Therefore, the Tribunal held that the activity of the appellant is not that of commission agent falling under the definition of business auxiliary service.

levitra

2015 (39) STR 1034 (Tri. –Del.) Commissioner of C.Ex. Allahabad vs. Sangam Structurals Ltd.

fiogf49gjkf0d
CBEC circular, prescribing declaration by GTA on consignment note that notification conditions are fulfilled is beyond the requirement of exemption notification.

Facts:
Notification No. 32/2004-ST dated 3rd December, 2014 conferred exemption to GTA services subject to nonavailment of CENVAT credit on inputs or capital goods by transporter and non-availment of benefit of Notification No. 12/2003-ST dated 20th June, 2003. In this context, CBEC issued clarification that the consignment note would state compliance made of conditions specified in Notification No. 32/2004. The respondents furnished declaration as per aforesaid notification from transporters before Commissioner (Appeals). Further, sample consignment notes containing required declaration were also submitted.

Held:
There was no evidence that any such credit or the benefit of 12/2003-ST was availed. Submission of declaration from transporters at the stage of commissioner (Appeal) was sufficient compliance of notification. Furthermore, conditions prescribed by the CBEC circular seemed to go beyond the requirement of the exemption notification. It is settled law that CBEC circular cannot restrict or expand the amplitude of an exemption notification nor can they add/subtract conditionalities thereto/therefrom.

levitra

2015 (39) STR 995 (Tri.- Mumbai) Tetra Pack India Pvt. Ltd. vs. CCE, Pune-III

fiogf49gjkf0d
Reimbursable expenses not includable while determining gross value of services.

Facts:
Department sought service tax on recovery made for reimbursable expenditure which ought to be incurred while providing output services. Reimbursable expenditure were reckoned as consideration for services rendered as per Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 (Valuation Rules).

Held:
Rule 5(1) of Valuation Rules was struck down by the Hon’ble Delhi High Court in case of Intercontinental Consultants & Technocrats Pvt. Ltd. vs. Union of India 2013 (29) STR 9 (Del) on account of rule being ultra vires sections 66 and 67 of the Finance Act,1994 based on which the order was set-aside.

levitra

[2015-TIOL-2106-CESTAT-MUM] Commissioner, Service tax-I, Mumbai vs. M/s FIL Capital Advisors India, Pvt. Ltd.

fiogf49gjkf0d
Merely because bills are in personal name, it cannot be said that services are not used by the Respondent when the expenditure towards that bill is booked in their account and CENVAT credit on group and medical polices of employees is allowed as the same is a requirement as per the Factories Act.

Facts:
The Revenue filed an application for rectification of a mistake of the Tribunal on the ground that in Revenue’s Appeal one of the ground was that the first appellate authority while allowing the CENVAT credit did not give any finding on how the input services of group and medical policies for employees and outdoor catering had a nexus with the output service and further how the bills in personal names were admissible as credit.

Held:
The Tribunal held that the services of general insurance for group and medical policies are in respect of the employees and as per the statutory provisions under the Factory Act and therefore are allowable. Moreover, outdoor catering has been allowed in various judgments and in respect of bills in personal name, the expenditure towards that bill was booked in the Respondent’s account and thus the credit allowed by this Tribunal was maintained.

levitra

[2015-TIOL-2081-CESTAT-MAD] M/s TV Sundram Iyenger and Sons Ltd. vs. Commissioner of Central Excise, Madurai

fiogf49gjkf0d
Unless the CENVAT credit wrongly availed is utilised there shall be no payment of interest.

Facts:
The Appellant wrongly availed additional duty of customs as CENVAT credit and also partly utilised the same. Entire erroneously availed credit was reversed, but interest was paid only on the portion utilised and reversed. The Revenue authorities demanded interest also on the unutilised portion.

Held:
The Tribunal relying on the decision of the Supreme Court in case of Commissioner of Central Excise, Mumbai-I vs. Bombay Dyeing & Mfg. Co. Ltd [2007-TIOL-141-SC-CX], held that unless the credit is utilised there would be no payment of interest. Further, the Tribunal noted that such a proposition was not cited before the Apex Court in the matter of Ind-Swift Laboratories Ltd [2011-TIOL-21-SCCX] and thus the case is distinguishable. Accordingly the case was remitted to the adjudicating authority for the limited purpose of quantifying the credit availed and utilized to calculate the interest thereon.

levitra

[2015-TIOL-2134-CESTAT-MUM] Bhima Sahakari Karkhana Ltd vs. CCE, Pune III

fiogf49gjkf0d
In absence of issuance of a consignment note, mere transportation of goods in a motor vehicle is not a service provided under Goods Transport Agency service.

Facts:
The Appellant is a factory and had paid an amount as inward freight. The Revenue authorities demanded service tax as a service recipient under Rule 2(1)(d) (v) of the Service Tax Rules,1994 read with Notification No. 35/2004-ST. It was argued that it being a sugar manufacturing co-operative unit, amounts paid were for combined expenses of harvesting, loading and transportation of sugarcane and the payments were made to individual truck owners who did not issue any consignment note. The adjudicating authority as well as the first appellate authority decided the matter against the Appellant leading to the present appeal.

Held:
The Tribunal relied on the decision of Nandganj Sihori Sugar Co. Ltd. vs. CCE Lucknow [2014 (34) STR 850 (Tri.-Del)]. The said decision noted the definition of “Goods Transport Agency” provided u/s. 65(50b) of the Finance Act as any commercial concern which provides service in relation to transport of goods by road and issues consignment note. A consignment note should have the particulars as prescribed in explanation to Rule 4B of the Service Tax Rules, 1994. The transportation of goods by individual truck owners without issue of consignment note would be simple transportation and not the service of Goods Transport Agency. Accordingly the appeal was allowed.

levitra

[2015-TIOL-1983-CESTAT-MUM] ICICI Bank Ltd vs. Commissioner of Service Tax Mumbai-I

fiogf49gjkf0d
Without client-custodian relationship and without entrusting of securities for safe keeping, amounts received from Reserve Bank of India cannot be considered as custodial services taxable under Banking and Financial services.

Facts
The Appellant Bank acts as an “Agency Bank” for the sale of bonds to the public issued by the Reserve Bank of India. The Bank maintains the details of the subscriber, pays out interest and redeems the bond at the end of the tenor. In return, they are remunerated by the Reserve Bank of India by way of a brokerage for effecting the sales to the subscribers and a commission for the handling of sales, payment of interest and redemption value and for keeping Accounts. The Appellant has paid service tax on brokerage and commission received after 01/07/2003 under “business auxiliary service”. A Show Cause Notice was issued proposing levy of service tax under Banking and Financial services from 16/07/2001 alleging that the Bank carried out securities broking and also rendered custodial service by keeping accounts of the subscribers. The original authority confirmed the demand and the Appellant is in appeal.

Held:
The Tribunal noted that custodial services in relation to securities are primarily the safekeeping of the securities of a client and the services incidental thereto. The relationship of the Appellant with the Reserve Bank of India exists because of their potential of reaching out to a vast number of subscribers. The Reserve Bank of India is not a client as far as the securities are concerned because they are not the owners of the bonds. Further, it was also noted that a custodian for a fee performs incidental services viz. receiving the security, collecting interest or dividend on behalf of the investor and obtaining redemption value on instruction from the investor. However, in the present case the Appellant Bank itself pays the interest and the redemption value on behalf of the Reserve Bank. Thus, the bond subscriber only pays the bond price to the Bank and there is no client-beneficiary relationship with the bond subscriber. The Tribunal held that without client custodian relationship and without entrusting the securities for safekeeping, the services do not merit classification under Banking and Financial services and were liable under Business Auxiliary service only with effect from 01/07/2003.

levitra

[2015] 61 taxmann.com 124 (Jharkhand) – Adhunik Power Transmission Ltd vs. UOI.

fiogf49gjkf0d
Dismissal of delayed appeal by Commissioner (Appeals) for want of application for condonation of delay is valid.

Facts:
The petitioner preferred appeal against the order beyond statutory period of 90 days with a delay of 14 days. The petitioner did not file the application for condonation of delay at the time of appeal and hence appeal was rejected. The petitioner’s case is that office of the Commissioner (Appeals) did not point out this defect and therefore, petitioner did not file the condonation application. It was also contended that no opportunity to file the condonation application was given by the office of the Commissioner (Appeals).

Held:
Dismissing the petition, the Hon. High Court held that the petitioner cannot say that there ought to have been appeal defect pointed out by the office of Commissioner (Appeals), otherwise the petitioner will never file delay of condonation application. Such ‘convenient’ argument is not accepted because the petitioner is a company limited and is not an illiterate or ignorant person. Reasons cannot be presumed by the Commissioner (Appeals). Thus, everybody should know the law and should have filed the condonation application for delay, if there is delay in preferring appeal. Ignorance of law is not excuse.

levitra

[2015] 61 taxmann.com 244 (Mumbai – CESTAT)- CESTAT, MUMBAI BENCH Racold Thermo Ltd. vs. CCE, Pune-I

fiogf49gjkf0d
Once the payment arising out of CENVAT discrepancies pointed out in
the course of Audit is made by the assessee along with interest and
without contesting it further, the show cause notice cannot to be issued
for levy of penalty.

Facts:
In the course of Audit by
Central Excise Audit Team, it was observed that appellant was directed
to reverse the CENVAT credit pertaining to the value of certain written
off inputs for F.Y. 2009-10. The appellant paid the same along with
interest. Subsequently, during CERA Audit, similar written off inputs
were observed also during F.Y. 2007-08 and F.Y. 2008-09. The appellant
on their own calculated the credit and paid the same along with
interest. However show-cause notice was issued alleging penalty on the
said amount and demand was confirmed. The Revenue contended that at the
first occasion when audit was conducted and this discrepancy was raised,
the appellant should have reversed CENVAT credit for the period 2007-08
and 2008-09 also as they are aware about written off value of inputs
during the said period also. Therefore appellant although having
knowledge about written off value in their books of account, neither
reversed it nor intimated to the department; therefore the case was one
of suppression of facts. The Appellant contended that in the course of
first audit the same issue was discussed and it was held that no
reversal was required in respect of the said year and that the fact that
inputs were written of was evident from financial records and hence
there was no suppression.

Held:
The Tribunal held
that once the appellant paid the amount along with interest as per their
calculation immediately after the same was pointed out by CERA audit
team without any contest and intimated it to the department; the matter
is covered by sub-section (2B) of section 11A(1) according to which no
show cause notice is required to be issued. Therefore, penalty to that
extent was deleted. However as regards some differential amount
mentioned in the show cause notice which was not paid by the appellant,
demand of service tax, interest and penalty were confirmed.

levitra

[2015] 61 taxmann.com 140 (Mumbai CESTAT) – ISMT Ltd vs. CCE Aurangabad

fiogf49gjkf0d
CENVAT credit availed of security service p rovided to guest house
shall be admissible as input service if such guest house is used for
lodging of employees and outside auditors who perform their service to
the appellants’ factory.

Facts:
Appellant availed CENVAT
credit for security service provided to guest house located near
factory used for lodging of employees and outside auditors who performed
their service to appellant’s factory. CENVAT credit of security
services was denied on the ground that it has no nexus with production
of goods and therefore did not qualify as input service. The confirmed
demand with interest and penalty was upheld in the first appeal.

Held:
The
Tribunal allowed the credit holding that the guest house is used for
lodging of the employees and outside auditors who perform their service
to the appellant’s factory and has a direct nexus with factory which
produces excisable goods and nothing is available on record to show that
guest house is used for any other purpose.

levitra

2015 (39) STR 964 (Bom.) Top Security Ltd. vs. CCE & ST

fiogf49gjkf0d
Even if the assessee does not comply with the provisions of pre-deposit, the appeal cannot be dismissed without hearing on merits.

Facts:
The appeal was dismissed without hearing on merits due to non-compliance with the stay order of the Appellate Tribunal. Relying on the Hon’ble Supreme Court’s decision in case of Balaji Steel Re-Rolling Mills 2014 (310) ELT 209, it was argued that the appeal must be adjudicated on merits irrespective of such non-compliance. The department contended that the Tribunal’s order did not require any interference since it did not raise any substantial question of law. The questions of law put forth before Hon’ble High Court was that since modification of stay application was pending, financial hardship pleaded by assessee was not considered and huge service tax liability was already discharged, whether the Tribunal was right in dismissing the appeal? It was also observed that the revenue had recovered certain service tax dues from customers of the appellants. The revenue contested that there would be a recurring liability and the liability and recovery cannot be stopped since appeal for the earlier period was pending.

Held:
The Tribunal cannot dismiss the appeal without hearing on merits. The conditional stay order was complied with albeit belatedly. Further, the bank accounts of appellants were attached and certain recoveries were made from their customers directly by the revenue. For further duty liability, if there is a recovery by coercive means, it would be open for the appellants to adopt such proceedings as are permissible in law in the event they feel aggrieved by the process initiated. All contentions of both sides in that regard were kept open. Without deciding the legal issue, the appeal was restored before Tribunal to be decided on merits and in accordance with law.

levitra

If service receiver has paid service tax to service provider, CENVAT credit can be availed by service receiver even prior to registration obtained by service provider.

fiogf49gjkf0d
43. 2015 (40) STR 288 (Tri. –Bang) Adecco Flexione Workforce Solutions Ltd. vs. CCE, Bangalore – LTU.

If service receiver has paid service tax to service provider, CENVAT credit can be availed by service receiver even prior to registration obtained by service provider.

Facts

CENVAT credit is denied on the ground that the service provider had taken registration subsequent to availment of CENVAT credit by service receiver.Therefore, the CENVAT credit would not be available to service receiver. Accordingly, CENVAT credit of trivial amount was denied in absence of registration number on invoices.

Held

If the assessee has paid service tax to service provider, CENVAT credit is available to service receiver without finding whether service tax paid by him to service provider stands deposited in the Government treasury. Verification of the fact of payment of service tax by service provider is impossible and impractical at service receiver’s end. Even if the revenue is of the view that service tax collected by service provider is not deposited by him, remedy is available with the department to take appropriate action against service provider and not service receiver. In the present case, the revenue did not even verify the fact of non-payment by service provider. Therefore, it was held that the appellant had rightly availed CENVAT credit.

[2015] 58 taxmann.com 93 (Rajasthan High Court) – Bansal Classes vs. Commissioner of Central Excise and Service Tax, Jaipur-I

fiogf49gjkf0d
CENVAT –Period Prior to 01-04-2011- A commercial training or coaching centre cannot take CENVAT credit of input services availed for celebration meant for successful candidates

Facts:
The assessee was providing commercial training and coaching services to students. The issue before the Court was whether assessee is entitled to CENVAT credit on input services of catering, photography, tent (mandap keeper), maintenance & repairs (motor vehicles), rent for hiring examination hall and travelling expenses. Tribunal denied the CENVAT credit except on the rent for hiring examination hall.

Held:
The High Court held that, celebrations are organized during academic sessions to encourage existing students and motivate new students. These services are used only after students pass commercial training or coaching classes/examination. Therefore, since these celebrations are held only after commercial training or coaching classes are over, said activities cannot be said to have been used to provide output service. Further, credit of repairs & maintenance expenses in motor car and travelling expenses incurred for the business tours was not allowed treating the same as not related to provision for commercial training or coaching service.

Note: There is no discussion in the order as to why services availed for student’s celebration shall not be entitled to CENVAT credit as “activity relating to business”.

levitra

2015 (39) STR 676 (Tri.-Bang.) Abraham Pothen vs. CCE & ST, Cochin

fiogf49gjkf0d
Service receiver may claim refund of wrong service tax paid by
service provider even when the same is not shown separately on the
invoice, provided the service provider has discharged service tax
considering receipts to be inclusive of the service tax.

Facts:
The
service provider paid service tax, treating the amount received as
inclusive of service tax and thereafter, filed a refund claim as the
services were not taxable. However, the claim was rejected on the ground
of unjust enrichment, as service tax was passed on to their customers.
Accordingly, service receiver i.e. the appellants filed a refund claim.
The refund claim was rejected on the ground that there was no evidence
of payment of service tax by them and the procedure provided under Rule
4A of Service Tax Rules, 1994 was not followed. During the appellate
proceedings, the appellants submitted the proof of payments of service
tax to service provider and claimed that since service itself was not
taxable, issue of invoice was not required under the service tax law.

Held:
The
evidences produced by appellant were sufficient to demonstrate payment
of service tax. Since service tax was not collected separately, the
payments had to be considered to be inclusive of service tax.
Non-observance of Rule 4A of Service Tax Rules, 1994 was irrelevant.
However, penalties may be levied on the service provider as against
rejection of the refund claim of the service receiver. Therefore, since
the appellants had borne the service tax brunt, the appeal was allowed.

levitra

2015 (39) STR 684 (Tri.-Bang.) India Vision Satellite Communications Ltd. vs. CCE, C & ST, Cochin

fiogf49gjkf0d

Service recipient need not examine the correctness of service tax paid by service provider for claiming CENVAT Credit.

Facts:
The Appellants availed services of installation and commissioning in respect of an equipment and as per the Agreement, equipment rental charges were payable as well. Service tax paid on rent was availed as CENVAT credit. However, the service provider was registered with service tax authorities only for installation and commissioning services. Without digging into the facts of the case, the department and Commissioner (Appeals) denied CENVAT credit on the grounds that equipment rent was not eligible input service and if it is considered to be installation and commissioning services, the amount cannot be paid every month for a one time activity.

Held:
It is a settled law that if service tax is paid by service provider and service receiver is eligible for CENVAT credit, responsibility to examine correctness of service tax paid by service provider is not cast upon the service receiver. Accordingly, relying on various decisions, the Tribunal allowed CENVAT Credit.

levitra

2015 (39) STR 698 (Tri.-Del.) Ionnor Solutions Pvt. Ltd. vs. CCE & ST, Chandigarh-I

fiogf49gjkf0d

Refund of CENVAT credit with respect to input services received during the period prior to export taking place shall be available even in subsequent period, specially for 100% exporter of services.

Facts:
The Appellants, being 100% exporter of services, claimed refund of CENVAT credit under Notification No. 5/2006-CE (NT) with respect to input services received prior to export taking place. Vide Para 4 of the Notification (supra), refund can be granted only if assessee cannot utilise CENVAT credit against the goods exported during the quarter to which the claim relates. Accordingly, it was interpreted that refund is allowed only on input services consumed during the quarter in which export took place. Since in the present case, input services were not consumed in the quarter of export, the refund claim was rejected.

Held:
CBEC Circular No. 120/1/2010-ST clarified that CENVAT credit refund of past period in subsequent quarters shall be allowed specifically for 100% exporter of services, irrespective of date of CENVAT credit taken, if otherwise in order. Relying on the above Circular and also having regard to the fact that eligibility of CENVAT credit was not disputed and that the appellants cannot utilise CENVAT credit, the refund claim was allowed.

levitra

[2015-TIOL-1888-HC-MUM-ST] M/s S2 Infotech Pvt. Ltd vs. The Union of India & ORS

fiogf49gjkf0d
Sitting on files for months together is not conducive to the interest of nation’s economy. The Chief Commissioners, Service Tax should file comprehensive affidavit indicating the number of files pending and the time required to dispose those cases.

Facts
The Commissioner passed an order after almost 22 months of the date of personal hearing. The Appellant relied upon various circulars issued by the CBEC on the law laid down by the Supreme Court in the case of Anil Rai vs. State of Bihar [2009 (233) ELT 13 (SC)] stating that there should not be any unreasonable delay in passing adjudication order.

