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Category: Indirect Taxes

[2015] 37 STR 655 (Tri-Mumbai) Maharashtra State Seed Certification Agency vs. C.C. & C.E., Nagpur.

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Certification done under the Seeds Act, 1966 is not a mandatory and statutory function and therefore, chargeable to service tax.

Facts:
The appellant was an autonomous body registered under the Societies Registration Act, 1860, engaged in activities of technical inspection and certification of seeds produced by seed producers in Maharashtra State as per Seeds Act, 1966 and Seeds Rules, 1968. They charged fees for the said certification as prescribed under the said rules. Service tax applicability was challenged on the ground that they were doing certification work as envisaged under the Seeds Act, 1966 and the rules made thereunder which was a statutory function and therefore, no tax was leviable.

Held:
The Seeds Act, 1966 provides for regulating the quality of certain varieties of notified seeds for sale. Further, certification is required only if somebody intends to sell specified varieties of seeds through the intermediaries or in the market.

The appellant was a society registered under Societies Registration Act. The activities cannot be considered as mandatory and statutory function provided by a sovereign/ public authority and thus are chargeable to service tax under the Technical Inspection and Certification Services.

The demand within the normal period of limitation was only upheld and beyond the same was set aside. The penalties were also set aside.

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[2015] 37 STR 616 (Tri.-Chennai) K. G. Denim Ltd. vs. Commissioner Of Service Tax, Salem.

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Services in respect of business exhibitions conducted abroad and testing done abroad should be considered to be provision of services outside India.

Facts:
Whether there was any service tax liability on the appellant as a recipient of service in respect of business exhibitions conducted abroad and in respect of technical inspection & certification services done abroad for which payments are made to parties located abroad?

Held:
Both these services should be considered to be within India if service provider was located abroad and service was performed in India. Since these services were performed outside India, no service tax liability arose in the case.

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[2015] 37 STR 529 (Tri.-Del) IFB Industries Ltd. vs. Commissioner of Central Excise, Chandigarh.

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If one senior officer interpreted the law in a manner favourable to the assessee, the assessee cannot be said to have malafide intention for invoking the extended period of limitation.

Facts:
The appellant engaged in trading activities was also offering free warranty for limited period and thereafter, undertaking the job of maintenance and repair of products sold.

The services provided during warranty were exempt services and after warranty were taxable. Revenue entertained a view that the CENVAT Credit only to the extent of an amount not exceeding 20% of service tax was available.

The department held that 20% restriction on availment of CENVAT credit was not applicable in respect of sale of service as also for taxable services of maintenance and repair.

The order of additional commissioner was reviewed by the Commissioner and the 20% restriction was imposed.

Held:
Appeal can be disposed off as the Additional Commissioner had interpreted the provisions in favour of the assessee. When one senior officer of the department is dropping the demand by interpreting a particular provision of law, the assessee cannot be held guilty for adopting the same interpretation which is in his favour. In the absence of any other evidence that credit was availed with malafide intention, invocation of longer limitation period was not justified.

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[2015] 37 STR 597 (Tri.–Mumbai) Grey Worldwide Pvt. Ltd. vs. Commissioner of Service Tax.

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Discounts and incentives received by advertising agency are not towards provision of services and therefore, should not be levied to service tax.

Facts:
The appellant, an advertising agency, placed advertisements in print/electronic media on behalf of the advertisers and received agency commission. The demand was on account of volume discount/rate difference received from media, write back of the amounts in respect of payments not claimed by the media.

Held:
It was concluded that assessee was merely coordinating between media and advertiser. Service tax liability was discharged on agency commission received and there was no agreement or contract for promotion of media’s business activities or provision of any service. It was held that incentive received from media without any contractual obligation to render any service cannot be subjected to service tax under the category of “Business Auxiliary Services” as the amounts were discounts and incentives and not as charges for services. Further, in respect of the amounts written back, the same were payable to the media as and when the claim was lodged and therefore it cannot be construed as a consideration for service rendered.

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[2015] 37 STR 642 (Tri.–Mumbai) Wall Street Finance Ltd. vs. Commissioner of Service Tax, Mumbai.

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Indian agent, facilitating transfer of money from abroad to persons situated in India, provides services to service receiver outside India though the beneficiary of services is in India.

Facts:
The appellant was engaged by M/s. Western Union as agent for transfer of money from abroad to persons situated in India. The department was of the view that since services were rendered in India, service tax was payable on the commission received.

It was contended that the nature of services undertaken was transfer of money from abroad for the remitters situated abroad through Western Union who provided the money transfer service. As far as usage of service was concerned, services were provided to Western Union, who was situated abroad and therefore, services were used outside India. The consideration was also received in convertible foreign exchange. Hence, all conditions for classifying the said services as export of service were satisfied.

Held:
At the relevant time there were no specific rules to determine the place of provision of service under the Service Tax Law. Rule 3 provided that the place of provision of such service shall be the place of recipient of service. In the present case, since the recipient was M/s. Western Union who was located outside India, services were export services not taxable in India.

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[2015] 37 STR 631 (Tri.-Mumbai) Kedar Construction vs. Commissioner of Central Excise, Kolhapur.

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Services in relation to distribution or transmission of electricity were exempt from service tax vide Notification No. 45/2010-ST dated 20th July, 2010.

Facts:
The appellants rendered commercial or industrial construction services to Maharashtra State Electricity Transmission Co. Ltd. and others for construction of substations and claimed exemption under Notification No. 45/2010-ST dated 20th July, 2010 which provides for exemption in respect of services related to distribution and transmission of electricity. The appellants contended that the exemption pertained to services “in relation to” distribution and transmission of electricity, their activity of construction of sub-stations which was used for the distribution and transmission, was eligible for the exemption.

Held:
It was held that all taxable services rendered in relation to transmission/distribution of electricity were eligible for benefit of exemption under the said notification.

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Trade Circular 2T of 2015 – Extension of time for filing VAT Audit Report in Form 704 for year 2013-14 dated 14-01-2015

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Due date for uploading of VAT audit report in Form 704 for the year 2013-14 has been extended from 15-01-2015 to 30-01-2015, and due date to submit the physical copy of the acknowledgement and the statement of submission has been extended to10-02-2015.

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[2015] 54 taxmann.com 355 (Ahmedabad -CESTAT) –Tops Security Ltd vs. Commissioner of Central Excise and Service Tax.

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In absence of any evidence, excess payment made by one unit under its separate registration cannot be regarded as taxes paid for and on behalf of other unit having different registration.

Facts:
Appellant’s Mumbai unit paid excess service tax and Silvassa unit claimed that said excess payment was on behalf of Silvassa unit. The appellant argued that it cannot be made to pay tax twice. The Revenue argued that it cannot be ascertained that the excess service tax has been paid for the Silvassa unit from the representative challan.

Held:
It was held that in absence of any correlation that the payment has been made with respect to appellant’s Silvassa unit, it cannot be said that the service tax liability of Silvassa unit has been discharged. However, since the appellant was under a reasonable belief that the service tax is discharged by Mumbai Unit on its behalf and there is some indication from the Commissioner (Appeals)’s order that excess payment was effected by Mumbai Unit, it is possible to invoke section 80 of the Finance Act, 1994 to hold that penalties are not imposable under sections 76 and 78 of the Finance Act, 1994 even if extended period is applicable.

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[2015] 56 taxmann.com 381 (Karnataka) CCE & ST vs. Mukund Ltd.