Held:
The High Court held that delay in proceedings and passing of orders is contrary to public interest. The Court also stated that ordinarily it would have set aside this order on this ground alone and would have sent it back for reconsideration. However, considering the number of files and matters pending, the Court ordered the Commissioners to place on record complete data and figures of the pending cases with the time required to dispose of these cases.

levitra

[2015-TIOL-1828-HC-MUM-ST] Tahnee Heights Co-op Housing Society Ltd vs. The Union of India & ORS

fiogf49gjkf0d
When refund ordered is paid to the Appellant, withholding interest thereon considering that if interest is also paid, the appeal before the Supreme Court would be rendered infructuous is not the correct understanding of law.

Facts:
The Appellant is a cooperative housing society which paid service tax under protest on amounts contributed by the members. The Tribunal ruled in their favour stating that services to members of club/co-operative housing society is not a service by one to another and accordingly service tax paid was ordered to be refunded. The Respondent refunded the principal sum, but refused to pay interest thereon stating that the Tribunal order was not accepted by them and they were in the process of filing an appeal against the said order. It was also stated that the Appellant should wait till the matter is decided at the Supreme Court level.

Held:
The High Court observed that the interest was withheld on a possible realisation that if the same is awarded their proceedings before the Supreme Court would be rendered infructuous. This cannot be the legal position nor can the understanding of the parties be based on the same. Further it was also noted that if the Respondent did not intend to pay the interest amount, it could have obtained such interim orders from the Supreme Court. The Court held that the Respondent should obtain requisite orders from the Supreme Court within a period of two months of receipt of this order. In the absence of such orders, interest should be paid within four weeks of expiry of two months.

levitra

[2015] 60 taxmann.com 181 (Allahabad High Court) – Rotomac Global (P) Ltd vs. CCE, Kanpur

fiogf49gjkf0d
For computing time limit for filing of appeal, the day on which the order is served on assessee must be excluded.

Facts:
The
Application for refund was rejected by the adjudicating authority and
the order in that regard was served on 26th June 2013. The appellant
filed an appeal on 26th August 2013. However, the appeal was rejected by
Commissioner (Appeals) as well as the Tribunal on the ground of delay
of two days.

Held:
The High Court observed that as
per section 85(3A) of the Finance Act, 1994 the appeal has to be
presented within two months from the date of receipt of the order.
Relying upon section 35-O of the Central Excise Act,1944, it was held
that for computing the period of limitation prescribed for an appeal,
the day on which the order was served has to be excluded. Further, the
High Court held that even otherwise, the delay of two days was not too
fatal and a liberal approach should have been adopted while handling the
matter and the matter therefore, was remanded to decide the appeal on
merits, thereby quashing the order of the first appellate authority and
the order of the Tribunal.

levitra

[2015] 60 taxmann.com 152 (Kerala HC) – Akbar Travels of India (P) Ltd. vs. CCE, Thiruvananthapuram

fiogf49gjkf0d
Once section 80 is held applicable; all penalties u/s. 76, 77 & 78 must be waived.

Facts:
The Tribunal took a view that the Appellant is entitled to benefit of section 80 of the Finance Act 1994. However in terms of final order, the penalty u/s. 78 was deleted and only penalty u/s. 76 was retained. Therefore, a rectification application was filed before the Tribunal that penalty u/s. 76 ought to have been deleted. The application was disposed off clarifying that only penalty u/s. 78 was meant to be deleted. Aggrieved by the same, appeal was filed before the High Court.

Held:
The High Court held that section 80 opens with nonobstante clause. Once the assessee proves that there was reasonable cause for the said failure, section 80 starts to operate insulating imposition of all the penalties stated therein viz. penalties u/s. 76, 77 and 78 of the Finance Act, 1994. Allowing the appeal, High Court also held that having considered the said provisions of law and in terms of specific findings of the Tribunal in its order regarding applicability of section 80 the rectification application must succeed.

levitra

2015 (39) STR 569 (Mad.) Bootleggers Island vs. CESTAT, Chennai

fiogf49gjkf0d
Waiver of penalty u/s. 80 may not be available on the sole ground of financial hardship, for delayed payment of taxes. Penalty is imposable even in cases where tax is paid before issuance of show cause notice.

Facts:
Service tax was paid belatedly without interest. A show cause notice was issued for payment of service tax with interest and penalties. After various rounds of litigation, the Tribunal held that on the sole basis of financial hardship for delayed payment of service tax, the appellants cannot escape from penalties.

Held:
The Hon’ble High Court observed that the Tribunal had clearly held that it was not a case where the benefit of section 80 of the Finance Act, 1994 should be extended. In the absence of such a substantial plea and there being no bonafide justification for exemption, penalty was rightly imposed as mandated by the provisions of the Finance Act, 1994. Further, it was noted that the Madras High Court in the case of Dhandayuthapani Canteen vs. CESTAT 2015 (39) STR 386 (Mad.), had held that penalty is imposable even in cases where tax is paid before issuance of show cause notice. With respect to bar on imposition of penalty u/s. 76 when penalty was levied u/s. 78 of the Finance Act, 1994, liberty was granted to the appellants to agitate the issue before the Commissioner.

levitra

[2015 (322) ELT 772 (S.C.) Greaves Ltd vs. Commissioner of Central Excise and Customs, Aurangabad

fiogf49gjkf0d
Extended period cannot be invoked for the period prior to the issue of clarificatory circular by CBEC

Facts
CBEC, vide its circular dated 30/10/1996 clarified the manner of valuation of captively consumed goods. Demand was raised on the Appellants for non-inclusion of certain costs in arriving at the value for captive consumption for the period 1993-94 to 1997 invoking extended period of limitation. It was argued that since there was no misdeclaration or misstatement, the extended period was not invokable.

Held:
The Hon’ble Supreme Court relying on the decision of Commissioner of Central Excise, Ahmedabad vs. Asarwa Mills [2015 (319) ELT 216 (S.C.) held that the Appellant cannot be faulted with for adopting a valuation mechanism prior to the issuance of the clarificatory circular. Accordingly, extended period cannot be invoked. Moreover, the demand for the normal period was also set aside as the tax effect thereof was negligible.

levitra

Disallowance of set off vis-à-vis natural justice

fiogf49gjkf0d
Introduction
Availability of set off (input tax credit) is the backbone of the Value Added Tax (VAT ) system. A dealer is entitled to claim set off of the tax paid by him to his vendors on all such purchases which are categorised as inputs. The system works in a manner whereby there is no undue burden on the dealer. The amount of VAT payable by a dealer is the difference between the tax payable on sale price less the tax already paid on purchases (inputs). Thus, the tax paid on purchases gets set-off against the tax payable on sale. Denial of set off may cause many problems and the system of VAT will not be workable. A dealer, while selling goods, works out the sale price on the basis of the cost of goods sold. As the tax paid on purchases (inputs) are available as setoff, the same are normally not considered in the cost. But, if the set off is not allowed for any reason, the vendor will be at great risk. This will cause economic loss to vendor with added burden for interest and penalty.

Set off is subject to conditions and not absolute right
It is now well settled that availability of set off is subject to provisions under the Act. In other words, when to give set off, how to give set off and with what reductions etc. is as per the provisions made by the respective State Governments. The dealer cannot ask for the same as a right. The above position is well settled by number of judgments and under MVAT Act, the well known judgment is in case of Mahalaxmi Cotton Ginning Pressing and Oil Industries, Kolhapur vs. The State of Maharashtra & Ors. (51 VST 1)(Bom). In this case, the Hon. High Court observed that set off is not a constitutional right but a statutory right, hence it can be subject to conditions as may be prescribed.

Vital condition under MVAT Act
There are various conditions for grant of set off in the MVAT Rules. However, one very important condition is in section 48(5), which provides that the set off will be allowable if the government has received money on the same goods in the government treasury. In other words, if the vendor has paid tax on the same goods, which are purchased by the buyer, then the buying dealer is entitled to get set off. If the vendor has defaulted, then set off can be denied to the buyer. Although this is such a condition which is beyond the control of the buyer, but still it is held valid in the judgment of Mahalaxmi Cotton Ginning Pressing and Oil Industries (supra).

New Concept of Hawala/R. C. Cancellation
In addition to disallowance of set off on the ground of non-payment by vendors, the sales tax authorities in Maharashtra have found one new way of disallowing set off. Under this new method, the setoff can be denied even without assessing the vendors. The Sales Tax Department of Maharashtra has published on its own website a list of ‘suspicious dealers’ (called hawala vendors) and also a list of dealers whose Registration certificates (R.C.) have been cancelled. The assessing authorities are indiscriminately disallowing set off on all the purchases from such listed vendors.

Principles of Natural justice not followed
Under the guise of hawala vendors and R.C. cancellation, the principles of natural justices are also kept aside by the learned assessing authorities. It is said that the names of hawala dealers or retrospective cancellation of R.C. of the vendors is based on certain materials collected from such vendors and on the basis of their statements under oath or their affidavits, etc. However, these materials used for considering the vendors as defaulters as well as hawala vendors is not delivered to the concerned buyers in whose case the set off is being disallowed. Further, no cross examination opportunity is granted. Therefore, amongst others, such disallowance is against the principles of natural justice and cannot be upheld in the eyes of law.

Right of cross examination is a crystallised right
There are a number of judgments laying down the principle that when the authorities use outside material, delivery of copies of the same and cross examination of the author of such material is required to be given to the concerned opposite party. Amongst others, reference can be made to the judgment of the Madras High Court in the case of Tilagarathinam Match Works vs. Commissioner of Central Excise, Tirunelveli (295 ELT 195) (Mad.)

In this case, the Hon. High Court has held that such a cross examination opportunity is required to be given even without the same being asked for by the opposite party. Thus, this is a very settled principle of natural justice and flouting of the same will render the order invalid. However, in case of hawala and R.C. cancellation cases, the authorities in Maharashtra are having a view that what is declared on their website is the final word and no such opportunity is required to be given.

With due respect, it is submitted that this is a wrong notion.

Shree Bhairav Metal Corporation vs. State of Gujarat (Special Civil Application No. 2149 of 2015 dated 26.3.2015)(Guj. H.C.)

Now the position is also clear in respect of hawala and R.C. cancellation. In the above case before Hon. Gujarat High Court, the facts as considered by the Hon. High Court are narrated as under:

“It appears that while claiming the aforesaid ITC, the petitioner dealer showed purchases of Rs.48,12,825 alleged to have been purchased from one M/s Lucky Enterprises. The petitioner also produced the bills with respect to purchase of goods alleged to have been purchased from M/s Lucky Enterprises. Thus, the assessee dealer claimed Rs.1,92,513 out of total ITC claimed of Rs.6,49,561/- on the purchases alleged to have been made from M/s Lucky Enterprises. That the Assessing Officer passed assessment order dated 30.12.2010 allowing the ITC as claimed by the petitioner dealer including the purchases made by the petitioner alleged to have been purchased from M/s Lucky Enterprises.

It appears that the registration certificate of M/s Lucky Enterprises came to be cancelled ab initio from 22.2.2006 on the ground that M/s Lucky Enterprises is not a genuine dealer and had indulged into billing activities only and all the transactions made by M/s Lucky Enterprises were found to be bogus and non-genuine.”

Thus the set off was disallowed on the ground of hawala and R. C. cancellation. However, the copy of the R.C. cancellation was not delivered to the appellant. Noting the above facts, the Hon. High Court has remanded the matter back while observing as under:

“9.4 As observed earlier, the impugned order has been passed by the adjudicating authority denying the ITC claimed by the petitioner on the alleged purchases made by the petitioner from M/s Lucky Enterprises on the ground that the registration certificate of M/s Lucky Enterprises– seller has been cancelled ab initio on the ground that the seller had involved into the billing activities only and all the transactions by M/s Lucky Enterprises are held to be bogus. The petitioner has been denied the ITC on the ground of the aforesaid activities/alleged transactions between the petitioner and M/s Lucky Enterprises. However, as observed herein above, the petitioner was not served with the copy of the order in the case of M/s Lucky Enterprises. Now, the copy of the order passed in the case of M/s Lucky Enterprises is available with the petitioner. Therefore, after giving an opportunity to the petitioner with respect to observations made in the case of M/s Lucky Enterprises insofar as the alleged transactions between the petitioner and M/s Lucky Enterprises and after giving an opportunity to the petitioner to prove the genuineness of the transaction between them and M/s Lucky Enterprises in light of the observations made herein above, therefore, the matter is required to be remanded to the adjudicating authority to consider the claim of the petitioner for ITC on the alleged purchases made by the petitioner from M/s Lucky Enterprises.”

Thus, the Hon. High Court has reiterated the principles of natural justice and remanded the matter for allowing opportunity to buyer to substantiate its claim after delivery of copies of adverse order. The truth can be established only upon such exercise.

Conclusion

Under MVAT Act also, wherever the set off is disallowed on the basis of default of vendor including hawala allegation and R.C. cancellation, the above principle is required to be followed. Therefore, the assessments made today without following such principle cannot be said to be valid in the eyes of law.

SUPREME COURT: NO SERVICE TAX ON WORKS CONTRACT PRIOR TO 01/06/2007

fiogf49gjkf0d
Background
In the August 2015 issue of BCAJ under the Service
tax feature, both the minority view and the majority view in the
5-member Bench’s decision in Larsen and Toubro Ltd. vs. CST, Delhi 2015
(38) STR 266 (Tri.-LB) were synopsised over the controversy of whether a
works contract was divisible and the service portion involved therein
was liable for service tax prior to June 01, 2007, when service in a
works contract was notified vide introduction of sub-clause (zzzza) in
section 65(105) of the Finance Act, 1994 (the Act). The wait and anxiety
has been put to an end by the Hon. Supreme Court’s path breaking
judgment in a bunch of appeals led by CCE & C Kerala vs. Larsen and
Toubro Ltd. 2015-TIOL-187-SCST wherein the Apex Court has allowed
appeals of the assessees by categorically holding that prior to June 01,
2007, the Act did not lay down any charge or machinery to levy and
assess service tax on indivisible composite works contracts.

THE JUDGMENT OF The HON. SUPREME COURT:
In
various revenue appeals, the substance contended was that the 46th
amendment itself divided works contract by Article 366(29A)(6) and what
remained after removing goods element was labour and service and these
were subjected to service tax by various entries in the Finance Act,
1994. Secondly, the Finance Act, 1994 itself contains both charge of
service tax as well as machinery by which only labour and service
element in indivisible contracts is taxable and the statute need not do
what the constitution amendment has already done viz. splitting of
indivisible works contract into a separate contract of transfer of
property in goods involved in execution of works contract taxable by the
States and labour and service element on the other hand is taxable by
the Central Government. As such, defining works contract in 2007 for the
first time would make no difference as the elements of works contracts
were already taxable under the Finance Act, 1994 even prior to the
introduction of the said definition. Lastly, therefore relying on
section 23 of the Contract Act and McDowell & Company Ltd. 1985 (2)
SCC-230, all indivisible contracts were made with a view to avoid/ evade
tax and this being contrary to public policy, invoking principles laid
down in the said McDowell’s case, the socalled indivisible contracts
should be taxed under the Finance Act, 1994.

As against the
above, it was pleaded for various assessees that works contract is a
separate species known to the world of commerce and law and being so, an
indivisible works contract would have to be split into constituent
parts by necessary legislation to contain a charge to service tax
together with requisite machinery provisions. Secondly, there did not
exist such charge and machinery prior to 2007 and what was taxable was
only the pure service in which no goods element was involved and thirdly
in view of this, the Delhi High Court’s judgment in G. D. Builders’
case 2013 (32) STR 673 (Del) was wholly incorrect.

Analysis:
Considering
the above rival contentions, the Hon. Apex Court examined section 64,
relevant clauses in section 65(105), charging section 66 and section 67
of the Act, Rule 2A of the Service Tax (Determination of Value) Rules,
2006 (Valuation Rules) dealing with valuation in depth and also went
into examining in detail second Gannon Dunkerley judgment (1993) 1 SCC
364, heavily relied by the assessee’s counsel and observed at para 15 of
the judgment, that unless splitting of an indivisible works contract is
done, taking into account the eight deductions elaborated in the said
judgment of Gannon Dunkerley (supra) (i.e. deductions for amount paid to
subcontractor for labour and services, planning, designing and
architect’s fees, hire charges for machineries and equipments,
consumables like water, electricity and fuel etc., other charges for
labour and services, cost of transportation to bring goods to the place
of work and cost of establishment and profit of the contractor relatable
to labour/services) the charge would transgress into forbidden
territory i.e. cost, expense and profit attributable to the transfer of
property in goods in such contract. This being the case, the Court
concurred with the case of the assessees that the charging section
itself must specify that service tax can only be on the works contracts
and the measure of tax can only be on the portion of the works contract
representing service element to be derived only by deducting value of
property in goods transferred in execution of the works contract from
the gross value of the works contract. The Court further noted that as
reflected in Bharat Sanchar Nigam Limited vs. UOI 2006-TIOL-15-
SC-CT-LB, the scheme of taxation under the constitution is such that
powers of the Centre and State are mutually exclusive. Thus, it is
important to segregate the two elements completely and in case of
transgression, the levy would be constitutionally infirm and therefore
exclusivity has to be maintained and thus the Court relying again on
Gannon & Dunkerley (supra), Kone Elevators India P. Ltd. P. Ltd. vs.
State of T. N. 2014-TIOL-57-SC-CT-LB and Larsen & Toubro vs. State
of Karnataka 2013-TIOL- 46-SC-CT-LB endorsed recognition of works
contracts as a separate species of contract and interalia cited Larsen
& Toubro 2013-TIOL-46-SC-CT-LB in approval thereof as follows:

“…..
The term “works contract” in Article 366(29A)(b) is amply wide and
cannot be confined to a particular understanding of the term or to a
particular form. The term encompasses a wide range and many varieties of
contract. The term “works contract” in Article 366(29A)(b) takes within
its fold all genre of works contract and is not restricted to one
specie of contract to provide for labour and service alone”.

The
Court also analysed and accepted the assessee’s next important plea
that there did not exist charge to tax works contract in the Finance
Act, 1994 prior to 01/06/2007 is a correct view. To arrive at the view,
reliance was interalia placed on the following:

Mathuram Agrawal vs. State of M.P. (1999) 8 SCC 667

“The
statute should clearly and unambiguously convey the three components of
the tax law i.e. the subject of the tax, the person who is liable to
pay the tax and the rate at which the tax is to be paid. If there is any
ambiguity regarding any of these ingredients in a taxation statute then
there is no tax in law. Then it is for the legislature to do the
needful in the matter.”

Govind Saran Ganga Saran vs. CST, 1985 Supp SCC 205 = 2002-TIOL-589-SC-CT

“The
components which enter into the concept of a tax are well known. The
first is the character of the imposition known by its nature which
prescribes the taxable event attracting the levy, the second is a clear
indication of the person on whom the levy is imposed and who is obliged
to pay the tax, the third is the rate at which the tax is imposed, and
the fourth is the measure or value to which the rate will be applied for
computing the tax liability. If those components are not clearly and
definitely ascertainable, it is difficult to say that the levy exists in
point of law.”

CIT vs. B. C. Srinivasa Setty (1981) 2 SCC 460

“Thus
the charging section and the computation provisions together constitute
an integrated code. When there is a case to which the computation
provisions cannot apply at all, it is evident that such a case was not
intended to fall within the charging section.”