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CENVAT credit on raw material cannot be denied to manufacturer of final product, even if such raw material is used in another factory belonging to another assessee, provided, the CENVAT able input is used for common share under alliance agreement between such manufacturer and assessee and is for a continuous process of manufacturing dutiable goods.

Facts:
The assessee and two other companies entered into a “strategic alliance agreement” for the production of steel through integrated steel plant (ISP). ISP was producing the envisaged product. A supplier having its plant next to ISP, supplied oxygen and nitrogen in pipelines which was used as a raw material in ISP. The assessee used the said items as raw material and availed full CENVAT credit based on duty paid invoices although a part thereof was used by one of the alliance parties to manufacture certain items. The revenue alleged that since a portion of gases was being diverted to alliance Partner who was using the same to manufacture the products in its company, assessee would lose the benefit of CENVAT credit to that extent.

Held:
The High Court observed that by the Strategic Alliance Agreement, the corporate entities had entered into a joint venture agreement to manufacture steel products. It was also observed from the records that whatever was manufactured by the other alliance partner in the ratio agreed to between the parties was finally made over to the assessee for manufacture of final product. Thus, though there are three separate units with separate registrations, the entire raw material is being converted into final dutiable product in continuous; inter connected and integrated process conforming to the definition of a single factory u/s. 2(f) of the Central Excise Act. Relying upon the decision of High Court in the case of Vikram Cements vs. CCE [2006] 3 STT 230, the Court reiterated that a manufacturing unit can have one or more units to manufacture intermediary raw materials to manufacture a final product and dismissing revenue’s appeal held that CENVAT cannot be denied on the ground that credit is being availed by one factory and material inputs are used by three factories, because the CENVAT able input is being used for common share and continuous purpose of manufacturing dutiable goods.

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[2015] 56 taxmann.com 383 (Andhra Pradesh) Star Enterprise vs. Jt. Commissioner, CCE&ST

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Where the appeals against the Order-in -Original are dismissed by First and Second Appellate Authorities as time-barred, the writ Courts cannot accept a challenge to the very same order, as it would unsettle a legally settled position.

Facts:
The petitioner filed an appeal before first and second appellate authority, but both the authorities refused to entertain the same as they were presented not only beyond the period of limitation prescribed therefor, but also beyond the condonable period. Therefore, a writ petition was filed before High Court asking for a writ of mandamus declaring the levy of service tax on the works undertaken by the petitioner as illegal, arbitrary, amounting to double taxation and consequently setting aside the original order.

Held:
Relying upon decision dated 29.01.2015 in the case of M/s. Resolute Electronics (P.) Ltd. vs. Union of India Writ Petition No. 1409 of 2015 and Supreme Court decision in the case of Singh Enterprises vs. CCE [2008] 12 STT 21, the High Court held that after availing remedy unsuccessfully before another Court, it is not legally permissible to accept challenge to the same order under writ jurisdiction as it would result in unsettling a legally settled position. It was further held that when appellate authority has already decided the matter against the petitioner, the writ Court is debarred from doing so particularly, when the appellate authorities’ orders are not challenged in the writ jurisdiction.

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2015 (38) STR 12 (Cal.) Solux Galfab Pvt. Ltd. vs. Commissioner of Service Tax.

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The ex-parte order can be set aside if sufficient cause for delay in filing the appeal is made out. Length of delay is immaterial, sufficient cause for delay is material.

Facts:
The petitioner filed an appeal along with application of condonation for delay of 21 days before the CESTAT . The Tribunal decided the application ex-parte and dismissed the appeal. After which a miscellaneous application was filed for restoration thereof and application for condonation of delay. The Tribunal misconstrued the application as a review application and recorded that sufficient cause for delay was not shown and dismissed the appeal. Therefore the present writ is filed.

Held:
The Hon’ble High Court held that the length of delay is immaterial, sufficient cause for such delay is of prime importance. Rather than finding fault with the application for condonation of delay, the Tribunal should encourage the litigation to be decided on merits and should not act harshly. The Tribunal invoked Rule 41 of the CESTAT (Procedure) Rules, 1982 for review as against Rule 20 of the said Rules which provides for setting aside ex parte order if sufficient cause is shown. The order was a set aside with a direction to fix up the date of hearing.

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Nature of Lease Transaction of Cranes

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Introduction
The identification of lease transaction is a vexed issue. The sale by “transfer of right to use goods” (Lease) is provided by a deeming clause in Article 366 (29A) of Constitution of India. However, there is no definition of the nature of lease transaction in constitution or in the respective sales tax laws. Therefore, its nature is required to be determined in light of decided cases. The controversy remains alive till the issue reaches the Supreme Court.

The decisions are also based on facts of each case.

BSNL case
One of the important judgments on the issue is of Supreme Court in case of Bharat Sanchar Nigam Limited (145 STC 91). In this judgment, the Hon’ble Supreme Court has specified criteria for deciding the nature of lease transaction. The said criteria can be reproduced below.

“98. To constitute a transaction for the transfer of the right to use the goods, the transaction must have the following attributes:

(a) There must be goods available for delivery;

(b) There must be a consensus ad idem as to the identity of the goods;

(c) The transferee should have a legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;

(d)For the period during which the transferee has such legal right, it has to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute – viz., a “transfer of the right to use” and not merely a licence to use the goods;

(e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.”

However, in spite of such clear criteria laid down by highest court, the litigation continues.

Case of crane
There are commercial transactions where work is carried out by parties, with use of cranes. It is but natural that the customer who employees the crane owner will request /direct the crane owner to operate the crane as he requires. However, such transactions are being attempted to be classified as lease transactions by the state sales tax authorities.

Recently, there is judgment of the Hon’ble Bombay High Court in relation to such controversy.

Commissioner of Sales Tax vs. General Cranes
This judgment is given by the Hon’ble Bombay High Court on 21st April 2015 in Sales Tax Reference No. 5 Of 2009 In Reference To Application No. 72 Of 2005.

The facts in this case, as noted by the Hon’ble Bombay High Court, are as under.

“The facts, in brief, giving rise to the present Reference are as under:

The respondent is registered under the Lease Act and is engaged in carrying on the business of hiring of cranes. The respondent had filed an application under section 8 of the Lease Act for determination of question as to whether he would fall under the term of “dealer” under the Maharashtra Sales Tax on the Transfer of Right to use any goods for any purpose Act, 1985 (hereinafter referred to as the ‘Lease Tax Act’) along with Section 52 of the Bombay Sales Tax Act, 1959. The Additional Commissioner while dealing with the said application held that the respondents would fall within the definition of a ‘dealer’ and as such, the transaction entered into by him with M/s. Offshore Hook-Up & Construction Services (I) Pvt. Ltd. would be governed by the provisions of the said Act and as such taxable. Being aggrieved thereby, an Appeal came to be preferred. The learned Tribunal reversed the finding of the learned Additional Commissioner and held that the transaction entered into between the respondent and M/s. Offshore Hook-Up & Construction Services (I) Pvt. Ltd. would not amount to sale as defined u/s. 2(10) of the Lease Act.”

In subsequent paras, the Hon’ble High Court has reproduced certain relevant portion from the agreement between the parties. Thereafter, the Hon’ble High Court has referred to the definition and provisions of the Lease Act.

More particularly, the Hon’ble High Court has relied upon the judgment in case of BSNL (cited supra) and Rashtriya Ispat Nigam Limited 126 STC 114 (SC).

After analysing facts and legal position, the Hon’ble High Court observed as under, about nature of transaction:

“As already discussed hereinabove, the learned Tribunal has extensively reproduced the terms of contract which are also been reproduced by us hereinabove. Perusal of the terms of contract would reveal that as per the contract, the driver, cleaner, diesel and oil was to be provided by the respondent. So also, transportation of accessories was to be done by the respondent. It can further be seen that there is no provision in the contract that the legal consequences such as permissions or licences were to be transferred to the transferee. The ultimate control over the crane retained with the respondent. We find that the learned Tribunal, applying the judgment of Apex Court, has rightly construed that the transaction which were entered into by the respondent with Offshore Hook Up & Construction Services (I) Pvt. Ltd. would not fall within the meaning of Lease Act and the respondent was not a dealer within the meaning of definition of section 2(4) of the Lease Act.”

Thus, the Hon’ble High Court decided that there is no transfer of right to use goods and the judgment given by the Hon’ble Tribunal is correct as per facts and law.

The concept of effective control is also discussed by Hon’ble High Court in above para. Though the judgment is in relation to cranes it can apply with equal force to other such vehicles like, buses, etc. Therefore, the above judgment will be a guiding judgment for similar transactions.

Conclusion:
It seems as though, that the dealers have to wage a long struggle to get the correct position of Law decided. And this is happening due to fact that there is no definition of the ‘nature of lease transaction’. The parameters considered by different courts further add to the controversy. Therefore, it will be useful if a statutory definition of relevant terms is provided in the Law itself. Hopefully, due care will be taken in the drafting of GST Law.

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OVERLAP OF CUSTOMS DUTY AND SERVICE TAX

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Background
In the context of indirect taxation, overlap of taxes is one of the major areas of concern inasmuch as it has a cascading effect and increases the transaction costs. While, overlap of service tax and VAT or service tax and excise duty is a subject of extensive deliberations and judicial considerations, less attention has been given to overlap of customs duty and service tax. However, actually this has a significant implication inasmuch as basic customs duty is not eligible for the benefit of CENVAT credit (only CVD equivalent to excise duty is entitled to CENVAT credit). Hence, the issue is analysed below.

Relevant Statutory Provisions

Service Tax – Reverse Charge Mechanism: effective from July 01, 2012

• Section 68 of the Finance Act, as amended (Act)

“Every person providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed.

Notwithstanding anything contained in sub-section (1), in respect of such taxable services as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66B and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.

Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider.”

• Notification No. 30/2012-ST dated 20/6/12.

In case of the following services notified as specified services, the service recipient is held as the person liable for payment of service tax to the Government.

“Taxable services provided or agreed to be provided by:

(i) to (x) ……………

(xi) Taxable service provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory.”

• Relevant extracts from Customs Valuation (Determination of Price of Imported Goods) Rules, 2007 (‘CVR’) issued in terms of Customs Act, 1962 – Rule 10 – Cost and Services

“(1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, —

(a) the following to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:-

(i) commissions and brokerage except buying commissions;

(ii) the cost of containers which are treated as being one for customs purposes with the goods in question;

(iii) the cost of packing whether for labour or materials;

(b) The value apportioned as appropriate of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely:-

(i) materials, components, parts and similar items incorporated in the imported goods;

(ii) tools, dies, moulds and similar items used in the production of the imported goods;

(iii) materials consumed in the production of the imported goods;

(iv) engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods;

(c) royalties and license fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued to the extent that such royalties and fees are not included in the price actually paid or payable;

(d) the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues, directly or indirectly, to the seller;

(e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.

Explanation.- Where the royalty, license fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods.

(2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include –

a) The cost of transport of the imported goods to the place of importation;

b) Loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and

c) The cost of insurance;

Provided that –

(i) Where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty per cent of the free on board value of the goods;

(ii) The charges referred to in clause (b) shall be one per cent of the free on board value of the goods plus the cost of transport referred to in clause (a) plus the cost of insurance referred to in clause (c);

(iii) Where the cost referred to in clause (c) is not ascertainable, such cost shall be 1.125% of free on board value of the goods;

…………….”

Double taxation of services and intangible rights related payments by importers of goods to foreign entities

As per CVR, the value of services and intangible rights is required to be added to the transaction value of imported goods, for the purpose of levy of customs duty. At the same time such payments (consideration) for services and intangible rights are also liable to service tax under reverse charge. Thus, there is an issue of double taxation.

In particular, as per Rule 10(1)(c) & (e) of CVR, the following is required to be added to the price actually paid or payable for the imported goods while determining the transaction value.

“Royalties and license fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable.

All other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.

Explanation:- Where the royalty, license fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (a) and (b), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods.
Issues pertaining to indian companies entering into business arrangements with foreign entities arise for consideration. Such arrangements are mainly done to use brand/reputation, intellectual property rights, product and business expertise etc. of foreign entities and sell products supplied/approved by them in indian market. Such arrangements are made in different legal forms like joint venture, franchise, license, distributor etc. under the said arrangements, indian companies are obliged to maintain prescribed standards of business, pay for value of goods being imported and are also required to make payments to foreign partner for services and intangible rights which are identified by various names like franchise/license fee, marketing/advertising fee, agents fee/commission, renewal fee, reimbursements of travel etc.

While Custom authorities relates all the above direct or indirect payments related to services and intangible rights like royalty, license fee etc. to supply of goods and hold them liable to Customs duty, service tax authorities treat such payments as consideration for services and hold indian companies liable to pay service tax under reverse Charge mechanism.

Thus,  indian  companies  are  exposed  to  the  burden of double taxation of Customs duty as well as service tax.   this   increases   the   transaction   costs   of   indian businesses substantially.

Government has in its wisdom, sought to address this issue in some specific cases. E.g.:

•    When transfer of right to use imported/locally pro- cured packaged software or canned software is passed on to the buyer, Government has exempted CVD/Central excise duty on consideration for such transfer of right to use, provided service tax is paid on the same (Ref: Notification No. 25/2011- Cus. dated 01.03.2011 and 14/2011-Ce dated 24.03.2011). Conversely, service tax was exempt- ed when CVD/Excise duty was paid (Ref: Notifica- tion no. 34/2012 – St, dated 20.06.2012).

•    IPR service providers were exempted from service tax equivalent to amount of cess payable on the transfer of technology under the provisions of the r & d Cess act, 1986 so as to avoid double taxa- tion of both service tax and r & d Cess (ref not no. 17/ 2004-St., dated 10.09.2004).

Mumbai CESTAT Ruling in united shippers lTD vs. csT (2015) 37 STR 1043 (Tri – Mumbai)

Issue before CESTAT

“Whether barge (shipping) charges collected towards transportation of the imported goods from the mother vessel anchored at Bombay floating Lights to dharmatar jetty where the goods were unloaded, which forms part of the transaction value of the imported goods can be once again levied to service tax under the category of cargo handling services?”

Contentions of the Appellants

•    The activity of transshipment of import and export cargo, from the mother vessels to the jetty and vice versa, is carried out by the barges (termed as daughter vessels) on account of the draft not permitting the mother vessels to travel until the jetty at  minor  ports. the  appellant  submitted  that  it  is a settled position in law that such transshipment of cargo from the mother vessel to the jetty is to be treated as a continuation of the journey of the goods in the import stream into india, as upheld in South India Corporation (Agencies) Ltd. vs. Collector of Customs and Ors. (1987) 30 E.L.T. 100 (Cal); Turner Morrison and Co. Ltd. vs. Asstt. Col- lector of Cus. for Exports (II) (1999) 110 E.L.T. 484 Cal.) and Collector of Customs, Ahmedabad vs. Shipping Corporation of India Ltd. (1987) 29 E.L.T. 182 (tribunal).