The Court held that the five taxable services referred to the charging section 65(105) would refer only to service contracts simpliciter and not the composite works contracts which was clear from the very language defining taxable service as “any service provided”. To fortify and advance the above contention further, the Court observed that in contrast to the above, section 67 post amendment in 2006 for the first time prescribed that when the provision of service is for a consideration which is not ascertainable to be the amount as may be determined in the prescribed manner. It is also evident that Rule 2(A) of the Valuation Rules framed pursuant to the power has followed the second Gannon Dunkerley’s case (supra) while segregating the ‘service’ component from the component of ‘goods’. In consonance thereof, the Court also noted that not only the statute was amended and rules framed but a Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 was also notified for payment of service tax at presumptive rate.

Lastly, the Court examined the Delhi High Court’s judgment in G. D. Builders (supra) holding that levy of service tax in section 65(105) sub-clauses (g), (zzd), (zzh), (zzq) and (zzzh) is good enough to tax indivisible works contract and commented as follows:

  •     Reference was made to various judgments which had no direct bearing on the point at issue and further the second Gannon Dunkerley (supra) was referred to in passing without noticing any of the key paras set out in this judgment.

Mahim Patram Private Ltd. vs. Union of India, 2007

(3)    SCC 668 was completely misread to arrive at the proposition that even when rules are not framed for computation of tax, tax would be leviable. This judgment concerned itself with works contract being taxed under the Central Sales Tax Act. In accordance with sections 9(2) and 13(3) of Central Sales Tax Act, powers are conferred on officers of various States to utilise the machinery provisions of the States sales tax statutes for levy and assessment of Central sales tax under the Central Act, so long as the said rules were not inconsistent with the provisions of the Central Act. Thus, the extracted passage from Mahim Patram’s case (supra) in G. D. Builders’ case (supra) referred to rules not being framed under the Central Act and not to the rules not being framed at all. The conclusion drawn based on such misreading was found wholly incorrect by the Court. The finding in G. D. Builders (supra) was thus contrary to the line of decisions discussed above among various others. In support thereof one such passage from para 17 of Jagannath Baksh Singh vs. State of U.P. [AIR 1962 SC 1563] was extracted from Heinz India (P) Ltd. vs. State of U.P. (2012) 5 SCC 443 which read as:

“An imposition of tax which in the absence of a prescribed machinery and the prescribed procedure would partake of the character of a purely administrative affair can, in a proper sense, be challenged as contravening Article 19(1)(f).” (emphasis supplied).

  •     In addition to the above, the Court also took note of the fact that either machinery provisions were struck down or held inadequate and therefore assessment thereunder was rendered ineffective vide the Patna High Court’s decision (affirmed by Apex Court in State of Jharkhand vs. Voltas Ltd. 2007-TIOL-86-SC-ST, Madras High Court in Larsen & Toubro Ltd. vs. State of Tamil Nadu & Ors. (1993) 88 STC 289 and Orissa High Court in Larsen & Toubro vs. State of Orissa, (2008) 012 VST 0031).

The Court concluded by holding that the Finance Act (prior to 01/06/2007) laid down no charge or machinery to levy and assess service tax on indivisible works contracts. Therefore, the revenue’s apprehension that several exemption notifications have been granted qua service tax levied by the Finance Act, 1994 was also answered emphatically that whichever judgment would be appealed against before the Supreme Apex Court, such notifications would have to be disregarded.

Conclusion:

While it is heartening to note that the controversy which began with the decision in Daelim’s case 2003(155) ELT 457 (T) at the end of over ten years has reached finality for better; nevertheless a large number of assessees who met with an adverse decision in this battle and who did not litigate for want of resources or any other reason would have certainly succumbed to the suffering of financial loss in one or the other way in different proportions for no fault of theirs but only on account of vague and unprecise legislation. The question therefore arises thus, is whether an honest assessee has any recourse under the constitution to question accountability of the law administering machinery which also encompasses drafting of laws? Many open issues of similar nature like dual taxation to the transactions of providing license to software or transfer of intellectual property etc. on a similar uncertainty have made tax payers and stakeholders suffer without having any recourse to even consider questionability. Is it the fruit that we are ‘enjoying’ in a democratic setup?

[2015] 59 taxmann.com 194 (Mumbai – CESTAT) – Rathi Daga vs. CCE, Nashik

fiogf49gjkf0d
If assessee providing taxable and exempted services and not maintaining separate records under Rule 6(2) of CENVAT Credit Rules,2004 and also fails to follow procedure under Rule 6(3A) of the said rules, it would not mean that department is justified in invoking Rule 6(3) (i) in all cases. Procedure under Rule 6(3A) needs to be followed, but disallowance should be determined rationally avoiding undue hardship to assessee.

Facts:
The appellant paid service tax under chartered accountants service and his services also included certain exempt services. It was detected by the audit team of the department that it did not maintain separate accounts for services used in providing taxable and exempted services as required under Rule 6(2) of the CENVAT Credit Rules, 2004. Before issue of Show Cause Notice, the appellant however paid an amount equivalent to CENVAT credit based on proportionate reversal method under Rule 6(3) (ii). However, the department issued Show Cause Notice, demanding payment of CENVAT credit under Rule 6(3) (i) being an amount equal to 8% / 6% of the value of exempted services, as the conditions of Rule 6(3A) were not followed.

Held:
The Tribunal after going through Rule 6(3A) of CENVAT Credit Rules,2004 observed that submission of details to department as prescribed in the said rule such as name, address and registration number etc. are mostly factual details which are available from record. It also noted that the department has not disputed the amount paid by the assessee before issue of notice as per Rule 6(3)(ii). In such circumstances, having regard to disparity of amount of CENVAT credit under both the options, it was held that It would be too harsh to enforce payment as per Rule 6(3)(i) only because of non-payment of the due amount on time as per procedure prescribed in Rule 6(3A). The Tribunal however further held that the conditions do require that option should be exercised in writing to avail the facility and amount of CENVAT credit attributable to exempted goods must be paid provisionally for every month.

levitra

2015 (39) STR 350 (Tri.-Bang.) CCE, Cus. & S. T., Visakhapatnam – I vs. Hindustan Petroleum Corp. Ltd.

fiogf49gjkf0d
When completion of provision of services, payment thereof and CENVAT
credit availment is prior to the date of amendment, law prior to the
date of amendment is applicable.

Facts:
The
respondents availed health insurance services in March, 2011, payment
for which was made in March, 2011. However, the insurance was for the
period from April, 2011 to September, 2011. CENVAT credit on such
services was availed in March, 2011. Definition of input services was
substantially amended with effect from 1st April, 2011 with specific
exclusions. One such exclusion was in relation to insurance services,
when such services are used primarily for personal use or consumption of
employees. Accordingly, the department denied CENVAT credit since the
period of insurance was effective from 1st April, 2011. Commissioner
(Appeals) referred to Point of Taxation Rules, 2011 and also the
definition of Point of Taxation and concluded that CENVAT credit was
allowable to the extent of completion of provision of services prior to
1st April, 2011.

Held:
It is an undisputed fact that
services were availed prior to amendment, payment was made prior to
amendment and even CENVAT credit was taken prior to amendment.
Accordingly, provisions post amendment would not be applicable to the
activities completed prior to the date of amendment. As per the
definition, “Point of Taxation” means the point in time when a service
shall be deemed to have been provided. Accordingly, since everything was
completed in March, 2011, CENVAT credit was available.

levitra

[2015] 59 taxmann.com 13 (New Delhi – CESTAT) R.B. Steel Services vs. CCE & ST.

fiogf49gjkf0d
The CENVAT credit on inputs used for manufacture of final product can be used for payment of duty erroneously charged on such exempted final product.

Facts:
The adjudicating authority held that converting black rods/ bars into bright bars did not amount to manufacture during the relevant period and therefore the CENVAT credit taken on capital goods/black rods/bars used for making bright bars was not admissible. The appellant paid duty on their product, namely bright bars and the total duty paid by them was more than the amount of credit taken.

Held:
The Tribunal held that, converting black rods/bars into bright bars do not amount to manufacture as the said issue is covered by the decision of the Supreme Court against the assessee. However, relying upon various judicial pronouncements including decision of the Mumbai Tribunal in the case of Ajinkya Enterprises vs. CCE 2013 (288) ELT 247 (Tri. – Mum) which has been affirmed by the Hon’ble Bombay High Court, it held that CENVAT credit is allowed.

levitra

2015 (39) STR 331 (Tri.-Ahmd) Memories Photography Studio vs. Commr. of C. Ex. & S. T., Vadodara

fiogf49gjkf0d
If service recipient was unaware of nonpayment of service tax by service provider before taking CENVAT credit, the same shall be allowed.

Facts:
The limited question for consideration in the present case was whether CENVAT credit can be denied to the recipient of input services if service tax is not paid by service provider. The department contended that the appellants should have taken precaution to verify the fact of discharge of service tax liability by service provider. Since service provider had not paid service tax liability, CENVAT credit was not admissible to service recipient.

Held:
Revenue could not provide any evidence on record to prove that the appellants were aware of non-payment of service tax by service provider before taking CENVAT credit. Service recipient would only see CENVATA BLE document. It was not the case of non-existence of service provider. Therefore, CENVAT credit was correctly availed.

levitra

2015 (39) STR 256 (Tri.-Del.) Shree Tirupati Balajee Agro vs. Commissioner of C. Ex., Indore

fiogf49gjkf0d
If the assessee is registered under service tax law even though under a different category, penalty u/s. 77 is not warranted.

Facts:
The
appellants had got service tax registration under a different category.
Department sought to levy penalty u/s. 77 of the Finance Act, 1994 for
failure to take registration.

Held:
Even though the
appellants were registered under a different category of service, they
were recognised under service tax law. Therefore, penalty under section
77 was not warranted.

levitra

2015 (39) STR 252 (Tri.-Del.) Bharat Electronics Ltd. vs. Commissioner of C. Ex., Ghaziabad

fiogf49gjkf0d
Central Excise duty cannot be levied on services taxable under Service tax laws.

Facts:
The appellant manufactured a minor part which was supplied to its clients with other imported goods under two divisible contracts. Excise duty was paid on the minor part, however, department demanded excise duty on services forming part of these contracts. It was argued that service component was already under adjudication under Finance Act, 1994 and the services should be automatically excluded from Central Excise laws in the present adjudication, specifically when the items were outside the purview of Central Excise. Since, Central Excise department was not aware of adjudication proceedings initiated by service tax authorities, they had requested for extension of time to verify the fact. However, even after a long time span, department did not provide any reply to the Tribunal.

Held:
The Tribunal examined appellant’s submissions and observed that the divisible contracts were executed specifically demarcating provision of services. In view of separate contracts for supply and service and laws relating to taxation of goods and services, it was held that services cannot be taxed under Central Excise laws.

levitra

2015 (39) STR 235 (Tri.-Mum.) CCE, Pune – III vs. Maharashtra State Bureau of Text Books Production & Curriculum Research

fiogf49gjkf0d
Communication, determining the right of the party or likely to affect the rights, is appealable even though it may not be in the nature of an ‘order’.

Facts:
In view of centralised accounting system, the appellate authority allowed facility of centralised registration at the head office of the respondents, being the recipient of Goods Transport Agency services. Revenue argued that the rejection of centralised registration was through a letter, which cannot be appealed against and only service providers can be granted with centralised registration.

Held:
It is a well-settled law that a letter, conveying grounds of rejection and also the rejection, is an appealable order. The argument, that only service providers are eligible to obtain centralised registration, is meaningless and would defeat the objective of such registration. In Indirect tax laws, registration is linked with taxpayer, which is service recipient in the present case. Since respondents satisfied the conditions for centralised registration, centralised registration was rightly allowed.

levitra

[2015-TIOL-1592-HC-MAD-ST] Fifth Avenue Sourcing (P) Ltd vs. Commissioner of Service Tax.

fiogf49gjkf0d

The amendment to section 35F of the Central Excise Act, 1944 with effect from 06/08/2014 regarding mandatory pre-deposit is prospective in nature and shall not apply to assessment proceedings initiated prior to the said date.

Facts:
The Petitioner was seeking permission to file an appeal without mandatory deposit as the dispute pertains to the period prior to amendment of section 35F.

Held:
The Hon’ble High Court relying on the decision of the Kerala High Court in the case of Muthoot Finance Limited [2015-TIOL-632-HC-KERALA-ST] (refer BCAJ-April’s issue) held that the amended provisions of section 35F of the Central Excise Act, 1944 are not given retrospective effect. Since the proceedings were initiated prior to 06/08/2014, the Appeal and stay application could be filed before the CESTAT without making a pre-deposit. The High Court also noted the decision in the case of Deputy Commercial Tax Officer, Tirupur vs. Cameo Exports and others [2006 (147) STC 218 (Mad)] rendered in the matter of Tamil Nadu General Sales Tax Act, 1959 wherein it has been held that the right of appeal is vested in the assessee the moment he files his return which commences the assessment proceedings. Therefore since the amendment is not retrospective, appeals deserved to be entertained without insisting on pre deposit.

Note: A contrary decision of the Mumbai CESTAT in the case of Maneesh Export(EOU), Satish J. Khalap, Vinay R. Sapte vs. Commissioner of Central Excise, Belapur[2015-TIOL-1093- CESTAT-MUM] reported in the BCAJ-July 2015 issue holding that the amendment to section 35F of the Central Excise Act, 1944 is retrospective in nature.

levitra

[2015-TIOL-1596-HC-KAR-ST] Mrs. Prashanthi vs. The Union of India

fiogf49gjkf0d

Notices of recovery initiated u/s. 87 of the Finance Act, 1994 before the show cause notices are adjudicated is illegal and are required to be squashed.

Facts:
A writ petition was filed against the action of recovery initiated by the department u/s. 87 of the Finance Act, 1994 even before the show cause notices were adjudicated.

Held:
The Hon’ble High Court held that the words “amount payable by a person” used in section 87 of the Finance Act, 1994 will have to be considered in the background of section 73 of the Finance Act, 1994 inasmuch as, show cause notice issued u/s. 73(1) of the Finance Act, 1994 is required to be adjudicated after considering representation of the person if filed and thereafter determine the amount payable. Any deviation in this regard would be in violation of principles of natural justice – doctrine of Audi Alteram Partem would be attracted. Until and unless there is determination and adjudication either u/s. 72 or u/s. 73 of the Finance Act. 1994, section 87 of the Finance Act, 1994 cannot be invoked. Thus, the notices are illegal and require to be squashed.

Note: Readers may also note a similar decision of the Bombay High Court in the case of ICICI Bank Ltd vs. Union of India [2015-TIOL-1164-HC-MUM-ST] holding that law enforcers cannot be permitted to do what is not permitted within the four corners of law. Without there being adjudication, coercive steps cannot be taken for recovery of service tax, penalty or interest.

levitra

[2015-TIOL-1602-HC-KERALA-ST] M/s Geojit BNP Paribas Financial Services Ltd vs. Commissioner of Central Excise, Customs and Service Tax, Deputy Commissioner of Central Excise

fiogf49gjkf0d
The provisions of section 11B of the Central Excise Act, 1944 are not applicable for refund of service tax paid erroneously

Facts
The Appellant wrongly paid service tax on services qualified as export of services and hence claimed a refund. The claim was rejected since it was filed beyond one year from the relevant date as provided u/s. 11B of the Central Excise Act. Hence, a writ petition was filed.

Held:
The Hon’ble High Court relying on the decision of the Karnataka High Court in the case of KVR Construction [2012 (26) STR 195(Kar)] noted that once there is no compulsion or duty cast to pay service tax, there was no authority for the department to retain such amount and the refund is not relatable to section 11B of the Central Excise Act, 1994. Further, the decision of the Apex Court in the case of Mafatlal Industries Ltd. [(1997) 5 SCC 536] holding that refund can only be processed in terms of section 11B was also distinguished by holding that the mistake in the present case is on account of fact and not on account of law. Section 11B is attracted only when the levy has a colour of validity when it was paid and only consequent upon interpretation of law or adjudication, the levy is liable to be ordered as refund. Thus, refund is granted and writ petition is allowed.

Note: Readers may also note a similar decision in the case of M/s. Vasudha Agencies vs. Commissioner of Service Tax- Mumbai-I [2015-TIOL-1470-CESTAT-MUM] and the digest of C.K.P. Mandal vs. Commissioner of Service Tax, Mumbai- II [2015 (38) STR 73 (Tri.-Mumbai) which was reported in the BCAJ-June 2015 issue and the decision of Commissioner of Central Excise and Service Tax, Bhavnagar vs. M/s. Madhvi Procon Pvt. Ltd. [2015-TIOL-87-CESTAT-AHM] also referred in the BCAJ-February 2015 issue.

levitra

Rectification vis-à-vis Recall of the order

fiogf49gjkf0d
Introduction
Under fiscal laws, assessment proceedings are final, subject to an appeal, revision or rectification. In other words, normally the fiscal enactments provide for rectification as one of the remedial measures, after the order is passed.

Under Bombay Sales Tax Act (BST Act) also, there was a provision for rectification by way of section 62 of the BST Act. As usual, the section provided for correction of mistakes which are apparent from record. In almost all fiscal enactments the provisions are similar, i.e. mistakes apparent from record are rectifiable.

Scope of Mistake apparent on record
The real controversy starts as to whether mistake can be said to be apparent from record. If the mistake is categorized as apparent on record, only then it will be rectifiable. There are number of judicial pronouncements under both, direct and indirect taxes, deliberating upon the scope of rectification.

Recent judgment of the Hon. Bombay High Court
Recently, the Hon. Bombay High Court had an occasion to decide such an issue. Reference is to the judgment in case of D. S. Solanki vs. The Maharashtra Sales Tax Tribunal & Ors. (W. P. No. 2779 of 2014 dt.28.4.2015). The facts in the above case, as noted by the Hon. Bombay High Court, are as under:

“3. In the present case, we are concerned with the assessment for the years 1993-94, 1994-95 and 1995-96. It is the contention of the petitioner that in the year 1999, the Revenue Authorities had initiated reassessment proceedings in respect of resale claim in respect of purchases from the vendors of the petitioner. Vide order dated 30.3.1999, re-sale claim allowed in respect of purchases from vendors was disallowed.

Similarly, vide orders dated 31.3.1999 and 29.11.1999, re-sale claim in respect of the assessment period 1994- 95 and 1995-96 was also disallowed.

Being aggrieved by the said orders, three appeals were preferred. Vide order dated 9.3.2001, the Appellate Authority dismissed the appeals and confirmed the orders passed by the first Appellate Authority. Being aggrieved thereby, three appeals were preferred before the learned Appellate Tribunal. The learned Tribunal vide order dated 29.1.2005, allowed the appeals and set aside the order passed by the Original Authority as well as the first Appellate Authority. The Revenue thereafter preferred the rectification applications, as aforesaid, which were allowed by the impugned order. Being aggrieved by the order, the present petition was filed”.

By allowing the rectification, the Tribunal recalled the original orders for fresh hearing.