•    The freight amount charged to the customer for the barge transportation of goods from the mother vessel to the jetty forms a part of the assessable value of the imported goods, for the purpose of computation of Customs duty. the inclusion of the freight amount has been explicitly mandated by the amendments effected to section 14 of the Customs act, 1962 read with CVr these amendments were made in order to overcome the decision in Ispat In- dustries Ltd. vs. Commissioner of Customs, Mum- bai (2006) [202 E.L.T. 561 (S.C.)] and ensure the position in law which had always been intended by the Legislature, and accordingly the said po- sition would equally apply for the period prior to 2007. therefore, the value of the transportation by transshipment is treated as an intrinsic part of the value of a goods transaction and the said amount therefore, cannot attract the levy of service tax si- multaneously as being in the nature of consideration for provision of services. reference is made to the decision in Escotel Mobile Communications Ltd. vs. Union of India (2004) [177 E.L.T. 99 (Ker.)] wherein it was held that, based on the “aspect theory”, the same transaction could be exigible to different taxes in its different aspects – in that case, the issuance of a Sim card to a subscriber could be equally liable to sales tax and service tax at the same time. this view was challenged before the Hon’ble Supreme Court in BSNL vs. UOI (2006) [2S.T.R. 161 (SC)] in which the aforesaid finding of the high Court was overruled, and it was categorically held that the aspect theory would not apply to enable the value of the goods to be included in the rendition of services or vice versa. In the present case, the freight charged for the barge transpor- tation of the goods from the mother vessel to the jetty is includible in the assessable value on which customs duties are levied. Applying the rationale laid down in the aforesaid ruling of the Hon’ble Su- preme Court, once the freight has already rightly suffered customs duties as a part of the value of the goods being imported, a dual levy of service tax cannot also be imposed on the same freight amount, and the demand on this basis cannot sustain. Further, it was submitted that this activity of transportation of goods from the mother vessel to the jetty is earned out before the goods crosses the customs frontier of india and consequently, will be construed to be undertaken while the goods are still in the import stream and prior to the successful completion of the process of importation of the goods into india. [Garden Silk Mills vs. Union of India, (1999) 113 E.L.T. 358 (S.C.)] reliance was also placed on the decision of the Hon’ble Supreme Court in the case of Hotel Ashoka vs. Asst. Commr. of Commercial Taxes (2012) [276 E.L.T. 433 (S.C.)], wherein it held that an activity of sale of items in the duty free zone of an airport will not attract the levy of Vat, even though such sale is actually taking place within the physical territory of india, as such goods had not crossed the customs frontier of india to form a part of the mass of goods meant for consumption in india and had therefore not been imported into india. it was therefore, submitted that taxing the transshipment of the goods in the present case will tantamount to levying service tax on an activity of import of goods, which is impermissible in law.

Contentions of the Revenue

It appears that transport of cargo by barges from the mother vessels had taken place when the mother vessels  were  at  mumbai  floating  Light/inner anchorage  of mumbai Port trust, i.e. when the vessels were already in india. Therefore, there does not appear any legal bar to levy service tax on the services provided in relation to the cargo transported by the barges from the mother vessels to  the jetty.  It  would  also  not  be  correct  to  say  that it would amount to double taxation. The levy of cus- toms duty and service tax are under separate enact- ments. In the case of CST, Bangalore vs. Lincoln He- lios (India) Ltd. (2011) 23 STR 112 (Kar.), the hon’ble high Court has held that excise duty is levied on the aspect of manufacture and service tax is levied on the aspect of services rendered. Therefore, it will not amount to payment of tax twice.

In the said case, the facts were not in dispute. the as- sessee undertook not only manufacture and sale of its products, it also erected and commissioned the finished products.  The  customer  was  charged  for  the  services rendered as well as the value for manufactured products. admittedly, up to 20/06/2003 no service tax was leviable on erection and commission work. It was only subjected to tax from 01/07/2003.

The assessee paid the excise duty on the value of the product notwithstanding the services rendered. it is in that context, they were contending that there cannot be levy of tax under two parliamentary legislations. however, the excise duty was levied on the aspect of manufacture and service tax is levied on the aspect of services rendered. Therefore it will not amount to payment of tax twice. After contesting the matter before the tribunal, the assessee paid the service tax and interest thereon. Moreover, the commissioning installation and erection work was brought to service tax only from 01/07/2003. It was during the transitional period and the benefit of doubt existing in the mind of the assessee was given to him. Since it constitutes a reasonable cause for not paying the service tax in view of Section 80, the Court held that the tribunal was justified in interfering with the levy of penalty and in setting aside the same and there was no infirmity in the order passed by the tribunal.

 Observations of CESTAT
•    As regards the first issue, since the transaction in- volves a customs transaction and a service trans- action, it is necessary to decide where the customs transaction ends and the service transaction begins.  the  issue  as  to  what  constitutes  “imports” has been settled by the hon’ble apex Court in the case of Garden Silk mills Ltd. (supra), wherein the following was observed:

“Truly speaking, the imposition of import duty, by an large, results in a condition which must be ful- filled before the goods can be brought inside the customs barriers, i.e. before they form part of the mass of the goods within the country.

It would appear to us that the import of the goods into india would commence when the same cross into the territorial waters but continues when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed.”

Thus  when  the  goods  are  being  transported  by the barges from the mother vessel to the jetty on- shore, that activity is part of the import transaction of bringing the goods into india from a place outside india. the question of rendering any service in respect of such goods by way of cargo handling or otherwise can take place only after the customs transaction is completed. therefore, the question of levying to service tax on the transportation by barges from the question of levying to service tax the transportation by barges from the mother vessel to the jetty onshore, would not arise at all since the said activity is part of the import transaction leviable to import duty and we hold accordingly. [para 5.2]

•    This is also evident from the fact that Section 14 of the CVR were amended to specifically include barge charges and handling charges in the trans- action value  of the imported goods vide  finance act, 2007 to overcome the adverse decision in the case of ispat industries (supra). Section 14 was substituted “to specifically provide that transaction value of imported goods shall include, in addition to the price, any amount paid or payable for costs and services, including commissions, … cost of transportation to the place of importation, insurance, unloading and handling charges to the extent and in the manner specified in the rules made in this regard”.

These  amended  provisions  came  into  force  with effect from 10/10/07. CBEC has also clarified vide Circular 34/2009, dated 30-11-2009 that “the issue of ineligibility of barge charges in the value (of imported goods) will be governed by the provisions of Section 14 of the Customs act, 1962 read with CVR for the assessment arising in the period from 10/10/07 onwards.”

Thus  the  question  of  demand  of  service  tax  on barge charges and the handling charges connected therewith would not arise at all with effect from 10-10-2007 as they form an integral part of the transaction value for levy of customs duty. Even fo the period prior 10-10-2007, the same position would apply for the reason that the import trans- action is complete only when the goods reach the customs barriers and the bill of entry for home consumption is field. [Para 5.3]

•    As regards the observations of Karnataka High Court relied by the revenue, it was observed that in the Lincoln helio case, the only question of law considered by the hon’ble high Court was whether setting aside the penalty by the tribunal was correct when the demand of service tax and interest was upheld and the assessee did not contest the levy.  These  are  not  the  issues  before  us  nor  is there any remote connection with the facts of the case before us. It is a settled position in law as held by the hon’ble apex Court in al noori tobacco Products india Ltd. case [2004 (170) eLt 175 (SC)] that the ratio of a decision can be applied only if the facts are identical. A slight or a material change in the facts could lead to an entirely different conclusion. [Para 5.7]

Conclusion
In light of the foregoing, it is very clear that, there is      an exposure to overlap of customs duty & service tax, more particularly, in cases of payments made to foreign entities by indian importers. the mumbai CESTAT ruling discussed earlier does lay down a sound principle in the context of the facts of that case. However, exposure to litigation even in such cases continues. Further, mandatory pre-deposit provisions causes hardship to the assesses in such cases as well. the impact of overlap of customs duty and service tax assumes significance, again in the backdrop of the increased rate of service  tax to 14% (which could go up with 2% Swatch Bharat Cess) and imminent introduction of GST. hence, it is felt that this issue needs to be speedily addressed by the Government so as to ensure that transaction cost of indian importers is not unduly burdened rendering them globally uncompetitive.

IMPORTANT AMENDMENTS IN SERVICE TAX BY FINANCE AC T, 2015

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Introduction
The Finance Bill 2015 was enacted with effect from May 14, 2015. The amended service tax provisions are a mixed bag of provisions with a few new exemptions on one hand and amending the definition of service, withdrawal of exemptions and narrowing down the scope of the Negative List on the other with a view to widen the tax base. This is further complemented by enhancing the tax rate as well. From the modest estimate of Rs. 500 crore in the year of its introduction in 1994, service tax estimate for the current fiscal is augmented to Rs. 2.10,000 crore. Some of the significant amendments made by the Finance Act, 2015 are briefly discussed herein below:-

Rate of tax
Service tax rate increased from 12.36% to 14% subsuming Education Cess and Secondary & Higher Education Cess with effect from June 01,2015.

Swachh Bharat Cess @ 2% to be levied on all or any of the taxable services and its effective date is yet to be notified.

The following services which are taxed at a specified rate are revised as follows with effect from June 01,2015

• Booking of air tickets by air travel agent
A. Domestic bookings:- 0.7%
B. International bookings:- 1.4%

• Life insurance service
A. F irst year:- 3.5%
B. Subsequent year:- 1.75%

• Money changing service
A. gross amount of currency exchange :- 0.14% or for amount upto Rs 1,00,000/- minimum Rs.35

B. gross amount of currency exchange :- Rs 140 and 0.07% for amount exceeding Rs 1,00,000/- and upto Rs 10,00,000/-

C. gross amount of currency exchange :- Rs 770 and 0.014% for amount exceeding maximum Rs 7000/- Rs 10,00,000/-

• Service provided by lottery distributor and selling agent

A. R s. [8200] on every Rs.10 lakh (or part of Rs.10 lakh) of aggregate face value of lottery tickets printed by the organising State for a draw.
B. R s. [12800] on every Rs. 10 lakh (or part of Rs 10 lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw

Amendment in Definition of ‘Service’
Explanation-2 to the definition of service is amended to exclude the following transactions from the expression transaction in money or actionable claim.

Activity by a lottery distributor or a selling agent in relation to promotion, marketing, selling, organising, or facilitating in organising lottery. Accordingly the terms lottery distributor and selling agent are suitably defined under clause 31A of section 65B(44) to mean “a person appointed or authorised by a State for the purposes of promoting, marketing, selling or facilitating in organising lottery of any kind, in any manner, organised by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998.” Consequently the entry in the negative list i.e. entry 66D(i) is also amended as discussed below:

Activity by a foreman of chit fund for conducting or organising a chit. This amendment is brought about to counter the effect of the decision of the Delhi High Court in the case of Delhi Chit Fund Association V. Union of India [2013] 32 taxmann.com 332(Delhi) holding that activity by a foreman in relation to the chit fund business being a service in relation to transaction in money is not liable for service tax. Further, the SLP filed by the department against the said decision was also dismissed by the Supreme Court. Thus this amendment explicitly states the desire of the legislature to treat such activities by a foreman of a chit fund as not a transaction in money.

Negative List
The Negative List is reviewed and pruned in order to widen the tax base as discussed below:

Effective from June 01,2015
• Any contract work or job work carried out in relation to manufacture or production of alcoholic liquor is now taxable. Accordingly, the expression “process amounting to manufacture” defined under section 65B(40) has been suitably amended to exclude any process amounting to manufacture of alcoholic liquor for human consumption from the definition. (The Seventh Schedule to the Constitution of India List-II, specifically authorizes the State Government to levy tax on the manufacture or production of alcoholic liquor and thus whether this levy is constitutionally valid may be a debatable issue in the future) [section 66D (f)].

• The expression betting, gambling or lottery has been revisited to exclude any service by way of promotion, marketing, organising, selling or facilitating the organizing of lottery by a lottery distributor or selling agent. Hence promotion, marketing, organising of lottery is now taxable. The term betting and gambling finds a place in entries 34 and 62 of the State list. The power to levy tax by the Central Government in relation to promotion, marketing, organising of games of chance including lottery was taxed under the erstwhile section 65(105)(zzzzn) and it was challenged in a writ petition filed by Future Gaming Solutions Pvt. Ltd 2015(37) STR 65 (Sikkim). The Hon’ble High Court while declaring the said section 65(105)(zzzzn) ultra vires held that it is the exclusive legislative domain of the State legislature to levy tax of any nature on lotteries by virtue of entry 62 of List II to the Seventh Schedule. It was also noted that, though Entry 40 of List 1 includes lotteries organised by Government of India or a Government of a State as a field of legislation, the power to regulate does not include power to tax. Therefore, though Parliament alone has enacted Lotteries (Regulation) Act,1998 under entry 40, taxing powers have been conferred on the State only as envisaged under entries 34 and 62 of List II to Seventh Schedule. Thus, in terms of the above decision, it appears that the Finance Act, 2015 has gone beyond its powers under the Constitution by excluding the promotion or marketing or organising of lottery from the negative list.

• Services by way of admission to entertainment events or access to amusement facilities are now taxable. Accordingly, admission to amusement parks, theme parks, water parks, etc. is liable for service tax. Also, entry into entertainment events like music concerts, non-recognised sporting events, award functions, pageants are also liable for service tax. Entertainment Tax is levied by the State Government on various amusement facilities and entertainment events. This levy may lead to double taxation and with the service tax rate of 14%, may result in making such activities exorbitantly priced. [Section 66D(j)]. It may be noted here however that when the amount charged for the entertainment events (not amusement events) is less than INR 500 then they shall continue to be exempted from service tax. Similarly, admission to exhibition of films, circus, dance or theatrical performances and recognized sporting events have also been exempted and this is without any limit under entry 47 of Mega Exemption Notification 25/2012-ST. In reference thereof, the term “recognised sporting event” is defined in clause (zab) of para 2 of the Mega Exemption Notification 25/2012-ST as “any sporting event where the participating team or individual represent any district, state, zone or country; covered under entry 11.