Based on the zabove facts and the contentions of the parties, the Hon. Bombay High Court made observations about scope of rectification citing the judgment of the Hon. Supreme Court. The said observations are as under:

“6. Their Lordships of the Apex Court in the case of Deva Metal Powders Pvt. Ltd. (10 VST 751) (SC) (cited supra) had an occasion to consider a pari material provisions in U.P. Trade Tax Act. The Apex Court while considering the said provisions has observed thus :-

“This Court in M/s. Thungabhadra Industries Ltd. (in all the Appeals) vs. The Government of Andhra Pradesh represented by the Deputy Commissioner of Commercial Taxes, Anantapur, [AIR 1964 SC 1372] held as follows:

“There is a distinction which is real, though it might not always be capable of exposition, between a mere erroneous decision and a decision which could be characterized as vitiated by” error apparent”. A review is by no means an appeal in disguise whereby an erroneous decision is reheard and corrected, but lies only for patent error.

Where without any elaborate argument one could point to the error and say here is a substantial point of law which states one in the face and there could reasonably be no two opinions entertained about it, a clear case of error apparent on the face of the record would be made out.”

An error apparent on the face of the record for acquiring jurisdiction to effect rectification must be such an error which may strike one on a mere looking at the record and would not require any long drawn process of reasoning. The following observations in connection with an error apparent on the face of the record in the case of Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tiruymale [ AIR 1960 SC 137] need to be noted:

“An error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record. Where an alleged error is far from self-evident and if it can be established, it has to be established, by lengthy and complicated arguments, such an error cannot be cured by a writ of certiorari according to the rule governing the powers of the superior Court to issue such a writ.”

“A bare look at Section 22 of the Act makes it clear that a mistake apparent from the record is rectifiable. In order to attract the application of Section 22, the mistake must exist and the same must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. “Mistake” means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error, a fault, a misunderstanding, a misconception. “Apparent” means visible; capable of being seen, obvious; plain. It means “open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming.” A mistake which can be rectified under Section 22 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration. In our view rectification of an order does not mean obliteration of the order originally passed and its substitution by a new order.

What the Revenue intends to do in the present case is precisely the substitution of the order which according to us is not permissible under the provisions of Section 22 and, therefore, the High Court was not justified in holding that there was mistake apparent on the face of the record. In order to bring an application under Section 22, the mistake must be “apparent” from the record. Section 22 does not enable an order to be reversed by revision or by review, but permits only some error which is apparent on the face of the record to be corrected. Where an error is far from self-evident, it ceases to be an apparent error. It is, no doubt, true that a mistake capable of being rectified under Section 22 is not confined to clerical or arithmetical mistake. On the other hand, it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. As observed by this Court in Master Construction Co. (P) Ltd. v. State of Orissa [1966] 17 STC 360, an error which is apparent from record should be one which is not an error which depends for its discovery on elaborate arguments on questions of fact or law.

“Mistake” is an ordinary word but in taxation laws, it has a special significance. It is not an arithmetical error which, after a judicious probe into the record from which it is supposed to emanate is discerned. The word “mistake” is inherently indefinite in scope, as to what may be a mistake for one may not be one for another. It is mostly subjective and the dividing line in border areas is thin and indiscernible. It is something which a duly and judiciously instructed mind can find out from the record. In order to attract the power to rectify under Section 22, it is not sufficient if there is merely a mistake in the order sought to be rectified. The mistake to be rectified must be one apparent from the record. A decision on a debatable point of law or a disputed question of fact is not a mistake apparent from the record. The plain meaning of the word “apparent” is that it must be something which appears to be so ex facie and it is incapable of argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectifications.”

“In the said case, initially, the assessee was assessed for the aluminum powder treating the same as a metal and as such holding him liable to pay tax at 2.2 %. In the rectification proceedings, it was held that the relevant entry would not include aluminum powder and as such the same was assessed treating the same to be an unclassified item. In this background, the aforesaid observation is made by the Apex Court. It has been held by the Hon’ble Apex Court that in order to attract the provisions of the Act, the mistake must exist and the same must be apparent from the record. It has been held that “Mistake” “means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error, a fault, a misunderstanding, a misconception; to make an error in interpreting. It has been further held that a mistake which can be rectified u/s. 22 is one which is patent, obvious and whose discovery is not dependent on argument or elaboration. However, the Apex Court itself has held that the power u/s. 22 of the said Act is not confined to clerical or arithmetical mistake. It is further held that it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. The Apex Court thus held that there cannot be hard and fast rule as to whether mistake is apparent or not and the same would be mostly subjective and the dividing line in border areas is thin and indiscernible. It has been further held that a decision on debatable point of law or fact or failure to apply the law to a set of facts which remain to be investigated, cannot be corrected by way of rectifications.”

After analysing the scope of rectification as above, the Hon. Bombay High Court in the case of the Petitioner observed as under :

“8. It would thus be seen that the learned Tribunal while deciding the Second Appeal proceeds on a footing that the assessment in question was made u/s. 33(3) of the said Act. However, the assessments were made in fact u/s. 33(2) of the said Act. It could further be seen that even the lawyer who was representing the petitioner before the learned Tribunal in the rectification application, himself admitted that the original assessments were made u/s. 33(2) and not u/s. 33(3) of the said Act. The learned counsel further admitted that the period for 1995-96 does not involve reassessment and the said matter had arisen from the assessment itself. The learned counsel fairly stated that the inaccuracies have crept in the order passed by the learned Tribunal, since the inaccuracies are in the first appeal itself. It could thus be seen that in the facts of the present case, though the assessments were made u/s. 33(2) and not u/s. 33(3), the Second Appeals were decided on an assumption that the assessments were done u/s. 33(3). It can thus be seen that the error which has been committed is on an erroneous assumption of fact. It is further to be noted that it is not even disputed by any of the parties that the error committed by the learned Tribunal is on an erroneous assumption of fact. These errors are such which can be seen with a naked eye. The errors are not of such a nature which would require detailed arguments to be advanced or a complicated process of investigation to be gone into, so as to unearth them. Any person with some understanding of law, can easily make out these errors. Not only that, but the learned counsel appearing on behalf of the assesesee in the rectification proceedings has also admitted that these errors have occurred in the order of which rectification is sought. In that view of the matter, we find that it cannot be said that the jurisdiction exercised by the learned Tribunal was exercised beyond the scope available to it u/s. 62.”

Thus, the Hon. High Court has confirmed that the mistakes which are of fact and the judgment is based on such mistaken facts then the judgment can be recalled for fresh decision.

Conclusion

There are a number of judgments about the above issue. Each case depends upon its own facts. However, the guidelines available are that if the issue is debatable, then rectification will not be permissible. If the mistake is clear as seen, then the rectification is possible and the effect can be either to modify the order or even recall the same.

CONTROVERSY : DIVISIBILITY OF WORKS CONTRACT

fiogf49gjkf0d
Introduction
There has been long drawn controversy over the issue of taxability of works contract prior to the introduction of works contract service (WCS) in sub-clause (zzzza) in section 65(105) of the Finance Act, 1994 (the Act) with effect from 01/06/2007. The dispute dates back to the pronouncement of decision in Daelim Industrial Co. vs. CCE 2003 (155) ELT 457 (T). The controversy primarily relates to whether or not works contracts were taxable under the taxable services defined under the service tax law as commercial or industrial construction service (CICS)–with effect from 10/09/2004), construction of complex service (COCS) (w.e.f. 16/06/2005) or erection, commissioning or installation service (ECIS) (w.e.f. 01/07/2003). The decision in Daelim (supra) was doubted and referred to a Three Member Bench which was answered in CCE vs. BSBK Pvt. Ltd. 2010 (18) STR 555 (T) wherein it was ruled that turnkey contracts could be vivisected and service element therein could be subjected to service tax if the service was a taxable service under the Act. A contrary ruling by the Three Member Bench was however pronounced in Jyoti Ltd. vs. CCE 2008 (9) STR 373 and also in CCE vs. Indian Oil Tanking Ltd. 2010 (18) STR 577 (T). The Larger Bench in BSBK (supra) did not analyse or disagree with the operative ratio in the earlier decision of co-ordinate Benches. Therefore, BSBK (supra) could not have overruled or decided contrary to the decision by co-ordinate Benches. In this background, Larsen & Toubro while challenging an adjudication order confirming service tax demand somewhere in 2013 for execution of a turnkey contract prior to 01/06/2007, holding it as commercial or industrial service, also filed an application to refer the matter to Larger Bench in view of the above two conflicting decisions of Larger Benches. In the interim, Hon. Delhi High Court in G. D. Builders vs. Union of India 2013 (32) STR 673 (Del) ruled that after 46th Amendment to the Constitution, service portion of a composite contract could be vivisected for subjecting it to service tax by applying aspect doctrine for bifurcation of a composite contract. However, prior to this in CST vs. Turbotech Precision Engineering Pvt. Ltd. 2010 (18) STR 545 (Kar) and Strategic Engineering Pvt. Ltd. vs. CCE 2011 (24) STR 387 (Mad), it was decided that works contracts were not liable for service tax prior to 01/06/2007. Consequent upon CESTAT order referring the matter to Larger Bench, the revenue had appealed to Delhi High Court that since the issue stood resolved and decided in G. D. Builders & Others (supra) vide order dated 24/11/2013, for setting aside the order. The Delhi High Court disposed of the appeal in November, 2014 wherein consensus emerged that Five Member Bench can examine a preliminary issue whether the question raised was covered by the decision in G. D. Builders’ case (supra) and also that appropriate directions/orders could be passed after examining contrary view expressed by the Karnataka High Court and the Madras High Court in Turbotech Precision Engineering (supra) and Strategic Engineering (supra) respectively. Accordingly, the Larger Bench of five members headed by the Hon. President was constituted to look into the above limited angle. Although the reference was made for a limited purpose and applicability is confined to the period between 2004 and 2007, since the controversy over the issue is discussed at great length in approx. 220 pages interim order, the decision has assumed academic value. Various judicial precedents on the subject of works contract, taxability of sale of goods involved therein and adequacy of service tax provisions vis-à-vis works contracts vide a catena of judicial precedents have been analysed from various angles since the decision was reached in terms of majority. Discussed below are some of the key observations and views of both majority and minority members of the Hon. Larger Bench.

 Facts of The Case in Brief:
On behalf of  appellant Company, Larsen & toubro, it was pleaded that  g. d. Builders (supra) was per incuriam as it did not consider and explain several operative, relevant and binding precedents in the area and evolutionary history leading to enactment of distinct category of works contract from 01/06/2007 as several of its seminal reasons were passed sub silentio as the Appellants therein conceded that service component in a composite contract can be taxed but not as works contract per se and such other merits concerning taxability of works contract were not examined. Had the several facts of constitution limits and relevant legislative provisions, the enacting history of sub-clause (zzzza) and binding rationes been brought to the notice of the High Court, the conclusion drawn by the High Court could have been different and therefore G. D. Builders decision was based on concession by petitioners therein and did not have precedential vitality. Also, contrary decisions of Karnataka High Court in CIT vs. Turbotech Precision (supra) and Madras High Court in Strategic Engineering (supra) also need to be looked into. Revenue however contended that ruling in G. D. Builders is a binding precedent and not travelling beyond the scope of deliberations fixed by the Delhi High Court vide its order of 11th November, 2014 as contended by the Appellant. In view hereof, the facts and decision of G. D. Builders’ case (supra) as well as those of Turbotech Precision (supra) and Strategic Engineering (supra) were examined in addition to analysing the core issue of taxability of works contract prior to 01/06/2007 in terms of various judicial precedents and all the relevant provisions of service tax

Minority order: Brief Overview:
The minority order contains detailed analysis of scope of charging and valuation provision including the evolutionary history thereof and analysis and examination of a host of judicial precedents which interalia included Gannon Dunkerley & Co. and Others vs. State of Rajasthan & Others (1993) 88 STC 204 (the second Gannon Dunkerley), Larsen & Toubro vs. State of Orissa (2008) 12 VST 0031, Larsen & Toubro vs. State of Karnataka 2014 (34) STR 481 (SC) (a constitution Bench decision), K. Raheja Development Corporation vs. State of Karnataka 2006 (3) STR 337 (SC), Nagarjuna Construction P. Ltd. vs. UOI 2010 (19) STR 321 (AP). Mahim Patram (P) Ltd. vs. Union of India 2007 (7) STR 110 (SC), Bharat Sanchar Nigam Ltd. vs. UOI 2006 (2) STR 161 (SC), Kone Elevators India P. Ltd. 2014 (34) STR 641 (ST) etc. The glimpse of various inferences drawn is provided below:

In addition to examining the definitions CICS, COES and ECIS in section 65(105) and charging section 66, the scope of section 67 dealing with valuation of a service both prior to its amendment on 18/04/2006 and the amended provisions were examined and it was observed that section 67 read with the relevant clauses in section 65(105) and the charging provision leads to infer that “the gross amount charged by the service provider for providing CICS, COCS or ECIS shall be taxable value of such service.” Prior to the amendment of section 67, no exclusion was provided in section 67 on the lines of exclusion provided in Explanation 1 to section 67 that value of goods sold or deemed to have been sold in execution of works contract is excluded from the scope of taxable value referred to in section 67 as provided in clause (vii) to the said explanation for ECIS in respect of CICS or COCS.

  •    Exemption  Notifications  Nos.12/2003-ST,  15/2004-ST and 1/2006-ST attest to the fact that the Central Government was clearly of the view that value of goods sold by a service provider to the recipient thereof is included in the taxable value u/s. 67. It cannot be believed that pure sale transaction simplicitor were sought to be excluded as these were anyway beyond the scope of the Union’s residuary power. Further, these exemption notifications indicate no methodology for valuation of goods sold during execution of works contract. The 2nd Gannon Dunkerley (supra) categorically ordained to exclude value of goods at the time of incorporation, the profit margin on goods, the cost of storage, transportation etc. No Board circular also was issued hinting such exclusion. Actually, Rule 2A inserted in Valuation Rules when works contract service was brought from 01/06/2007 expressly stipulates the value of taxable service to be determined with reference to WCS provided in (zzzza) of section 65(105). Thus, on its terms, Rule 2A has no application to CICS, COCS or ECIS even after 01/06/2007 whereas after 01/06/2007, CICS, COCS and ECIS continue to be taxable services and there is neither repeal nor omission of these services.

  •     The definition of CICS, COCS and ECIS do not signal to cover works contract.

  •     The Hon. Finance Minister in the Budget 2007-08 speech categorically stated that new levy is proposed to impose service tax on works contract.
  •     Works contracts are distinct contractual arrangements and following a series of binding precedents and explicitly provided in Central and State legislations for bringing interalia works contracts within the scope of Union levy by expanding the scope of sale, defining works contracts in the Central Sales Tax Act and incorporating a specific power to make rules for computation/valuation of “deemed sale” in sales tax legislations and also introducing works contract category in the Finance Act, 1994 by expressly defining it together with complementary valuation Rules (Rule 2A) issued u/s. 94 of the Act to ensure proper valuation and confinement of levy strictly to service components also with effect from 01/06/2007. This integrated legislative and statutory landscape of the Act to the extent of works contract service in strict confirmation with constitutional limits on States and the Union taxation in this area as spelt out in second Gannon Dunkerley (supra) and all subsequent rulings including the latest Kone Elevator India Ltd. of 2014 (supra).

  •     In view of the exclusivity and insularity ordained in terms of legislative powers pertaining to taxation, both the federal partners (the Union or the States) are forbidden to trench upon the exclusive domain allocated to each by the constitution. Therefore a vague/overboard definition coupled with ambiguous charging and indeterminate valuation provision could not suffice in terms of First Builders Associations of India (S.C.1989), Second Gannon Dunkerley (supra) and L&T Ltd. (Orissa 2008) (supra). When the charging and/or valuation provisions on a true and fair classification fall short of this specific requirement, collection of sales tax on works contract would fall aside as per the above precedents among various others.

  •     In view thereof, Union’s intention to levy tax only on labour or service element must therefore be categorically expressed in charging provisions read with relevant taxable service and the valuation provisions. Such intention was explicated only by section 65(105)(zzzza) and not collectively through charging section, definition and valuation provisions so far as they related to CICS, COCS and ECIS.

  •     It is an established interpretation principle that where two constructions are fairly possible, the construction sustaining the legislation should be adopted instead of one which renders it invalid.

  •     In terms of revenue contentions, should it mean that insertion of WCS from 01/06/2007 and introduction of Rule 2A in the Valuation Rules were wholly unnecessary amendments in the existing legislative provisions?
  •     Neither the provision of the Act,any rule made there under or exemption notification issued under section 93 indicate how and at what point of time during execution of works contract, the value of goods and material used in execution thereof are to be valued for applying reductions. Although Notification No.12/2003-ST provides deduction towards value of goods sold on furnishing proof of such sales does not provide for computation of profits booked by builders on the goods incorporated in the contract.

  •    There  was  observation  in  Tamil  Nadu  Kalyana Mandapam Association’s case [2004 (167) ELT 3 (SC)] that it is well settled that the measure of taxation cannot affect the nature of taxation and therefore service tax levied as a percentage of the gross charge for catering cannot alter legislative competence of Parliament. This cannot be interpreted as propounding universal norm. This may be appropriate in the facts and circumstances of that case. The nexus and legislative competence tests are established by a long catena of binding authority including Constitution Benches including the second Gannon Dunkerley (supra) and K. Damodarasamy Naidu & Bros. AIR 1999 SC 3909, Tamil Nadu Kalyana Mandapam’s decision (supra) cannot be considered as having dissented or overruled entrenched principles consistently impounded and implicitly followed in a host of decisions including in to another legislation and tax such elements under the pretext of overreaching merely the measure of tax.

  •     Since binding expositions of relevant principles qua binding precedents were not brought to the notice of the Hon. High Court, G. D. Builders (supra) decision is incuriam and sub silentio.

  •     The analysis and the view concluded as: “28.  The decisions of the Karnataka and Madras High Courts, in Turbotech Precision Engineering Pvt. Ltd. and in Strategic Engineering Pvt. Ltd. have clearly concluded that a works contract is not leviable to Service Tax prior to 1-6-2007. Though, with respect there is not discernible a holistic analyses of the relevant statutory framework involved nor of the several precedents which support the conclusion recorded (in Turbotech and Strategic), as is found in the painstaking effort apparent in G.D. Builders, in our respectful view the conclusion that a works contract is defined, charged and is subject to the levy of Service Tax only w.e.f 1-6-2007 (on insertion of sub-clause (zzzza) in Section 65(105) of the Act), is consistent with the overwhelming catena of binding precedents considered and analyzed by us.”
  •    Consequently, the decision in BSBK Ltd. (supra) to the extent it rules that a works contract is a taxable service prior to 01/06/2007 was respectfully an error and stood overruled.
Majority view: Per Shri J. P. R. Chandrasekharan,

Member (T): Brief overview:

Not agreeing with the above, Hon. Member (Technical) proceeded with recording apprehension at the outset over the instant reference in view of the revenue’s pending appeals before the Supreme Court after admission in 2008 and 2010 respectively in Jyoti Ltd. (supra) and Indian Oil Tanking Ltd.’s case (supra) in the same matter. Further, the Delhi High Court having taken a view on this very issue in G. D. Builders’ case (supra) as well as in YFC Projects P. Ltd.’s case (2014) 44 GST 334/43 Taxman.com 219 (Delhi) that works contracts could be vivisected and discernible taxable services could be taxed prior to 01/06/2007 it was noted that the Tribunal being subordinate to High Court and Supreme Court would be bound by these decisions and the matter did not recur post 01/06/2007 as the dispute essentially related to the period 2004 to 2007. Besides this reservation, it was also noted that the ratio of G. D. Builders was consistently followed by the Tribunal in many cases including by Hon. President in CCE vs. Gopal Enterprises 2014 (36) STR 674, Kalpik Interiors vs. CST 2014 (36) STR 1283 and in Hindustan Aeronautics Ltd. vs. CST 2013 (32) STR783 (Tri.-LB).