Government services: effective from a date to be notified

Presently, support services provided by the Government or Local authority to business entities are liable for service tax.   Service tax now applies   to all services provided by the Government or Local authority to business entities.  however,  the  liability is to be discharged by the business entities under reverse charge mechanism. however, the services provided by the Government or Local authorities to its citizens not being business entities continue to remain under the negative List and continue to be non-taxable. Further, with the increased involvement of the private sector in rendering services which were once in the exclusive domain of the Government, the change may provide a level playing field to both the private and the public players [section 66d(a)(iv)]. In this context, the term ‘Government’ is now defined in clause 26A of section 65B for the first time as follows:

“Government means the Departments of the Central Government, a State  Government  and  its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made thereunder”

In terms of this provision therefore, all corporations formed under the Government statute or autonomous bodies or public sector undertakings incorporated under Companies act including boards or regulatory authorities do not qualify to be considered ‘Government’ whereas all Central Government ministries and departments working thereunder, [for instance   department   of   income   tax,   department of Company affairs etc.] various State Government and their departments, union territories and their departments are part of the expression Government. “Local authority” also is not covered by this expression, however, it is already defined under clause 31 of the said  section  65B.  further,  the  term  Governmental Authority is also defined under clause (s) of the Mega Exemption Notification 25/2012-ST which is relevant for interpreting the exemption, if any, available in this regard under the said notification.

(Note: it is expected that the Government may notify the list of services in this context).

Valuation:

Reimbursements:
Section 67 is amended to include any reimbursable expenditure or cost incurred by the service provider and charged in the course of providing or agreeing to provide a taxable service except in such circumstances, and subject to such conditions, as may be prescribed. the inclusion of reimbursable expenditure as a part of the gross value of taxable service under rule 5(1) of  the  Service  tax  (determination  of  value)  rules, 2006 (Valuation Rules) was always a subject matter of litigation and controversy. the Landmark judgment of delhi high Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. [2012-TIOL- 966-HC-DEL-ST] held that rule 5(1) of the Valuation rules is ultra vires section 67. to counter the effect of the judgment, the amendment to section 67 itself is made by including reimbursable expenditure as a part of the value of the taxable service, post may 14,  2015.  thus  litigation  process  will  be  kept  alive. nevertheless, double taxation is likely to arise in many cases unless appropriate conditions are prescribed.

Lottery distributor or selling agent:
Section 67 is also amended to include any amount retained by the lottery distributor or selling agent from the gross sale amount of the lottery tickets in addition to the fee or commission, or the discount received, which is the difference between the face value of the lottery ticket and the price at which the distributor or selling agent gets such ticket.

Exemptions

Withdrawal of Exemptions
•    Various exemptions for services provided to Government, Local authority or Governmental authority vide entry 12 are withdrawn and only selective services like construction, erection, commissioning, etc. of historical monument, archaeological sites, canals, dams, irrigation works, pipelines for water supply/treatment etc. remain exempt.

•    Exemption vide entry 13 for construction, erection, commissioning or installation of original works pertaining to airport and port also stands withdrawn.

•    Exemption in respect of transportation service available for food stuff in general by road, rail or vessel vide entry 20 and 21 has been suitably pruned to exempt only transportation of milk, salt and food grains, including flours, pulses and rice.

•    The exemption to services provided by mutual fund agents/distributor to asset management company vide entry 29 is now withdrawn and the activity is now taxable (as they used to be till 30th june, 2012) and the asset management companies are liable to  discharge  service  tax  under  reverse  Charge mechanism. It is pertinent to note that, since the tax is finally paid by the asset management companies or  the  mutual  funds,  exemption  ought  to  have been extended to the sub-distributors and sub- agents providing services to the main distributors and agents on the lines of exemption in respect of  sub-brokers  of  stock  brokers.  Further,  effect is felt by distributors on account of the amended definition of output service with effect from 01-07- 2012 whereby the service in respect of which the recipient is liable to pay entire service tax liability, such service is not  considered  output  service.  in such a scenario, service tax charged by sub- distributors on their commission cannot be taken credit of by the distributors. on account of this provision, therefore, services of sub-distributors are required to be exempted or else same service gets  taxed  twice.  this  may  be  unintended  and therefore needs to be taken care of.

•    Services by an artist in folk or classical music, dance or theatre, excluding services provided by the artist as a brand ambassador was exempt under entry 16. however where the consideration charged for such performances exceed rs. 1 lakh, the same is now taxable.
(Entry number refers to Notification 25/2012-ST)

?    New Exemptions
Certain specific services which were hitherto liable for service tax, are now exempted from service tax. the list consists of the following:-

Notification 6/2015-ST
•    Entry into museum, zoo, national park, wildlife sanctuary, tiger reserve or zoo.
•    Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail, packing, labelling of fruits and vegetables which do not alter its essential characteristics.
•    Services by operator of Common Effluent Treatment Plant by way of treatment of effluent.
•    Service provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members.
•    Services of life insurance business provided under ‘Varishtha Pension Bima Yojana’.

Notification 12/2015-ST
•    Exemption  is  provided  to  services  of  general insurance under the Pradhan mantri Suraksha Bima Yojna, services of life insurance under the Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Jan Dhan Yojana.
•    Services by way of collection of contribution under Atal Pension Yojana (APY).

Rationalisation of abatements

  •     Uniform abatement rate of 70% of the value of service in relation to transport of goods by rail, road and vessel are prescribed effective from 01-04-2015. Similarly, the conditions in respect of non-availability of CenVat credit on inputs, capital goods and input services is also now applicable to all, regardless of  the  mode  of  transport.  the  direct  impact  of  this amendment is already felt by the users of rail services for transportation of cargo. in order to be eligible for  the  CenVat  credit  of  inputs,  capital  goods  and input services, the railways have begun charging full rate of service tax and are foregoing the abatement option. the users in many cases are unable to take CenVat  credit  and  thus  the  cost  of  availing  the transport service of railways has suddenly shot up substantially and which is further impacted by the increased rate of 14%.

  • ?    The  transport  of  passengers  by  air  in  higher  class has become dearer since the abatement has been reduced from 60% to 40%.

  •     Abatement of 70% available for services provided in relation to chit has now been withdrawn.

Service Tax Rules: Aggregator Model

    One of the significant amendments carried out under the  finance act,  2015  is  the  levy  of  service  tax  on e-commerce transactions under aggregator model. The term ‘Aggregator’ is defined under the Service tax rules clause 2(aa) as “a person who owns and manages a web based software application and by means of the application and a communication device enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator”. the terms “brand name” and “trade name” are also defined under the Rules. The liability to discharge service tax is on the aggregator under reverse charge mechanism. thus, it is assumed that the aggregator is the service receiver. it is also provided that if the aggregator does not have presence in the taxable territory, the person representing the aggregator would discharge the liability or the aggregator would appoint a person for discharging tax liability.  the amendment clearly sets out intention of the legislature to levy service tax on certain formats in e-commerce space. accordingly, companies providing services by acting as an aggregator like travel portals, cab services, food portals etc. would be hit by this amendment irrespective of their establishments being in the non- taxable or taxable territory.

CENVAT Credit

Time  limit  for  availing  CENVAT  credit  is  extended from  six  months  to  one  year.  therefore,  the  issue faced by many assessees on account of amendment made by Finance (No.2) Act,2014 is to a significant extent resolved, as credit can be availed by the end of a period of one year from the date of invoice. for example, if credit was missed out to be availed on an input service of invoice dated may 15, 2014 and if this was noticed only in january,2015, the credit was not available in terms of proviso to rule 4(7) of CENVAT Credit  rules,  2004  (CCR,  2004).  However  in  terms of the amended provision, the said missed out credit would be available in the month of april, 2015.

CENVAT   credit  for  service  tax  paid  under  partial reverse charge is immediately available on payment of service tax to the Government. thus the condition in respect of allowing CenVat credit only after payment is made to the vendor, being a mere contractual arrangement is now done away with.