    In the said case of G. D. Builders (supra), after examining at great length various decisions which among others included Gannon Dunkerley vs. State of Rajasthan [2002-TIOL-103-SC-CT], K. Raheja [2005-TIOL-77-SC-CT], Larsen & Toubro vs. State of Karnataka 2010 (34) STR 481 (SC)], Nagarjuna Construction Co. Ltd. vs. UOI 2012-TIOL-107-SC-ST, State of Kerala vs. Builders Association of India [2002-TIOL-602-SC-CT, Tamilnadu Kalyana Mandapan Association 2004 (167) ELT 3 (SC) etc. whereby the following issues in brief among others were examined:

a. Service tax is levied on taxable services as defined in section 65(105) read with definition clauses and applicable only on the service element as the Central Government does not have power to impose tax on entries under List-II of Seventh Schedule to the constitution. It cannot levy tax on goods and material used in works contract as central sales tax is levied on material used in “works contract” with effect from 11/05/2002 vide amendment of Central Sales Tax Act.

b. Composite or works contracts are not included in 65(105)(zzq) viz. CICS and (zzzh) viz. COCS as they apply to only service contracts. Therefore, the exemption of 67% under notification cannot be considered a part of main statutory provision as in terms of section 93 of the Finance Act, 1994, the exemption granted cannot relate to works contracts as they are not covered by clauses (zzq) and (zzzh) of section 65(105). Such tax is imposed only from 01/06/2007 under 65(105) (zzzza). There is conflict between these clauses and what is covered by (zzzza) cannot be covered by (zzq) and (zzzh) of section 65(105). The two cannot co-exist. Subsequent legislation shows that the earlier only did not cover composite or works contracts.

c.    Section 66 is charging section and section 67 relates to valuation. Tax can be levied on the value of service and not beyond. There is provision for notional value to substract the value of material or goods.

d.Vagueness or uncertainty makes levy invalid and illegal.

e.    Exemption Notification has to be read while keeping its objective and purpose in forefront. It may provide a convenient formula for computing the value of service in a composite contract. The Notification however is optional and an alternative. It meets the tests laid down u/s. 93 and 94 and it has not been shown that the value prescribed therein is absurd or irrational.

f.    On the strength of factual and legal analysis undertaken, conclusion summarised in para 36 in a nutshell that post 46th Amendment to the Constitution, composite contracts can be bifurcated to compute value of goods sold/ supplied in construction contracts with labour and material and the service portion of the composite contracts can be subjected to service tax by applying aspect doctrine for vivisection of the contract.

  The above decision on an identical issue was followed before another Bench of the Delhi High Court in YFC Projects P. Ltd. vs. UOI (supra). In view of the foregoing, the above decisions are binding on the Tribunal.

    In furtherance of the above and analyzing one of the main points of difference that conflicting decisions of
Karnataka and Madras High Courts as against the Delhi High Court’s decision in G. D. Builders (supra) on the same/similar issue are available, it was observed that facts of these decisions were completely different. In CST vs. Turbotech Precision (supra), the activity of development, design, installation and commissioning and technology transfer was sought to be taxed as consulting engineering service by the department.

Similarly, in Strategic Engineering’s case (supra), the contract involved erection of pipes and also connecting the laid pipes and subjecting them to carry fluids. This activity was sought to be taxed as erection commissioning and installation service wherein the Hon. High Court held that the services provided under works contract were not liable prior to 01/06/2007. However, the question whether works contract could be vivisected and subjected to service tax was not the issue for consideration before the Hon. High Court. Therefore, the said decision has no relevance to the issue considered in G. D. Builders’ case (supra). In support of this contention, the Hon. Member interalia relied upon Alnoori Tobacco Products (2004 170 ELT 135 (S.C.)]. The relevant extract read as follows:

“11. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclid’s theorems nor as provisions of the statute and that too taken out of their context.”

  Accordingly, it was concluded that ratio of G. D. Builders stands uncontroverted and thus binding on all subordinate Courts including the Tribunal (irrespective of the strength of the Bench).

    Next examination pertained to the main issue of DIVISIBILITY of works contract prior to 01/06/2007 including analysing section 67 dealing with measure or valuation. The proposition of lack of adequate machinery provision was found without merits on the ground that four important elements of tax law viz. taxable event, the rate of tax, measure of tax and precision liable to tax were found existing in service tax law in section 65(105), sections 66, 67 and 68 of the Act and therefore the challenge was found not sustainable. As regards the primary issue relating to exclusion of value of goods, based on judicial pronouncements including in the case of K. P. Varghese vs. ITO 1981 AIR 1922 (SC), it was found that section 67 of the Act provided measure of the levy adequately and optional exemption notifications 12/2003-ST, 15/2004-

ST and 1/2006-ST as well as CENVAT Credit Rules, 2004 provided credit mechanism to capture value of services of goods. Therefore, at practical level of implementation, there is no difficulty to determine value of service rendered.

  At the end, the concept of works contracts was analysed in detail to distinguish it from the contracts for sale. It was observed that the Apex Court in Builders Association of India vs. UOI (supra) held that “by fiction, an indivisible contract has been made a divisible contract and the values of the goods involved in the execution of contract have been subjected to tax”. Further, it is restricted to the value of goods used and not the building as a whole. The law was further elaborated by the constitution Bench of Supreme Court in the second Gannon Dunkerley & Co. (supra). The Bench noted that contract of work is inherently a contract of service. The legal fiction created by Article 366(29A) of the Constitution to hold certain types of works contracts as deemed sale of goods in order that States could levy sales tax on the value of goods supplied as part of the works contract. Similarly, the 92nd amendment to the constitution provided for a specific entry for taxes on services in the Union list under entry 92C. Prior to this, entry 97 covered taxes on services. Thus, the power of Parliament to levy tax on services was never in dispute. Reliance was placed on Tamil Nadu Kalyana Mandap Association vs. UOI 2004 (167) ELT 73 (SC) which interalia held as follows:

“45. The concept of catering admittedly includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a Service Tax cannot be levied on the service aspect of catering….

46. It is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that Service Tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter…..

58. A tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire purchase activities.”

Similar reliance was placed on Association of Leasing and Financial Services Companies vs. UOI 2010 (20) STR 417 (SC) which interalia held:

“Merely because for valuation purposes inter alia “finance/interest charges” are taken into account and merely because Service Tax is imposed on financial services with reference to “hiring/interest” charges, the impugned tax does not cease to be Service Tax and nor does it become tax on hire-purchase/leasing transactions under Article 366(29A).”

Based on the above two decisions in respect of two transactions relating to catering services and hire purchase, it was found that since service tax could be levied on these services on the value attributable to the service component of composite transactions, the issue of divisibility of an indivisible contract for the levy of service tax was confirmed. It was observed that many services entail supply of goods and many examples were cited including those of photography services, cleaning services, banking services (entailing supply of cheque books, plastic cards for ATM transactions etc.) sound recording services (entailing supply of recording medium) etc. Further citing a recent decision of Apex Court in State of Karnataka vs. Pro Lab and Others 2015-TIOL-08-SC-LB which considered the issue of levy of sales tax on processing and supply of photographs, it was observed that if by virtue of clause 29A of Article 366 of the Constitution, the State legislature is empowered to segregate goods part of works contract to levy sales tax, the same logic would apply to the Central legislation for imposing service tax and Parliament is empowered to segregate service component of the works contract to levy service tax. Precisely, this was done by the Finance Act, 1994, when service tax was levied vide CICS, COCS and ECIS. It was further observed that statutory provision should be interpreted in the manner not to create discrimination among classes of service providers by taxing supplying services alone and another set providing both supply of goods and service not liable to tax. In effect, it was concluded with, “the issue referred to the Larger Bench is fully and squarely covered by the G. D. Builders case decided by the Hon. Delhi High Court”. Consequently, it has to be held that composite works contract can be vivisected and discernible service element could be subjected to service tax even prior to 01/06/2007.

Majority view: Per R. K. Singh, Member (T): Some key observations:

  •     Concurring with the order of per Hon. Shri P. R. Chandrasekharan, it was observed that the judgments of the Karnataka and Madras High Courts did not infringe upon the ratio of the Delhi High Court in G. D. Builders as regards the subject matter covered by the latter and that the subject matter referred to the Five Member Bench was squarely covered by the decision of the Delhi High Court in G. D. Builders’ case (supra).

  •     Section 67 adequately provided machinery provisions for measure of value of taxable service and which was not arbitrary by any standard whether post its amendment from 18/04/2006 or prior thereto. Since it refers to the value of service would imply that value of goods sold in a composite contract was not to be a part of the value for the purpose of this section.

  •     Notification No.12/2003 needs to be viewed as a measure of abundant caution and care on part of the Government.

Majority view: Per Rakesh Kumar, Member (T): Some key observations:

  •    “47.3 When indivisible works contracts are those contracts involving provision of service, in which there is transfer of property in goods from the service provider to the service receiver through accretion, and this transfer of property in goods is not sale, such contracts have to be treated as service contracts as in such contracts, there is absolutely no intention of transfer of property in and delivery of the possession of, a chattel as a chattel to the service receiver. A service contract will not cease to be a service contract just because the provision of service involves use of goods, the property in which gets transferred to the service recipient through accretion. Even the Law Commission’s Reports (Chapter IA para 7) refers to the works contract as “a contract for work (of service)”.

  •     It is a well settled law that legal fiction has to be given effect to only for a limited purpose for which it was created and therefore Article 366(29A) can be employed only to enable State Governments to levy sales tax on certain contracts including specified contracts. Since works contracts are service contracts, the same would attract service tax even during period prior to 01/06/2007.
  •    Just because State Governments have the power to levy sales tax on the transfer of property in goods involved in execution of works contract by invoking Article 366(29A), the power of Central Government to levy service tax on such works contract does not get restricted so as to confine the levy only to service portion of the works contract excluding the value of goods for providing the service. An inadmissible works contract is one single service contract whose value would include value of all goods and services which contribute to emergence of the service product.

  •   Exemption Notification issued under section 93 of the Act to provide abatement of the taxable value of specified services (including ECIS, COCS and CICS) are sufficient to avoid tax on goods subjected to tax by the State Government and no machinery provision is necessary.
  •     In commercial world, transactions of sale of goods and sale of services are intermixed and therefore some overlap is inevitable which has to be ignored in the interests of smooth functioning of laws governing the levy of tax on sale of goods and service tax.

  •    Separate and specific constitutional provision together with the machinery for determining the measure is required only when State Government wants to tax goods portion in a service transaction or the Central Government wants to tax service portion of a sale transaction. However, for levying service tax on a service transaction including works contract, no machinery for exclusion of value of goods is required and for the lack of the said machinery, the levy cannot be held invalid.

Conclusion:

Since the revenue is already before Supreme Court against the order of Turbotech Precision Engineering (supra) and Strategic Engineering (supra), whether the above intellectual exercise would impact any litigation process is a question which is posed by many. Nevertheless, a threadbare analysis of technical and judicial aspects on the subject of works contract would be a worth read for a large number of professionals and other stakeholders.

Welcome GST

fiogf49gjkf0d
Introduction
After a long wait of more than 15 years, the time has now come to welcome the most awaited reform in the taxation history of India. The introduction of Goods & Services Tax (GST) is expected to become a reality just within a few months from now. The Government of India has conveyed from time to time its intention to introduce this much awaited reform in the system of indirect taxes at central as well as at State level. Readers may recall that a committee called “Empowered Committee of State Finance Ministers” was constituted on 17th July 2000, under the directions of the then Prime Minister of India, Shri Atal Bihari Vajpayee. It was given the task of replacing the existing system of sales tax prevailing in various states all over the country, designing the GST model and overseeing the IT back-end preparedness for its rollout. The committee, under the leadership of Dr. Asim Dasgupta, the then Finance Minister of West Bengal, who was the first chairman of this committee, did wonders in bringing together all the States and the Centre to discuss and resolve their issues and concerns. Many important decisions such as Introduction of VAT at state level, setting up Tax Information Exchange System (TINXSYS) and release of First Discussion Paper on GST (on 10th November 2009), etc., were taken on the basis of recommendations of this Committee and various groups and sub-groups working under its directions. After Dr. Gupta, the Committee was headed by Shri Sushil Modi, the then Finance Minister and Dy. Chief Minister of Bihar, thereafter Abdul Rahim Rather, the then Finance Minister of Jammu & Kashmir. And at present Shri K.M. Mani, the Finance Minister of Kerala is the chairman of Empowered Committee.

Successive Union Finance Ministers, starting from Shri Yaswant Sinha, Jaswant Singh, P. Chidambaram, Pranab Mukherjee and now Arun Jaitley have given their inputs from time to time. Dr. Manmohan Singh, as Finance Minister of India, has played an important role in the overall exercise of reforms.

Evolution of the concept of VA T and its journey to India
“Added Value Tax (AVT, in the American Tax nomenclature), tax on value added (TVA, as the French and German refer to it) and value added tax (VAT , the popular English usage) is a concept which originated during the first quarter of 20th century. Dr. Wilhelm Von Siemens, a German industrialist, propounded the concept in the year 1918 as a substitute to the then newly established German Turnover Tax. However, Maurice Lauré, Joint Director of the French Tax Authority, was the first to introduce VAT, in France, on April 10, 1954.

The VAT as a system of tax, conceptually, has been of great interest among the early writers on public finance. It became a topic of public debate after European Economic Community’s (EEC) acceptance of it as an instrument of tax harmonisation. In fact, the introduction of VAT in France largely paved the way for its being accepted as a common market tax. And it became the most popular system of indirect taxes after its adoption by England in the year 1971. The European and Australian countries have contributed a lot in its transformation, improvement and continuous development. At present, the system is prevalent in more than 140 countries all over the world. Malaysia is the latest addition where the system of VAT (GST) has been adopted with effect from 1st April 2015 in place of the earlier system of sales tax and services tax. The general rate of GST adopted in Malaysia is 6%.

The VAT , in common parlance, may be described as a tax levied on the value added to a product or service each time it changes hands. The growing popularity of VAT is due to its simple tax structure, transparency and neutrality. With the widening of tax base, the rate of taxes are lower. Whether it is sale/supply of goods or rending of services, most of the commodities as well as services are taxed at one single revenue neutral rate with exception only for a few commodities and services, which may be taxed at special rates. Tax exempt commodities are listed at minimum and zero rate of tax is provided on exports and inter-branch transfers. It enhances competitiveness and removes the cascading effect of taxes and levies by providing full setoff of taxes paid on inputs. As the levy covers each stage of value chain, the impact of tax is not concentrated on one level, which in turn reduces inducement for evasion considerably.

By virtue of method of computation, the incidence of tax, under VAT, can be seen readily from the tax paid on final point of sale. This is not possible when taxes are levied on inputs or intermediate stage of sale and purchase without any relief at subsequent stages. Because of transparency under VAT , it is possible to quantify, at any stage, precisely the tax borne at the earlier stages.

Neutrality is another attribute of VAT that is non-interference with the choices of decisions of economic agents and equal treatment of products, producers and consumers. In this system, other things remain the same, the tax liability does not vary as between different classes of dealers, or between integrated or specialised units. The allocation of resources is left to be decided by the free play of market forces and competition.

Main characteristics of VAT

  • A destination based multi-point system of taxation
  • Covers goods and services both
  • Collected at each stage of supply and distribution
  • Input Tax Credit
  • Ultimate burden passed on to the consumer

Looking into various advantages of the system of VAT , most of the countries all over the world have adopted the concept in their system of taxing goods and services. Thus it is being called as Goods & Services Tax (GST).

Although most of the developed and developing countries have adopted the system of VAT , the most notable exception is USA, where still the system of sales tax – General Sales Tax or Retail Sales Tax (RST) is prevailing. The manner of levying taxes in USA varies from State to State. In general, it may be described as a single point last stage taxation wbut there are exceptions depending upon the policy of a particular State.

As far as India is concerned, being a federal country, the taxation structure is governed by its Constitution. The Centre and the States levy tax on commodities at various stages of production and distribution, utilising their powers generated from the Constitution of India, which was prepared in the year 1949-50 for adoption by all the erstwhile provinces, which were merged, converted and united as States and a Government at Central level as to have one Independent India. The Constitution provides for separate independent powers as well as combined powers of the Centre and the States and also provides for collection, distribution and sharing of taxes.

In the present setup, Central Government levies taxes such as Custom Duty, Countervailing Duty, Excise Duty, Service Tax, etc. While the States have power to levy Sales Tax (State VAT ), Entertainment Tax, Entry Tax, Luxury Tax, State Excise, Profession Tax, etc. The Central Sales Tax, under an enactment of the Centre, is also being collected by the States.

A bare look at the history of indirect taxation in our country shows that many of the taxes which were levied before independence have continued either as it is or with minor modifications from time to time, and, a few more new taxes have been introduced in the free India. Although, abolition of some of the pre-independence taxes could have been considered by Governments at both the levels, but somehow it remained a major point of debate that whether the taxation structure should continue as it is or it needs a thorough overhaul? This fact is evident from the process of setting up of various committees, groups and task forces and their reports since 1969 till date.

Some of the committees which suggested, long ago, a major overhaul of the existing system of taxation include S. Bhootlingam Committee (1969), Indirect Taxation Enquiry Committee (1976) and Jha Committee on Indirect Taxes (1977). The Jha Committee, in the year 1978, strongly recommended adoption of the system of VAT. It said:”VAT in its comprehensive form extends from mining and manufacture stages to the retails stage. It can replace all other forms of internal indirect taxes such as excise, sales tax and octroi.”

Other notable committees, which gave important suggestions on redesigning of indirect taxation system include; “Tax Reforms Committee (1991-92)” chaired by Dr. Raja J. Chelliah, “Advisory Group on Tax Policy and Tax Administration (2001)”, chaired by Dr. Parthasarathi Shome and “Task Forces on Direct and Indirect Taxes (2002)”, chaired by Dr. Vijay Kelkar. Dr. Parthasarathi Shome also led the Tax Administration Reform Commission (TARC), which submitted its report to the present Finance Minister on 30th May 2014.

It may be worthwhile to note that adoption of a comprehensive system of value added tax is being consistently suggested by various committees constituted by the Government of India since 1977. The first positive step in this direction was taken in 1986 when modified value added tax (MODVAT) was introduced in Central Excise, which was later converted to CENVAT in the year 2000. However, real credit for a committed approach to reforms goes to Dr. Manmohan Singh, as Union Finance Minister (1991-96), who took up the challenge of reforms. In his Budget speech, in 1993, Dr. Manmohan Singh, indicated that high on his agenda of economic reforms was the replacement of historical sales tax systems by a Value Added Tax system. He entrusted this issue to the National Institute of Public Finance and Policy (NIPFP) for examination and recommendations. The NIPFP set up a high-level study team, under the leadership of Dr. Amaresh Bagchi, to go into the details of the issue. The report of the Committee, published in April 1994, is the pioneering work in this field and it has identified the basic themes for the subsequent discussions and action programs relating to reform of sales tax and other forms of indirect taxes. Its comments on the prevailing system of indirect taxes are also worth noting –

“The system (of domestic trade taxes) that is operating at present is archaic, irrational and complex. According to knowledgeable experts, the most complex in the world. It interferes with the free play of market forces and competition, causes economic distortions and entails high costs of compliance and administration.”