CENVAT   credit   wrongly   availed   and   utilised   or erroneously refunded is recoverable with interest as per  rule  14  of  the  CenVat  credit  rules,2004.the said rule 14 is amended from march 1, 2015 now to provide for recovery of CenVat credit wrongly availed or  erroneously  refunded  and  also  CenVat  credit wrongly availed and utilised or erroneously refunded with interest. additionally, sub rule (2) thereof provides for  the  “first  in  first  out”  method  for  computing  the amount of credit wrongly utilised on monthly basis. in the prescribed method, an assessee is required to first utilize the opening balance of a month. thereafter, one has to utilise the admissible credit availed for the said month and lastly the inadmissible credit availed is to be calculated for utilisation and thus arrive at an amount of  aggregate  credit  wrongly  utilised.  the  prescribed computation method thus determines credit to be treated as “availed and utilised” for levying interest thereon.

Penal provisions

In an attempt to encourage voluntary tax  compliance and reduce litigation, the Government has considerably reduced penalties under service tax and aligned them with Central excise law:-

    Section 76 providing for a levy of penalty in cases of short payment or non-payment of service tax, however not involving fraud, collusion or willful misstatement or suppression of facts or contravention of the provisions of the act is amended to provide as follows:-

•    Maximum penalty not exceeding 10% of the amount of service tax.
•    No penalty is leviable if service tax along with interest is paid within 30 days of service of show cause notice.
•    Reduced penalty of 25% of the penalty imposed has been prescribed when service tax is paid with interest and reduced penalty within 30 days of  the receipt of the adjudication order or within 30 days of the date of the appellate order in cases where the amount of service tax is increased at the appellate stage or court level. Thus, at appellate or court level, the time limit prescribed for payment of service tax with interest and/or penalty is now provided with reference to the date of order in place of communication of the order, thus reducing the time to such extent.

Section 78 providing for a levy of penalty for a wilful intent to evade service tax is amended to provide as follows:-
•    Penalty equals 100% of the service tax amount.
•    Reduced penalty of 15% is leviable if service tax along with  interest  and  such  reduced  penalty  is paid within 30 days of service of show cause notice.
•    Reduced penalty of 25% of the penalty imposed has been prescribed on payment of service tax, interest and reduced penalty within 30 days of the receipt of the adjudication order or within 30 days of the date of the appellate order in cases where the amount of service tax is increased/modified at the appellate stage or court level. thus, at appellate or court level, the time limit prescribed for payment of service tax with interest and/or penalty is now provided with reference to the date of the order in place of communication of the order, thus reducing the time to such extent.

Section 73(4A) triggered pursuant to any audit, investigation or verification providing for a reduced penalty in case where true and complete details of transactions are recorded in the books of account is now omitted. however, a saving clause is inserted under the said section 78, for the period between 08-04-2011 and 14-05-2015  [both  days  inclusive]  to prescribe a penalty @ 50% of the service tax determined, if the details of such transactions are recorded in the specified records.

Transitory Provisions
In order to provide benefit of reduced penalty to cases where a show cause notice has been issued u/s. 73(1) or under the proviso thereto, but no order has been passed under section 73(2) before 14-05-2015, section 78B is inserted to provide that the period of 30 days for closure of proceedings on the payment of service tax, interest and penalty is to be counted from 14-05-2015 i.e. the date of enactment of the finance act,2015.

Omission of Non-obstante Clause-Section 80
In a significant move, non-obstante clause of section 80 providing powers to condone penalty is omitted   at the end of twenty one years of the existence of service   tax.   Therefore,   penalty   is   now   invocable notwithstanding genuine cause or difficulty of the tax payers and no action will be considered bonafide.

Few Concerns

Threshold Limit
The  service  tax  rate  has  been  increased  to  14%  in order to prepare the trade and industry for GST-one of the biggest taxation reforms in india. However, commensurate increase has not been brought about in the threshold limit and the same has remained constant at Rs. 10 lakh which may affect small and marginal service providers.

CENVAT Credit
There  has  also  been  a  conscious  effort  made  to broaden the base of service tax by pruning the negative list and the exemption notification as a precursor to GST. However, one of the basic aims for the introduction of GST is to provide seamless credit across value chains, but the CENVAT credit provisions have not been accordingly expanded leading to increased cost pressures for trade and industry.

Balance in education Cess & Secondary and higher education Cess account

The service tax rate of 14% has subsumed the education cess and higher education cess. however, whether the balance of education cess and higher education cess paid on inputs, input services and capital goods lying unutilised on the date the new service tax rate is applicable will be available to the service providers for discharging service tax liability is a question which has remained unanswered. In case of Central Excise vide Notification No.12/2015 Central excise (n.t.), it is provided that credit of education Cess and Secondary and higher education Cess paid on inputs or capital goods received in factory on or after 01-03-2015 can be utilised for payment of duty of excise. Similarly, credit balance of 50% of these Cesses paid on capital goods received in the factory of manufacturer as  well  as  input  services  received  during  F.Y.  2014-15 also  can  be  utilised  for  payment  of  excise  duty.   Thus, the intent of the legislation is clear that balances in the Cess accounts of the earlier period are not allowed to be used for duty payment. Further, similar notification is not issued as yet for service providers. in the scenario, the issue of use of credit of cesses remains questionable until the issue of such notification.

(note:  reference  to  sections  made  in  the  article  refer  to  the provisions of the Finance Act,1994 unless otherwise specified)

Some of the aspects included above may require detailed analysis. Such discussion will be covered under regular service tax feature of BCAJ from time to time hereafter.

Trade Circular 1T of 2015 – Revised Instructions regarding stay in appeals dated 07-01-2015

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In the Trade Circular, the Commissioner has explained that if an appellant receives some forms after the assessment order is passed then the appellant should produce the list in given format at the time of filing an appeal. The appellate authority will check the declarations as per the list and accordingly fix part payment. Declarations received up to the date of filing appeal will be considered to decide part payment and for granting stay.
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M/S. Cheema Paper Ltd. vs. Commissioner Trade Tax, (2012) 55 VST 473

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Entry Tax- Rate of Tax- Duplex Board- Ordinarily Used As Packing Material-Made out of Paper- Not Covered by Entry “Paper of All Kinds”, section 4 of The Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007

Facts
The dealer company engaged in the manufacture of craft paper and duplex board. The Commercial Tax Tribunal confirmed levy of entry tax on duplex board holding it to be covered by entry relating to “paper of all kind”. The company filed revision petition before the Allahabad High Court against the impugned order of the Commercial Tax Tribunal.

Held
The definition of paper is of wide import which may include anything which is macerated in to pulp, dried and pressed and is used for writing, printing, drawing, decorating, covering wall or for packing purpose. But board whether card board or duplex board are different meant for packing purpose only and not for use as paper, as is understood in common parlance. The duplex board which undoubtedly is a product of paper and is used as packing material would not be paper covered by the entry of “paper of all kind” as contained in notification and liable for entry tax. Accordingly the court allowed the revision petition.

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M/S.Sanjos Paritosh Hospital V. Commercial Tax Officer, Thrissur and Others, (2012) 55 VST 208 (Ker)

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VAT- Dealer- Business- Private Hospitals Selling Medicines and Consumables to Patientsare Dealers and Liable to Pay VAT, S. 2(ix), (xv), (xx), (xliii) and (lii) of The Kerala Value Added Tax Act, 2003

Facts
The Kerala Private Hospital’s Associations, State Committee filed writ petition before the Kerala High Court disputing their liability under the Kerala Value Added tax Act (KVAT ).