After the introduction of MODVAT, the next step towards comprehensive VAT was introduction of Service Tax in the year 1994. The concept, started with the coverage of just 3 services, now covers almost all services, except a privileged few. The Service Tax mechanism was modified from time to time with continuous expansion of its base and the facilities like input tax credit. The integration of Excise and Service Tax ITC was another step in the same direction.

Meanwhile, after a lot of discussion and persuasion, the States agreed to replace the age old sales tax with a transparent and vibrant system of value added tax. At present, all the States as well as Union Territories of India have adopted VAT in place of sales tax and trade tax, etc.

With these developments so far, we have reached a stage of fragmented VAT, which is working either independently or jointly with one or more taxes. Both the Centre and the States continue to levy tax at various stages of production and distribution utilising their powers generated from the Constitution of India (as described in the earlier paragraphs).

It is now time to consolidate all these indirect taxes into one, whether it is a tax on sale of goods, purchase of goods, on production, movement, entry or on consumption, rendering of services, receiving of services, entertainment or enjoying the luxuries, whatever needs to be taxed must be combined together into one tax. Thereafter, it does not make any difference whether it is called comprehensive VAT or Goods &    Services Tax (GST). The administration of such a tax, whether done by the Centre or the States, has to be in such a manner so as to avoid unnecessary hassles, unwanted complications and undue favours. The system must ensure that the Government gets what is due to it, neither more nor less. The consumer must know exactly the burden of tax on him. And the dealers (traders, manufacturers, service providers, etc.), who are responsible to collect tax from the ultimate consumer and deposit the same into the Government Treasury, must be ensured that there is no burden of tax on them while performing this pious duty.


 Indian Goods and Services Tax (GST)

Introduction of a Goods and Services Tax (GST) to replace the existing multiple tax structures of Centre and State taxes is not only desirable but imperative in the emerging economic environment. Increasingly, services are used or consumed in production and distribution of goods and vice versa. Separate taxation of goods and services often requires splitting of transaction value into value of goods and services for taxation, which leads to greater complexities, administration and compliances costs. Integration of various Central and State taxes into a GST system would make it possible to give full credit for input taxes collected. GST, being a destination-based consumption tax, based on VAT principle, would also greatly help in removing economic distortions caused by the present complex tax structure and will help in the development of a common national market.

All of us are well aware through various press reports and the budget speeches of respective finance ministers since 2004, that the Government of India is committed to introduce GST in place of existing indirect taxes which are being levied by Central and State Governments. Somehow, the process got delayed, first on account of the late introduction of state level VAT and thereafter, due to various other factors. The real work on designing a suitable GST model, for India, could start from May 2007, when the Empowered Committee of State Finance Ministers (EC) appointed a Joint Working Group (JWG) to give its recommendations regarding detailed framework to be adopted for GST. The working group studied various models and their suitability in Indian conditions. Based upon JWG Report, the EC announced in November 2007 that Indian GST shall be dual GST to be levied concurrently by both levels of Government,

The original target date for introduction of GST was set as 1st April 2010. P. Chidambram, the then Finance Minister in his budget speech 2007-08 stated “I wish to record my deep appreciation of the spirit of cooperative federalism displayed by State Governments and especially their Finance Ministers. At my request, the Empowered Committee of State Finance Ministers has agreed to work with the Central Government to prepare a roadmap for introducing a national level Goods and Services Tax (GST) with effect from 1st April, 2010.” Shri Pranab Mukherjee, as Finance Minister, in his budget speech 2009-10 stated, “I have been informed that the Empowered Committee of State Finance Ministers has made considerable progress in preparing the roadmap and the design of the GST. Officials from the Central Government have also been associated in this exercise. I am glad to inform the House that, through their collaborative efforts, they have reached an agreement on the basic structure in keeping with the principles of fiscal federalism enshrined in the Constitution. I compliment the Empowered Committee of State Finance Ministers for their untiring efforts. The broad contour of the GST Model is that it will be a dual GST comprising of a Central GST and a State GST. The Centre and the States will each legislate, levy and administer the Central GST and State GST, respectively. I will reinforce the Central Government’s catalytic role to facilitate the introduction of GST by 1st April, 2010 after due consultations with all stakeholders.”

While the Empowered Committee released its ‘First Discussion Paper on Goods and Services Tax’ on 10th November 2009, the Economic Division in the Department of Economic Affairs (Ministry of Finance, Government of India) initiated a working paper series with the objective of improving economic analysis and promoting evidence based policy formulation in its mandated areas of work. Several such well-researched Working Papers were released, which were written by well known economists such as Dr. M. Govinda Rao, Satya Poddar, Ehtisham Ahmad, R. Kavita Rao and others. Kavita Rao, in her paper released in November 2008, has raised certain issues with reference to dual GST, and, Satya Poddar & Ehtisham Ahmad, in their paper released in March 2009, have discussed in detail various aspects of GST model for India based upon their studies of implementation of VAT/GST in various other countries.

However, public debate on GST started only after release of ‘First Discussion Paper’ by the Empowered Committee. Considering various aspects of points covered by the said Discussion Paper, it was felt by almost all stake holders that it would need detailed discussion and the target date of 1st April 2010 cannot be met. Various institutions and associations of trade, industries and professionals, including ICAI, FICCI and others, submitted their views and queries. It may be worth noting that immediately after the release of the First Discussion Paper, the Task Force, appointed by the 13th Finance Commission headed by Dr. Vijay Kelkar, released its own Report on ‘Goods and Service Tax’ on 15th December, 2009. The recommendations of the Task Force are significant, and, the same are at variance with the recommendations of EC on certain key issues.

Apart from EC, and Task Force, etc, the Ministry of Finance (Government of India) also appointed a Joint Working Group of Central and State Government Officers, on 30th September 2009, for identifying issues concerning amendment to the Constitution and essential features of Central and State legislation for implementation of dual GST. It also constituted three sub working groups, on 1st June 2010, to work on specific issues, such as;

(1)    To work on and propose registration, returns, payments, refunds, audit and dispute resolution mechanism for GST regime.

(2)    To work on and draft legislation on Central GST and Model State GST
(3)    To work on and finalise basic design of IT system required for GST in general and IGST in particular.

Further, to have an appropriate IT infrastructure, an ‘Empowered Group on IT Infrastructure for GST’, was constituted, on 26th July 2010, under the chairmanship of Nandan Nilekani. On the basis of the recommendations of this committee, the EC set up a company known as Goods and Services Tax Network (GSTN), incorporated on 28th March 2013, u/s. 25 of the Companies Act, 1956.

Recently, two more committees have been formed for facilitating implementation of GST from 01/04/2016. While one committee called ‘Steering Committee’ will monitor the progress of IT preparedness of GSTN/CBEC/Tax Authorities, finalisation of reports of all the Sub-Committees constituted on different aspects relating to the mechanics of GST and drafting of CGST, IGST and SGST laws/rules. This Committee shall also monitor the progress on consultations with various stakeholders like trade and industry, and training of officers. The other committee has been assigned the job of recommendation possible tax rates under GST that would be consistent with the present level of revenue collection of Centre and States. While making its recommendations, this Committee will take into account expected levels of growth of economy, different levels of compliance and broadening of tax base under GST. The Committee would also analyse the Sector-wise impact of GST on the economy.

While all these committees, sub-committees, working groups, etc, are working on their respective assignments, the parliament is ready to pass the Constitution Amendment Bill, the States will follow soon, so as to empower the Centre and the States to levy tax on goods and services concurrently, the question which is of prime importance is, what would be the final design of Indian Goods and Services Tax?

Once the final design of Indian GST is known, then only it is possible to understand the real impact thereof. How it will affect the manner of tax collection and administration thereof? Whether the trade and industry will have relief from multi-tax authorities, and, whether the ultimate tax payer i.e. the consumer, will have any tangible benefit? Several advantages, which are being publicised, whether these are real or illusionary? Several such questions are coming to mind, some of them have been discussed at various seminars, workshops and study circles and some are yet to be discussed, and, the people are anxiously waiting for the answers.

Some basic questions, being asked by people in general, are noted here as follows:-

1.    Which commodities and services will remain out of the GST network? Although some indication has been given in the Constitution Amendment Bill, but one has to wait for the final outcome.

2.    Which taxes will be subsumed in GST? Various authorities from time to time have said that all indirect taxes levied by Central and State Governments will be subsumed in GST. But there are variances in various reports circulated so far. One important question is whether Octroi, LBT, Electricity Duty, etc. will form part of GST or will continue to be levied separately? Ideally, all such taxes which are being levied at present by all Government authorities (whether Central, State or local) on any kind of transaction related to goods and services should get covered by the GST. But, whether there is consensus on this issue?

3.    Which are the commodities and services to remain tax free (zero rated) within GST? At present there is a long list of exempt commodities under the Excise law. There are separate list of items exempt under VAT laws of each State. Whether it will be a common list of exempted (tax free) goods and services for CGST and SGST or it will differ from State to State? Further, can there be a situation where an item is exempt from SGST in a particular State but liable to tax for CGST or vice versa?

4.    What will be the rate of tax on sale/supply of taxable goods and/or services? Whether it will be one single rate of GST applicable to all such goods and services or there will be a Schedule specifying different rates of tax applicable to different types of taxable supplies?

5.    Further, how the proportion of CGST and SGST will be worked out? Whether it is rate of GST which will divided in two parts i.e. CGST and SGST, or the GST rate is sum total of CGST rate and SGST rate? Thus, whether effective rate of GST may be different State to State?

6.    Whether the rate of SGST on a particular kind of goods or services can be different from one State to another?

7.    What will be the threshold limit of turnover, below which GST is not applicable to a dealer/assessee? The First Discussion paper has indicated that there will be a common threshold of Rs. 10 lakh for SGST, and, there will be a higher threshold for CGST (Rs. 1.5 crore). It also suggested that there may be appropriate higher threshold for services. As thereafter there is no official communication, the issue needs to be clarified appropriately. How these separate thresholds will work? And, if a common figure of threshold is considered for CGST and SGST, then whether it is qua each State or combined figure of annual turnover in all the States together? At present, a small dealer having both the activities i.e. selling of goods as well as providing services is not liable to any tax (whether VAT or service tax) if his annual turnover of rendering services is below Rs. 10 lakh and further, if his annual turnover of sale of goods in each State is less than Rs. 10 lakh.

8.    A related question is that, at present small manufacturing units, cottage industries, village industries, etc., are not liable for Excise Duty, how they will get necessary exemption under the GST Law? Or all such units will be treated like other big industries, and therefore liable for the same treatment? There are a large number of dealers falling under this category all over the country.

9.    Regarding registration of dealers, the First Discussion Paper has indicated that each tax payer would be allotted a PAN-linked taxpayer identification number.Whether there will be two separate such numbers i.e. one for CGST and another for SGST? The question is pertinent with reference to multi-state operations.

10.    Answer to the above question would play an important role in deciding whether a dealer would be required to file one common return or two separate returns (may be in the same format). We understand that in case of dealers having multi-state activities, for each State, there may be a separate return for SGST qua each State but what about CGST returns in such cases.

11.    Similarly, for payment of taxes, whether it will be through one common challan or two separate payments i.e. one for CGST and another for SGST and may be third for IGST?

12.    As the credit for input SGST has to be used only against SGST payable on sales i.e. output SGST, how the CGST credit has to be utilised – whether qua each State or credit in one State can be utilised for payment of CGST in any other State. Most of the large scale service providers will have such a situation. How the mechanism will work if there is one common return and if there are separate returns?

13.    Regarding administration of GST, we have been given to understand that, the Centre as well as States will have concurrent jurisdiction. The Central Government authorities will assess the amount of CGST and the State Government authorities will assess the amount of SGST. Would that mean that the same dealer/assessee will be liable to be assessed by two different authorities in respect of the same transaction? Thus, the same invoices, same set of books of account and documents will have to be produced before two different authorities. And how the situation should be tackled if the Central authority takes a different view than that of the State authority, or vice versa, on any such point of assessment, whether it is value of transaction, classification, rate of tax or the amount of input tax credit, etc.?

14.    Whether a registered dealer under GST will be eligible for full input tax credit of respective components of GST for all purchases of goods and services (including capital goods) or there will be artificial restrictions and reductions?

15.    Whether the practice of disallowing input tax credit (as being prevalent in some of the States at present) will continue in GST regime, if a duly registered supplier has not paid due taxes to the Government or has delayed the payment of taxes?

16.    Will there be any kind of ‘composition schemes’ for dealers (whether supplying goods or services) having turnover below certain limit, say Rs. 1 crore? And those dealers who are in the business of retail trade like kirana merchants, who deal in various kinds of goods but not in a position to maintain commodity wise or tax rate wise accounts. Similarly, in case of hotels, restaurants and cooked food vendors.
17.    Whether the present definition of goods (as given under the local sales tax laws) will continue as it is or will be modified for the purposes of “GST”?

18.    What would be the definition of ‘services’ and how the place of supply in case of services will be determined?

19.    What about the taxation of transactions, which are falling at present in the deemed sale category? Whether such transactions of ‘works contract’, etc., will be categorised as ‘sale of goods’ or of rendering of services? The question is pertinent when there are different rates of taxes on various kinds of goods and services.

20.    How the process of transition will take place, particularly with reference to accumulated credits, etc., as on the date immediately prior to the date of implementing the new regime?

There are several such questions, which needs to be addressed, before taking a final decision, and their appropriate solutions need to be incorporated in the final draft of the new legislation.

Note from the indirect tax committee of BCAS: It is said by renowned tax experts that GST would free India from the shackles of archaic indirect tax laws and usher in a new era of growth and prosperity. GST may affect all industries, irrespective of the sector. It will impact the entire value chain of operations namely procurement, manufacturing, warehousing, distribution and sale. Some of the business models may need appropriate changes. The Indirect Taxes Committee of BCAS has taken an initiative to maintain a question bank on the proposed design of GST. We feel that the readers of BCAJ. They may have many questions to ask, particularly with reference to specific sector/s with which they are associated. And there may be general questions and suggestions which may be of immense importance. The BCAS is also preparing for providing a platform for dialogue amongst its readers on various issues of concern. All pertinent questions and suggestions are proposed to be submitted to the respective authorities who are responsible for drafting and finalising the Act and Rules concerning implementation of Goods and Services Tax. We would, therefore, like to invite all our readers to send their queries on GST, via e-mail to (to be informed), marking the subject as “GST Question Bank”. Our intention is to let our readers to take an active part in the framing of the law itself. We also propose to publish articles on best practices followed in some of the selected countries where GST has already been implemented successfully. Please look forward for the next issue of BCAJ.

2015 (38) STR 143 (Tri.-Bang.) Commr. of C.Ex. & ST., Tirupati. vs. Gimpex Ltd

fiogf49gjkf0d
The date of filing refund claim even though filed before wrong authority would be taken as date of filing for determining period of limitation.

Facts:
The Assessee filed refund claim of input service before the Assistant Commissioner of Service Tax, Chennai. The claim however was returned stating that the application was to be filed with the jurisdictional Assistant Commissioner of service tax. Consequently, the Assessee filed the claim accordingly. Thereafter, the claim was rejected on ground of time-bar. The first appellate authority granted relief by holding that the refund claim cannot be rejected on the ground of limitation when the claim was originally filed in time but before wrong authority, relying on the Tribunal’s decision in case of Gujarat Tea Processors and Packers Ltd [2010 (17) STR 489 (Tri-Ahmd)]. Hence, the revenue filed the appeal.

Held:
The Tribunal held that the decision of the first appellate authority was appropriate and took the view that the date of filing of refund claim before the wrong authority to be taken as the date of filing for determining limitation and rejected the department’s appeal.

levitra

[2015] 59 taxmann.com 402 (Madras) V.N.K. Menon & Co vs. CEST

fiogf49gjkf0d
There cannot be said to be any suppression after the activity comes to the knowledge of the department. Hence, demand of service tax under extended period of limitation is held invalid to the extent it related to the period after statements of appellant company’s officials were recorded.

Facts:
The assessee was manufacturing on job-work basis for his principal and also collected a fixed amount as service charges towards certain services provided to the principal. The department was of the view that these expenses incurred for providing the services were in the nature of overheads essential for manufacturing activity and therefore were required to be reckoned while the assessable value of the finished goods was calculated for payment of duty. In August 1996, the department recorded statement from the officials of the assessee-company. A show cause notice was issued in October 1998 for the period 1995-96 to November 1997. The Tribunal upheld the intention of evasion for the receipt of service charges from their principal as the activities of the assessee came to light subsequent to an investigation by the department. However, it also held that, as the department was aware of the activities of the assessee after recording the statement, demand under extended period is valid only to the extent it pertains to the period prior to August 1996. Before the High Court, assessee contended that if there is no suppression post August, 1996, no extended period could be invoked post August, 1996 and, therefore, the same analogy will have to be applied for the period prior to August, 1996 as well.

Held:
The High Court affirmed the order of the Tribunal on the ground that, findings recorded by the Tribunal in so far as the period prior to August, 1996 and post August, 1996 stems from strong judicial reasoning and there is no error on record warranting interference with the well considered finding of the Tribunal.

levitra

[2015] 59 taxmann.com 252 (Andhra Pradesh) K.V. Narayana Reddy vs. Addl. Commissioner.

fiogf49gjkf0d
Where appeals filed against the order-inoriginal are rejected by lower appellate authorities as barred by limitation, the said order cannot be entertained by the Court under writ jurisdiction.

Facts:
The assessee filed writ petition before the High Court as both the lower appellate authorities did not entertain the appeals filed by the petitioner on the ground that it was time barred and beyond permissible period for condonation. The contention of the petitioner was that attempt to prefer appeal unsuccessfully before the appellate authority does not preclude him from maintaining the writ as at present he is remediless.

Held:
Relying upon decision of the Court in the case of Resolute Electronics (P.) Ltd. vs. Union of India [WP No.1409 of 2015] and quoting judgment of Supreme Court in the case of Singh Enterprises vs. CCE [2008] 12 STT 21 (SC), the Court held that it is not legally permissible to accept the challenge to the order in writ jurisdiction when Appellant has unsuccessfully pursued other remedies for if it is done, the writ Court will unsettle a legally settled position. Thus, where appellate authority has already decided the matter against the petitioner, the writ Court is debarred from doing so as the same binds the writ Court applying the principle of res judicata, particularly, when the appellate authority’s orders are not challenged in the writ jurisdiction. Accordingly, the writ petition was dismissed as not maintainable.

levitra

[2015] 59 taxmann.com 195 (Madras) – CCE vs. Integral Coach Factory

fiogf49gjkf0d
Even if assessee pays duty on clearance of final products which are exempted under Exemption Notification, goods continue to remain “exempted goods” and do not become “other than exempted goods” for the purpose of Notification No.89/95-CE dated 18/05/1995.

Facts:
The assessee manufactures excisable goods falling under Chapter 86. During the disputed period, though it was entitled for exemption under Notification No.62/95- CE dated 16/03/1995, it cleared the exempted goods on payment of duty. It however did not pay duty on ferrous and non-ferrous scrap since as per Notification No.89/95- CE dated 18/05/1995, waste parings and scrap arising in the course of manufacture of exempted goods and falling within the schedule to the Central Excise Tariff Act, 1985, were exempted from the whole of excise duty. Department issued show cause notice demanding duty on the ground that as per the proviso to the said notification, such exemption would not be applicable if waste parings and scrap cleared from a factory in which any other excisable goods other than exempted goods are also manufactured. The case of the department was that since assessee cleared the goods after payment of duty and did not avail benefit of exemption notification No.62/95- CE, the goods cleared from factory cease to be exempted goods and hence benefit of notification No.89/95-CE is also not allowed to assessee. The Tribunal decided in favour of assessee

Held:
The High Court observed that erroneous payment of duty caused the department to hold that the goods are other than exempted goods and therefore demand was made. Affirming the Tribunal’s order it was held that proviso to this Notification would not apply to the facts of the case and the erroneous payment of duty would not render the goods other than exempted goods. Hence, so long as the goods manufactured are exempted goods, waste parings, scrap arising in the course of the manufacture of exempted goods would be entitled for the exemption.

levitra

[2015] 59 taxmann.com 196 (Karnataka) – CCE vs. Federal Mogul TPR India Ltd.

fiogf49gjkf0d
Notification No.8/2005-ST dated 01/03/2005 is not an absolute exemption notification. Further, unlike section 5A of Central Excise Act, 1944 exemption notifications u/s. 93 of the Act are optional.

Facts:
The assessee manufacturer sent goods to their sister concern for Chrome Plating on job work basis. After completion of the process of chrome plating, the sister concern returned the said goods to the assessee under cover of an invoice on payment of service tax on the value of job work charges and subsequently on receipt of such job worked goods, the assessee availed CENVAT credit of service tax so passed on by its sister concern. The job worked goods thereafter passed through various manufacturing processes at the assessee’s factory and then were cleared on payment of duty. As per department’s contention, the process of chrome plating does not amount to manufacture in terms of section 2(f) of the Central Excise Act, 1944 but is a “business auxiliary service” liable for payment of service tax. However an exemption is granted under Notification No. 8/2005- ST dated 01/03/2005 to taxable service of production of goods on behalf of the client on which appropriate duty is paid by the principal manufacturer. According to the department the said exemption notification is an unconditional notification and section 5A(1A) of the Central Excise Act, 1944 which mandates the assessee to avail the exemption notification is applicable to the facts of the case. Therefore, service tax has been charged wrongly in order to pass on service tax credit to assessee. The Tribunal decided in favour of assessee and the revenue is in appeal.

Held:
The High Court observed that, the said Exemption Notification applies only in cases where such goods are produced using raw materials or semi-finished goods supplied by the client i.e. the principal manufacturer and goods so produced are returned to the said client for use in or in relation to the manufacture of the goods on which appropriate duty of excise is paid.

Therefore the High Court held that the conditions stipulated in the notification establish that it is a conditional notification. As regards applicability of section 5A of the Central Excise Act, 1944 it was held that the mandatory requirement on the manufacturer of such excisable goods of not to pay the duty of excise on such goods in respect of which an exemption u/s 5A(1A) has been granted absolutely is not found in section 93 of the Finance Act, 1994. Further, absence of section 5A of Central Excise Act, in section 83 of the Finance Act, 1994, which provides for application of certain provisions of the Central Excise Act,1944 in relation to service tax, indicates that the provisions of section 5A of Central Excise Act, are not applicable to the Finance Act, 1994. Accordingly, the Tribunal order was upheld and CENVAT credit of the service tax paid by the job worker was allowed to the assessee.

levitra

2015 (39) STR 24 (Mad.) V. Sathyamoorthy & Co. vs. CESTAT Chennai.

fiogf49gjkf0d
A Tribunal can grant three adjournments in an appeal and if Tribunal decides the stay application ex-parte before granting three adjournments on the ground that Appellants have adopted dilatory tactics by not appearing and thereby abusing the law, the action of the Tribunal would be too harsh.

Facts:
The department during the adjudication passed an ex-parte order confirming the demand on Appellants. Appellants filed appeal and stay petition before Tribunal. Before the date of hearing on stay application, Appellants sought adjournment by filing request letter. Tribunal granted an adjournment without even taking into account the said request letter on record. Before the next date, Advocate of Appellant requested an adjournment vide a request letter. Tribunal on that occasion overlooked the letter and passed an ex-parte stay order stating that since no plea of financial hardship was taken, Appellant was directed to pre-deposit Rs.4 crore and also recorded that the Appellants had not cooperated during the adjudication process and also in the present appeal proceedings which amounted to abuse of the process of law.

Held:
Appellants challenged the said ex-parte order before the High Court stating that the Tribunal is entitled to grant three adjournments to a particular party as per proviso to section 35C of the Central Excise Act. The High Court observed that the Tribunal’s action of deciding the stay petition ex-parte on second adjournment and that too ignoring the Appellants request for an adjournment terming non-appearance as abuse to process of law is too harsh. Accordingly, the case was remanded to Tribunal for reconsideration and directed Appellants not to seek adjournment on the next date.

levitra

2015 (39) STR 22 (Kar.) Atharva Associates vs. Union of India

fiogf49gjkf0d
If the appeal has been filed along with stay application and neither stay application nor appeal has been disposed of, then recovery cannot be initiated.

Facts:
An Order was passed confirming demand proposed in the Show Cause Notice. Appellants preferred an appeal before first appellate authority along with stay application which was not disposed of. Meantime, the department initiated recovery proceedings by issuing notice for recovery. Appellants filed writ petition challenging the said recovery notice.

Held:
The High Court held that since the right of appeal has been exercised by the Appellants as per applicable provisions and since first appellate authority has yet to decide the stay application, the recovery notices though executable, could not be enforced or else the appeal will be infructuous or lead to multiplicity of proceedings. Enforcement of recovery was thus stayed till disposal of the stay petition by the first appellate authority.

levitra

Free supply vis-a-vis Sale and Sale Price

fiogf49gjkf0d
Under the Sales Tax Law, transaction of sale can be taxed as per sale price of that transaction.

A ‘sale’ can take place if the transaction fulfills certain criteria. The term ‘sale’ is defined in Sales Tax Laws and it has also been defined in (MVAT Act,2002). The said definition is given in section 2(24) of MVAT Act,2002 and it is reproduced below for ready reference.

“(24) “sale” means a sale of goods made within the State for cash or deferred payment or other valuable consideration hut does not include a mortgage, hypothecation, charge or pledge; and the words “sell”, “buy” and “purchase”, with all their grammatical variations and cognate expressions, shall be construed accordingly;…”

The transaction, to be ‘sale’, should be for consideration.

The above term ‘sale’ has also been subject matter of interpretation by various courts. A reference can be made to the landmark judgment in case of Gannon Dunkerly and Co.(9 STC 353)(SC). In this judgment about ‘sale’, it is observed as under:

“Thus, according to the law both of England and of India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods ……”

From the above passage, it is clear that to be a ‘sale’ following criteria should be fulfilled.

(i) There should be two parties to contract i.e. seller/ purchaser,
(ii) The subject matter of sale is moveable goods,
(iii) There must be money consideration and
(iv) Transfer of property i.e. transfer of ownership from seller to purchaser.

Thus, to consider the transaction as ‘sale’, consideration in money terms is necessary. Without consideration, no sale can take place.

In number of cases, the customer i.e. buyer may supply certain goods to its vendor which are to be incorporated in the finished goods to be supplied by vendor to the said buyer. Similarly there may be cases, where contractee may be supplying some goods to be used in contract to be executed for it by contractor appointed by it. Both above issues are common and the tax position of same can be analysed as under:

The supply of such goods by buyer to the vendor will be free supply, as it is to be incorporated in goods to be supplied to it. It is also possible that for the purpose of Excise etc. the vendor may be required to include value of such goods in its sale price and after calculating Excise on such total value, the value of free supply by buyer will be deducted again and in fact the net amount is only charged to the buyer.

The issue arises whether such value of free supply is part of sale price of vendor for which it will be required to discharge sales tax on the same.

There is a be possibility of considering above value as sale price, if, first there is sale by buyer of said goods to the vendor and thereafter vendor again selling the said goods along with its finished goods to the buyer. Therefore, it will be required to be seen whether there is sale by buyer of the free supply made by it to the vendor.

There are instances where supply made by customer to supplier has been considered as sale and accordingly liable to tax in the hands of customer as well as supplier. Reference can be made to the judgment of Supreme Court in case of M/s. N. M. Goel (72 STC 368)(SC). In this case, the facts were that the contractee has given certain materials to contractor for use in the contract executed for the said contractee. As per terms in contract the goods to be supplied were to be valued as per the prices mentioned in the contract. It is under the above circumstances, the Supreme Court held that the transaction of supply of goods by contractee fulfills the requirements of a transaction being ‘sale’. There are two parties i.e. contractee and contractor, supply of moveable goods and consideration. The Supreme Court also held that when the possession of the goods is given to the contractor there is transfer of property and hence, the sale transaction from contractee to contractor gets complete. The Supreme Court further held that when contractor uses these goods in the contract for contractee, there is again fresh transfer of property from contractor to contractee and hence one more sale transaction from contractor to contractee. In fact, the Supreme Court has noted facts of case as under.

“The appellant, a dealer registered under the Madhya Pradesh General Sales Tax Act, 1958, made an item rate tender to the PWD for construction of food grain godowns and ancillary buildings. In that tender, prices of the materials used for the construction including cost of iron, steel and cement were included. The PWD had, however, agreed to supply from its stores the iron, steel and cement and to deduct the prices of the materials so supplied and consumed in the construction, from the final bill of the appellant. Clause (10) of the contract provided: “. . . . . if it is required that the contractor shall use certain stores to be provided by the Engineer-in-Charge as shown in the Schedule of materials hereto annexed, the contractor shall be bound to procure and shall be supplied such material and stores as are from time to time required to be used by him for the purposes of the contract only, and the value of the full quantity of materials and stores supplied at the rates specified in the said Schedule of materials may be set-off or deducted from any sums then due or thereafter to become due to the contractor under the contract or otherwise, or against or from the security deposit, or the proceeds or sale thereof if the same is held in Government securities, the same or a sufficient portion thereof being in this case sold for the purpose. All the materials so supplied to the contractor shall remain the absolute property of the Government and shall not be removed on any account from the site of the work, and shall be at all times open to inspection by the Engineer-in- Charge.” For the construction, the appellant was supplied iron, steel and cement by the PWD and the appellant purchased other materials from the market. The prices of iron, steel and cement supplied to the appellant for the work were deducted from its final bill. The Sales Tax Officer assessed the appellant to entry tax for iron, steel and cement u/s. 6(c) of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, on the ground that their entry had been effected by the PWD, which was not a registered dealer, at the instance of the appellant, because the appellant had ultimately used the materials for the construction work; and the Deputy Commissioner affirmed the assessments on revision. A writ petition filed by the appellant challenging the assessments to entry tax was dismissed by the High Court. On appeal to the Supreme Court:

Based on the above, the Supreme Court has held as under:

“On these set of facts, while dismissing the appeal, (i) that since the PWD was not a registered dealer the presumption u/s. 6(c) applied, that the entry of the goods had been effected by the appellant into the local area before they were purchased by the appellant; that in order to attract entry tax not only the property in the goods had to pass from the PWD to the appellant but there had to be an independent contract-separate and distinct-apart from the mere passing of the property: mere passing of property from the PWD to the appellant would not suffice; that, in this case, for the performance of the contract, the appellant was bound to procure the materials; but in order to ensure that quality materials were procured, the PWD undertook to supply such materials and stores as from time to time were required by the appellant to be used for the purpose of performing the contract only. The value of such quantity of materials and stores so supplied was specified at a rate and got set-off or deducted from any sum due or to become due thereafter to the appellant. Clause (10) of the contract read in proper light indicated that a sale inhered from the transaction. By the use or consumption of materials in the work of construction, there was passing of the property in the goods to the appellant from the PWD. By appropriation and by the agreement, there was a sale from the PWD to the appellant as envisaged in terms of clause (10); and that, therefore, the appellant was liable to pay entry tax on the materials supplied by the PWD.”

Based on above judgment of Supreme Court there are number of other judgments where the supply of goods by contractee to contractor has been held as ‘sale’, if such supply is against pre agreed price. In such cases, normally the contractor bills for gross value and gives deduction for the material value as arrived at as per the prices agreed and claims net amount from the contractee. Thus, if such is the mode of billing by the contractor it gives sufficient indication that the supply by the contractee is as per agreed price and hence will be considered to be ‘sale’. In such cases, even if, the supply is referred to as free supply, it will be a misnomer and in reality it will be a ‘sale’ from contractee to contractor and again from contractor to contractee.

However, if there is no such situation i.e. no prices are given for the materials supplied by contractee/buyer as well as no deduction for any value for same is made in the bills of contractor, then there is no sale/purchase of such materials. This position is also clear from judgment of the Hon. Tribunal in case of CIDCO Ltd. (M.A. No.122 of 2005 in S.A. no. 1707 of 1999 DT.6.10.2007).

In this case, the appellant has purchased cement from other state and given free to contractor. In assessment, tax was levied but in first appeal the same was deleted. When the appellant was in second appeal, the Department filed Misc. Application for levy of the tax on cement. The Hon. Tribunal held that when the supply is free of cost there is no question of levy and the Misc. Appl. was rejected. This covers up the legal position. The net result is that if in the contract there are no terms giving price to the goods to be supplied to contractor, and accordingly the same is also not considered in the bills prepared by the contractor, there is no question of any sale transaction involved in such supply. In other words, there is no question of attraction of any tax under Sales Tax Laws on such free supply on either side.

The other situation is consideration of value of such supply for Excise purpose.

For purpose of paying Excise duty the vendor may consider the value of goods supplied by buyer and may be mentioned on the invoice also.

However mentioning the value of goods for payment of Excise duty cannot amount to sale/purchase and cannot bring it in fold of sale price/purchase price.

This position is clear from judgment of the Hon. Tribunal in case of Ghadge Patil Ind. Ltd. & others (S. A. 320 to 327 of 2002 dt.30.3.2007). The short gist of judgment is as under:

The facts of the case relating to year 1994-95 and others are that appellant received an order for supply of certain manufactured parts. The buyer gave certain parts as free issue to be incorporated in the manufactured goods. In purchase order there was no term about creditor particular price to be considered for the said free issues. In its sale bill appellant added the cost of such free issues in his price to calculate excise duty. The cost so added was then given deduction. On above facts lower authorities considered the cost of such supplies as part of sale price and levied tax on the same. Before the Tribunal, appellant explained the facts. The Tribunal observed that in this case the supplies are not made with any particular consideration. There was no intention on part of buyer or seller to sale/ purchase above goods nor agreed for any consideration. Therefore, there cannot be sale from appellant to buyer. The addition in price was with sole purpose of calculating duty, as it was attracted even on free supply cost, as per Excise laws. The Tribunal distinguished the judgment in case of N. M. Goyal (72 STC 368) on above facts. The Tribunal made reference to judgment in case of Gannon Dunkerley & Co. (9 STC 353), Indian Coffee & Tea Distributors Co. (6 STC 47), Indian Alluminium Cables (115 STC 161), Hindustan Aeronautical Ltd. (55 STC 314) and Auto Comp Corpn. (S.A.1083 of 99 dt.26.9.2003). The Tribunal directed to delete the addition.

Thus, it is held that for considering the free supply value as sale/purchase there should be conscious decision on the same which can be ascertained from the fact of giving prices for such supply and billing mode by supplier. Simply mentioning value for Excise duty calculation cannot make it sale/purchase, and cannot be part of price of transaction, nor can it be included in sale price.

Conclusion

Whether free supply by buyer/contractee to the vendor/ contractor will amount to sale/purchase depends upon intention of the parties coupled with underlying documents. To make the intention clear, in documents it should be specifically mentioned that the supply is free to the vendor but the value may be considered for excise payment. If the documents are not clear, then the dispute may arise and the sales tax department will certainly try to claim tax on the same.

RECENT AMENDMENTS: INTEREST ON CENVA T CREDIT WRONGLY TAKEN

fiogf49gjkf0d
Preliminary
The issue whether interest is leviable at the point of time when CENVAT credit is wrongly taken or at the point of utilization has been a matter of extensive judicial examination. An important amendment was made in Rule 14 of CENVAT Rules through Notification dated 17/03/2012 and further a significant amendment has been made vide Notification dated. 01/3/2015. Hence, the implication of the latest amendment in the backdrop of the earlier judicial controversies, are discussed hereafter.

Background
Relevant Statutory Provisions – [Rule 14 of CENVAT Credit Rules, 2004 (“CCR”)]

“Where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with the interest shall be recovered from the manufacturer or provider of the output service and the provisions of the sections 11A and 11AB of the Excise Act, or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.”

[Note – The words “taken or utilized wrongly” have been substituted by the words “taken and utilized wrongly” vide Notification No. 18/2012 – CE(NT) dated 17/03/2012].

Supreme Court Ruling overruling High Court Ruling

Attention is particularly drawn to the ruling of the Punjab & Haryana High Court in the case of Ind – Swift Laboratories Ltd. vs. UOI (2009) 240 ELT 328 (P & H) (which was subsequently set aside by the Supreme Court), relevant extracts from which, are reproduced hereafter for reference :

Para 9

“The Scheme of the Act and the CENVAT credit Rules framed thereunder permit a manufacturer or producer of final products or a provider of taxable service to take CENVAT credit in respect of duty of excise and such other duties as specified. The conditions for allowing CENVAT credit are contained in Rule 4 of the Credit Rules contemplating that CENVAT credit can be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service. Such CENVAT credit can be utilized in terms of Rule 3(4) of Credit Rules for payment of any duty of excise on any final product and as contemplated in the aforesaid sub-rule. It, thus, transpires that CENVAT credit is the benefit of duties leviable or paid as specified in Rule 3(1) used in the manufacture of intermediate products etc. In other words, it is a credit of the duties already leviable or paid. Such credit in respect of duties already paid can be adjusted for payment of duties payable under the Act and the Rules framed thereunder. Under section 11AB of the Act, liability to pay interest arises in respect of any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded from the first day of the month in which the duty ought to have been paid. Interest is leviable if duty of excise has not been levied or paid. Interest can be claimed or levied for the reason that there is delay in the payment of duties. The interest is compensatory in nature as the penalty is chargeable separately.”

Para 10

“In Pratibha Processors vs. Union of India, 1996 (88) ELT 12 (SC) = (1996) 11 SCC 101, it was held that interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. Similarly, in Commissioner of Customs vs. Jayathi Krishna & Co. – 2000 (119) ELT 4(SC) (2000) 9 SCC 402, it was held that interest on warehoused goods is merely an accessory to the principal and if principal is not payable, so is it for interest on it. In view of the aforesaid principle, we are of the opinion that no liability of payment of any excise duty arises when the petitioner availed CENVAT credit. The liability to pay duty arises only at the time of utilization. Even if CENVAT credit has been wrongly taken, that does not lead to levy of interest as liability of payment of excise duty does not arise with such availment of CENVAT credit by an assessee. Therefore, interest is not payable on the amount of CENVAT credit availed of and not utilized.”

Para 11

“Reliance of respondents on Rule 14 of the Credit Rules that interest under section 11AB of the Act is payable even if CENVAT credit has been taken. In our view, said clause has to be read down to mean that where CENVAT credit taken and utilized wrongly, interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. On a conjoint reading of section 11AB of the Act and that of Rules 3 and 4 of the Credit Rules, we hold that interest cannot be claimed from the date of wrong availment of CENVAT credit. The interest shall be payable from the date CENVAT credit is wrongly utilized.”

In an important ruling the Supreme Court, in the case of Ind-Swift Laboratories Ltd. (2011) 265 ELT 3 (S.C.)], set aside the order passed by the Punjab & Haryana High Court (2009) 240 ELT 328 (P & H)] on the question of charging interest on CENVAT credit wrongly taken but not utilised. By interpreting the expressions and words used in the provisions of Rule 14 of CCR, the Supreme Court concluded that interest is payable on CENVAT credit wrongly taken even if such credit has not been utilised.

The issue for consideration was whether an assessee can be made liable to pay interest for taking wrong credit if such credit has not been utilised in as much as he has not derived any benefit out of his wrong action.

The more important observations of the Supreme Court are reproduced hereafter for ready reference:

Para 17

“…………….. In our considered opinion, the High Court misread and misinterprets the aforesaid Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word “OR” appearing in Rule 14, twice, could be read as “AND” by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word ‘OR’ in between the expression ‘taken’ or “utilized wrongly” or has been erroneously refunded’ as the word ‘AND’. On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest.”

Para 18

“We do not feel that any other harmonious construction is required to be given to the aforesaid expression / provision which is clear and unambiguous as it exists all by itself. So far as section 11AB is concerned, the same becomes relevant and applicable for the purpose of making recovery of the amount due and payable. Therefore, the High Court erroneously held that interest cannot be claimed from the date of wrong availment of CENVAT credit and that it should only be payable from the date when CENVAT credit is wrongly utilized. Besides, the rule of reading down is in itself a rule of harmonious construction in a different name. It is generally utilized to straighten the crudities or ironing out the creases to make a statue workable. This Court has repeatedly laid down that in the garb of reading down a provision it is not open to read words and expressions not found in the provision statute and thus venture into a kind of judicial legislation. It is also held by this Court that the Rule of reading down is to be used for the limited purpose of making a particular provision workable and to bring it in harmony with other provisions of the statute.”

The interpretation made by the Honorable Supreme Court considering the specific circumstances of a case involving evasion of duty, has been a matter of extensive deliberation by experts and rightly so in as much as if the same is applied generally, it would mean unsettling the settled law.

Important Ruling of Karnataka High Court in CCE & ST vs. Bill Forge Pvt. Ltd. (2012) 26 STR 204 (KAR) [Bill Forge Case]

    The observations of the Karnataka High Court in the Bill Forge case are very important, in as much as not only has it distinguished facts of the case of UOI vs. Ind-Swift Laboratories Ltd. (2011) 265 ELT 3 (SC) but it has made fine distinction between making an entry in the register and credit being ‘taken’ to drive home the point that interest is payable only from the date when duty is legally payable to the Government and the Government would sustain loss to that extent.

“It is also to be noticed that in the aforesaid Rule, the word ‘avail’ is not used. The words used are ‘taken’ or “utilized wrongly”. Further the said provision makes it clear that the interest shall be recovered in terms of sections 11A and 11B of the Act………”

Para 20

“From the aforesaid discussion what emerges is that the credit of excise duty in the register maintained for the said purpose is only a book entry. It might be utilized later for payment of excise duty on the excisable product………Before utilization of such credit, the entry has been reversed, it amounts to not taking credit.”

Para 22

“Therefore interest is payable from that date though in fact by such entry the Revenue is not put to any loss at all. When once the wrong entry was pointed out, being convinced, the assessee has promptly reversed the entry. In other words, he did not take the advantage of wrong entry. He did not take the CENVAT credit or utilized the CENVAT credit. It is in those circumstances the Tribunal was justified in holding that when the assessee has not taken the benefit of the CENVAT credit, there is no liability to pay interest. Before it can be taken, it had been reversed. In other words, once the entry was reversed, it is as if that the CENVAT credit was not available. Therefore, the said judgment of the Apex Court has no application to the facts of this case. It is only when the assessee had taken the credit, in other words, by taking such credit, if he had not paid the duty which is legally due to the Government, the Government would have sustained loss to that extent. Then the liability to pay interest from the date the amount became due arises under section 11AB, in order to compensate the Government which was deprived of the duty on the date it became due.”

  •     The ruling in Bill Forge case has been followed in a large number of subsequently decided cases. For example:

    CCE vs. Pearl Insulation Ltd. (2012) 27 STR 337 (KAR)

    CCE vs. Gokuldas Images (P) Ltd (2012) 28 STR 214 (KAR)

    CCE vs. Strategic Engineering (P) Ltd (2014) 45 GST 662 (MAD)

    Sharvathy Conductors Pvt. Ltd. vs. CCE (2013) 31 STR 47 (Tri – Bang)

    CCE vs. Sharda Energy & Minerals Ltd. (2013) 291 ELT 404 (Tri – Del)

    Gary Pharmaceuticals (P) Ltd vs. CCE (2013) 297 ELT 391 (Tri – Del)

    CCE vs. Balrampur Chinni Mills Ltd (2014) 300 ELT 449 (Tri – Del)

    Gurmehar Construction vs. CCE (2014) 36 STR 545 (Tri – Del)

  •     However, in many cases, Bill Forge case has not been followed and instead the position held by the Supreme Court in the Ind Swift case has been followed. For example:

    Dr Reddy Laboratories Ltd vs. CCE (2013) 293 ELT 89 (Tri)

    Bharat Heavy Electricals Ltd vs. CC & CCE (2014) 303 ELT 139 (Tri – Bang)

    CCE vs. Sundaram Fasteners Limited (2014) 304 ELT 7 (MAD)

    Balmer Lawrie & Co. Ltd vs. CCE (2014) 301 ELT 573 (Tri – Mumbai)

Important amendment in Rule 14 of CCR

In a very significant amendment in Rule 14 of CCR, with effect from 17/03/2012, the words CENVAT credit has been “taken or utilized wrongly” have been substituted by the words “taken and utilized wrongly”.

This amendment strongly reinforces the interpretation placed by the Punjab & Haryana High Court in Maruti Udyog Ind Swift Laboratories and Karnataka High Court in Bill Forge case to the effect that, no interest can be recovered in cases where CENVAT credit has been wrongly taken but not utilized by an assessee.

    Recent Amendment: Analysis

In the recent Budget, Rule 14 of CCR has been amended vide Notification No. 6/2015-Central Excise (NT) dated 01/03/2015. The amended Rule 14 reads as under:

“14. Recovery of CENVAT credit wrongly taken or erroneously refunded. –

“(1) (i) Where the CENVAT credit has been taken wrongly but not utilized, the same shall be recovered from the manufacturer or the provider of output service, as the case may be and the provisions of section 11A of the Excise Act or section 73 of the Finance Act, 1994 (32 of 1994), as the case may be, shall apply mutatis mutandis for effecting such recoveries;

(ii) Where the CENVAT credit has been taken and utilized wrongly or has been erroneously refunded, the same shall be recovered along with interest from the manufacturer or the provider of output service, as the case may be and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, 1994, as the case may be, shall apply mutatis mutandis for effecting such recoveries.

    For the purposes of sub-rule (1), all credits taken during a month shall be deemed to have been taken on the last day of the month and the utilization thereof shall be deemed to have occurred in the following manner, namely: –

    i)the opening balance of the month has been utilized first;
    ii)credit admissible in terms of these rules taken during the month has been utilized next;
    iii)credit inadmissible in terms of these rules taken during the month has been utilized thereafter.”
The amended Rule 14(1) of CCR deals with two distinct situations viz.

  •     one where credit has been wrongly taken but not utilised and
  •     the other where credit has been wrongly taken and also utilised.

Further, to deal with a scenario, where credit has been utilised, a deeming provision has been brought in through new sub-rule 14(2), to lay down the manner in which the utilisation shall be deemed to have occurred.

  •     Prior to the introduction of this sub-rule, the assessee used to avail CENVAT credit even where the eligibility of CENVAT credit was in dispute. As long as the balance of CENVAT credit in the books of the assessee was more than the amount of the disputed CENVAT credit, it was construed that the disputed amount of CENVAT credit availed by the assessee had not been utilised and consequently, the proceedings under Rule 14 of CCR for recovery of credit and interest thereon could not be initiated against it.

However, after the above amendment, the manner prescribed therein will have to be applied to determine the utilisation of ineligible credit or otherwise.

  •     The larger view of trade & industry and tax payers generally is that the amended Rule 14 of CCR continues to be in line with Government’s consistent view to the effect that:

  •     recovery of interest along with CENVAT credit would be applicable only in those situations where the assessee takes credit and also utilises the same; and

  •     in those cases, where the assessee takes CENVAT credit but does not utilise such credit for specified reasons, recovery would be only of credit wrongly taken and the question of any recovery towards interest does not arise at all.

  •     A better view which may be adopted while interpreting Rule 14(2) of CCR is that the opening balance of CENVAT credit should only include the admissible amount of CENVAT credit and the inadmissible amount of CENVAT credit should be recorded separately. In such a case, while computing the amount of CENVAT credit utilized in a particular month, the total admissible amount of CENVAT credit available with the assessee will have to be taken into account first and the inadmissible amount of CENVAT credit will be said to be utilised only after the admissible CENVAT credit is exhausted. In such a case, an assessee will become liable to pay interest only in those cases where the balance of inadmissible CENVAT credit available with it is less than the credit utilised in a month.

This view can be supported by the following reasons :

  •     the earlier rule was silent regarding manner of utilisation, the amendment in the said rule has been made as a matter of trade facilitation exercise.
  •     it is consistent with the leniency shown in the past when the provision of Rule 14 was amended to overcome the adverse impact of Supreme Court decision in case of Ind-Swift.

It is a need of every business and tax payer to keep some amount of CENVAT credit on hold without utilizing the same for excise duty payment or payment of service tax.

Eligibility to CENVAT credit is prone to extensive litigations. Hence, in many cases where credit eligibility is of a doubtful and disputable nature and could often involve substantially high amount, tax payers often opt to avail credits to protect their rights but choose not to utilize the credits pending clarity & judicial evolvement, so as to avoid any interest liability in case the matter is decided adversely.

However, in the amended Rule 14 (2) of CCR, due to employment of the words “For the purposes of sub-rule
(1)”, there is an apprehension that the field formations may erroneously interpret that the deeming provisions laid down in Rule 14(2) would also apply to the cases covered under Rule 14 (1) (i).

Further, to arrive at the due date for interest payable the Rule 14(2) is creating a deeming fiction that all the credits taken during a month shall be deemed to have been taken on the last day of the month and the utilisation thereof shall be deemed to have occurred in the following manner, namely:-

    the opening balance of the month has been utilised first;
    ………………..

    ………………..
It is apprehended by trade and industry that credits kept on hold during any month form part of the opening balance of the next month, the field formations may interpret the same to be deemed utilised and thus liable for interest. This could result in unnecessary litigations and hardships to trade and industry and tax payers generally.

Conclusion:

The amendment in Rule 14 of CCR vide Notification dated 01/03/2015 needs to be understood, in the backdrop of introduction of time limits for availment of credit under CCR, for the first time with effect from 01/09/2014. In cases where availment of CENVAT credits was of a doubtful nature/under litigations, substantial amounts of credits were availed by tax payers prior to 01/09/2014 (but kept unutilised) in order to protect their interest in a scenario where matter gets decided in their favour at a future point of time and at the same time, avoiding any interest liability in case the matter is decided against them.

Further, in the absence of specific provisions under CCR or clarification by CBEC, in practice, no systematic records are maintained by assessees with regard to CENVAT credits utilised but not availed. This would create practical difficulties for the audit team/field formations to ascertain correctness of credit utilisation and interest liability on wrong utilisation. It appears that though legislative intent behind the amendment is laudable, there is a clear disconnect in the fine print that has emerged. This leaves room for doubts and possible hardships to trade and industry and tax payers from the field formations.

Suggestions:

Appropriate amendment should be made in Rule 14(2) of CCR to avoid unnecessary litigations.

Alternatively, CBEC should issue suitable clarifications / instructions to the effect that :

the deeming provisions in Rule 14(2) would apply only in those cases where inadmissible credit has been taken and also utilised; and

On lines with Instructions under erstwhile MODVAT Rules, [Ref – Circular No. 4/91 – Cx 8 dated 14/02/91 (File No. 263/5/91-CX – 8)] lay down detailed procedure to be followed by assessees who desire not to utilise the credit taken by them in order to ensure that they are covered under Rule 14(1)(i) of CCR.

Koyo Tech Electro (P) Ltd, [2013] 60 VST 235 (WBTT)

fiogf49gjkf0d
Cancellation VAT- Registration of Dealer – Rented Place of Business – Whether Landlord Holds legal Ownership of Building Complete or Incomplete- Not For Department to Consider – Carrying on Business and Filing of Returns and Paying of Tax – Sufficient Enough For Grant of Registration, section 29 of The West Bengal Value Added Tax Act, 2003.

FACTS
The dealer company had rented the office premises on monthly rent and had obtained registration certificate under The West Bengal VAT Act, and, filed periodical returns and paid taxes. Subsequently the company received order from VAT department cancelling registration certificate. The company applied to the Joint Commissioner, for restoration of registration which was rejected after taking report from the lower authority who cancelled the registration certificate on the ground of incomplete construction of building, non- confirmation of ownership of the owner, etc. The company filed an application before The West Bengal Taxation Tribunal against the aforesaid cancellation of registration certificate as well as the confirmation thereof by the Joint Commissioner.

HELD
The fact that building in which office of the dealer was situated was in an incomplete stage could not be considered in framing opinion that business could not be carried out from such premises. Business can be carried on from makeshift room. Such office-cum-godown does not require to be housed in a well furnished room. Further, in rejecting the prayer for restoration of certificate of registration, the Joint Commissioner had viewed that the landlord from whom the dealer had claimed tenancy, failed to establish her ownership of the building. In making such observation, the concerned authority sought to assume the role of a civil court. This is totally unwarranted. The landlady in question was not under any obligation to prove her legal ownership in respect of the building at the time of inspection conducted by the respondents. The Tribunal after considering fact of carrying on business, filing of return and payment of tax by the dealer, allowed the application and restored the registration certificate granted to the dealer.

levitra

State of Karnataka vs. Vasavamba Stores, [2013] 60 VST 19 (Karn).

fiogf49gjkf0d
VAT – Rate of Tax – ‘Fryums’ are “Pappad”- Exempt From Payment of Tax, section 4(1)(b) and Entry 40 of Schedule 1 of The Karnataka Value Added Tax Act, 2004.

FACTS
The respondent Company, the manufacturer, sold ‘Fryums’ and claimed exemption from payment of tax under Entry 40 of Schedule 1 of The KVAT Act being covered by the term ‘Pappad’. The respondent company was reassessed and the authority levied tax under residuary entry by treating ‘Fryums’ as Sandige. The VAT Tribunal allowed appeal. VAT department filed revision petition before The Karnataka High Court against the order of the Tribunal. The High Court held in favour of the respondent company.

HELD
The High Court, following judgement of SC in case of Shiv Shakti Gold Finger [1996] 9 SCC544, held that the shape of the “Pappad” is not a relevant consideration when the ingredients are the same. Accordingly, the High Court dismissed the revision Petition filed by the State Government and confirmed the order of Tribunal holding ‘Fryums’ are “Pappad” hence exempt from payment of tax under the KVAT Act.

levitra

[2015] 59 taxmann.com 128 (New Delhi – CESTAT) Uniworth Ltd vs. CCEST

fiogf49gjkf0d
100% EOU are entitled to avail and utilise the CENVAT credit in respect of duty paid on inputs, even if other inputs are procured duty free under CT-3 procedure. The assessee can exercise both the options simultaneously.

Facts:
The Appellant is a 100% EOU and procured goods duty free. They also procured furnace oil on payment of duty and took CENVAT credit thereof. The adjudicating authority was of the view that the Appellant is allowed only one of the two options i.e. either to procure goods duty free or to pay duty and avail CENVAT credit. Therefore CENVAT credit taken of duty paid on furnace oil was disallowed.

Held:
The Tribunal observed that as per Rule 3 of the CENVAT Credit Rules,2004, 100% EOUs are fully eligible to take CENVAT credit of duty paid on inputs used in or in relation to the manufacture of final products because this rule does not make any exception as regards 100% EOUs. It held that Notification No. 18/2004-C.E. (N.T.) dated 06/09/2004 did not in any way affect the eligibility of the EOU from taking CENVAT credit; it only allowed them the facility to pay duty either by debit to the PLA or by debit to the CENVAT credit account. Reproducing Para 4 of Circular No. 54/2004-Cus., dated 13/10/2004 and decision In the case of Tata Tea Ltd. vs. CCE 2006 taxmann.com 1952 (Bang. – CESTAT), the Tribunal further held that the legal position is clear that the 100% EOUs are eligible to take CENVAT credit of duty paid on the raw material procured by them for use in or in relation to the manufacture of their final product. Accordingly the appeal was allowed.

levitra

[2015] 59 taxmann.com 321 (Mumbai – CESTAT) CESTAT, MUMBAI BENCH-Inox Air Products Ltd. vs. Commissioner of Central Excise, Raigad

fiogf49gjkf0d
CENVAT credit cannot be denied just because invoices are in the name
of Head Office/ another unit not registered as Input Service Distributor
(ISD).

Facts:
The assessee was engaged in the
manufacture of natural gases having units at various places. Assessee’s
one unit took credit of Customs House Agent (CHA) services where invoice
was in the name of Head Office; and also of machine repair services
where invoice was in name of another Unit. The demand of duty was raised
because the invoices under which the credit was availed were in name of
Head Office/other units and assessee was not registered as Input
Service Distributor.

Held:
Tribunal held that since
assessee had nine units manufacturing the same product, the doubt of
nexus of input and output products would never arise. It is quite
natural that the service provided by a CHA would be in the name of the
Head Office as the clearance of goods through customs is centralized.
The only basis for denying credit has been that invoices are either in
the name of another unit of the appellant or in the name of their Head
Office. Since doubt has never been raised regarding actual receipt of
services, credit cannot be denied.

levitra

[2015 (39) STR 210 (Tri.-Mumbai) Commissioner of Service Tax, Mumbai-I vs. N.V. Advisory Pvt. Ltd

fiogf49gjkf0d
Recipient of Services located outside India – Money received in convertible foreign exchange – fact that advice resulted in investment in India not relevant.

Facts:
The Respondent is providing services in the nature of advice on investment opportunities and is also providing back office operation support to the firms situated outside India. The payments are received in convertible foreign exchange. A refund claim was filed in respect of service tax paid on the input services used and consumed by them in the course of providing output services which were exported. The Adjudicating Authority rejected the claim. The Commissioner (Appeals) allowed the refund claim citing the CBEC Circular No. 111/5/2009-ST dated 24/02/2009 clarifying the term “used outside India” to mean that the benefit of the service accrues outside India. Therefore, revenue has preferred the present Appeal.

Held:
The Tribunal held that Rule 3(i)(iii) and Rule 3(2) of the Export of Services Rules, 2005 is satisfied as the recipient is located outside India and the payment is received in convertible foreign exchange. Relying on the Larger Bench decision of Paul Merchants Ltd vs. Commissioner of Central Excise, Chandigarh [2013(29) STR 257 (Tri. Del) the Tribunal allowed the refund claim. Accordingly, the plea of the revenue that the services were used for making investment in India and therefore cannot be treated as export, was dismissed. Further in the matter of back office support operations, relying upon the decision of Commissioner of Central Excise, Hyderabad vs. Deloitte Tax Services India Pvt. Ltd [2008 (11) STR 266 (Tri.-Bang)] the Tribunal held that since the client was situated outside India, it is an export of service.

levitra