Held
A comparative analysis of the provisions contained in the KGST Act which were considered by the court in case of P.R.S. Hospital [2004] 135 STC (ker) and the corresponding provisions of the KVAT Act show that statutory provisions remain the same although the KGST Act is replaced by the KVAT Act. Therefore following earlier judgment of division bench of Kerala High Court in P.R.S. Hospital the court held that the hospitals are carrying on a business and are dealers liable to pay vat on sale of medicines and consumable to patients. The court also upheld the constitutional validity of charging section 6 of the act. Accordingly the writ petition was dismissed.

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2014 (36) STR 1120 (Tri.-Del.) DCM Shriram Consolidated Ltd vs. Commissioner of C. Ex., Jaipur-I

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CENVAT Credit of service tax paid on input services in respect of outdoor catering services for providing canteen facilities to the workers; maintenance of lawns and gardens within the factory as per the requirement of Pollution Control Board; maintenance of cycle stand located in the factory premises; and maintenance of guest house located adjacent to the factory premises is available?

Facts:
The appellants, manufacturer of fertilisers and chemicals availed CENVAT Credit on the following services which was disallowed:
• Outdoor catering services availed for providing canteen facilities to the workers;
• Maintenance of lawns and gardens within the factory as per the requirement of Pollution Control Board;
• Maintenance of cycle stand located in the factory premises; and
• Maintenance of guest house located adjacent to the factory premises.

The Appellants pleaded that canteen services were provided to the workers in view of the requirement under the Factories Act. Similarly, maintenance of lawns and gardens was mandatory requirement under the Pollution Control Board subject to which the permission for running the factory has been granted, maintenance of cycle stand was necessary requirement for the factory workers and the guest house was used by the guests of the company and hence, service tax paid on all these services should be allowed as CENVAT Credit.

Held:
CENVAT Credit in respect of outdoor catering service was admissible in view of the Hon’ble Bombay High Court’s decision in case of CCE, Nagpur vs. Ultratech Cement Ltd. (supra) 2010 (20) S.T.R. 577 as the number of workers in the appellant’s factory was more than 250 and it was mandatory to provide canteen facilities to the factory workers. Maintenance of lawns and gardens was a condition imposed by the Rajasthan Pollution Control Board which was necessary under relevant Acts. Hence, service tax credit in respect of the same was held admissible. Maintenance of cycle stand was necessary requirement and hence, It was also a cenvatable service. Maintenance of guest house, adjacent to the factory premises, was a necessary business requirement as the factory was located outside the City boundaries. Thus, in view of various decisions, maintenance of residential premises was associated with business activities and CENVAT Credit availed by the appellants was held as eligible.

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2014 (36) STR 1089 (Tri.-Del.) Delphi Automotive System P. Ltd. vs. Commissioner Of Cus. & S. T., Noida

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CENVAT credit of service tax paid on management service with respect to honouring, rewarding and entertaining employees and exemployees is allowed.

Facts:
The appellants were manufacturers of motor vehicle parts and AC parts. They took CENVAT Credit in respect of housekeeping and dry cleaning service, event management service for annual function for honouring, rewarding and entertaining employees and ex-employees and legal service. The appellants contended that since CENVAT Credit in respect of taxies for carrying their employees for the event was allowed, CENVAT Credit of service tax in respect of event management service engaged for the same function should be allowed. The appellants relied on Endurance Technologies vs. C.C.E Aurangabad-2013 (32) S.T.R. 95 (Tri.-Mum.) wherein credit in respect of mandap keeper for the annual day function was allowed. Also, the appellants cited the case of Toyata Kirloskar Motor Ltd. vs. CCE, LTU, Bangalore 2011(24) S.T.R. 645 (Kar) where it was held that organising a function cannot be separated from the business of manufacture. The Adjudicating Authority held that these services were not eligible for CENVAT Credit as their products can be manufactured without these services. The Adjudicating Authority also held them guilty of suppression of facts and therefore, imposed penalty and interest.

Held:
Relying on various pronouncements cited by the appellants, it was held that denial of CENVAT credit for cleaning services, legal services and management service was not sustainable. Adjudicating authority erred in holding that mens rea was not an essential factor for imposition of penalty under Rule 15 of the CENAT Credit Rules, 2004 read with section 11AC of Central Excise Act, 1994. With respect to penalty under section 11AC of the Central Excise Act, 1944, suppression has to be brought out which involves mens rea. Since order-in-original did not bring out as to how the appellants were guilty of willful misstatement or suppression of facts, extended period of limitation was not justifiable and mandatory penalty could not be imposed.

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2014 (36) STR 1052 (Tri.-Mum.) Ashish Construction vs. Commissioner of Central Excise, Nagpur

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Payment, after issuance of Show Cause Notice, specifically after a recorded statement of the assessee that he was not liable to pay service tax, should be treated as payment of service tax under protest or compulsion.

Facts:
The appellants availed small scale service provider’s exemption and after number crunching exercise, discharged service tax liability for F. Yrs. 2005-2006 to 2007-2008. The appellants deposited service tax under compulsion against issuance of Show Cause Notice. The appellants put forth various arguments to contend that the appellants were neither liable to pay service tax nor interest and penalties. The respondents alleged that the appellants were ineligible for the small scale service provider’s exemption since the appellants had opted for payment of service Tax.

Held:
Having considered the rival contentions, it was found that as per the statement recorded prior to issuance of Show Cause Notice, the appellants had mentioned that they were not liable to pay service tax. The appellants had paid service tax suo moto only after crossing the threshold exemption limit. Further, the appellants had paid service tax after issue of Show Cause Notice which was not a suo moto payment and the same needs to be treated as paid under protest or compulsion. In view of facts of the case, it was held that the appellants would be entitled to get refund of service tax paid under protest.

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2014 (36) STR 1050 (Tri.–Del.) Commissioner of Central Excise, Ludhiana vs. Bishamber Lal Arora.

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Packing/unpacking by automatic/mechanized process is not covered under cargo handling services.

Proceedings initiated without following classification and valuation discipline, are liable to be set aside.

Facts:
Department issued Show Cause Notice to the Respondent assessee alleging non/short payment of service tax under coal handling and loading, manpower recruitment or supply agency and cleaning services.

The respondents contended that service tax was demanded without specifying categories and taxable values separately. Further, the respondents were merely collecting urea in bags from bagging plants and thereafter, these bags were stacked on the conveyor. The conveyor system then carried the bags to railway wagons or trucks. Accordingly, the services were not in the nature of cargo handling services. The respondents further argued that since the labourers were employed for removal of stones from coal through conveyor systems, these activities did not fall within the ambit of manpower recruitment or supply agency services. The respondents were only cleaning the conveyer belts and the conveyor system for efficient conveyance of goods and therefore, these activities cannot be considered to be cleaning services, leviable to service tax.

Learned Appellate Commissioner held that the respondents were not liable to service tax under following grounds:

The respondents were only engaged in packing and unpacking of bags by automatic/mechanized process and therefore, the services were not covered under cargo handling services.

Cleaning of conveyor system for transport of bags was not covered under cleaning services.

Since the employees were employed by the respondents and they were not the employees of the customer, the services were not manpower recruitment or supply agency services.

Held:
Agreeing to the decision delivered by the learned Appellate Commissioner and having regard to the fact that Show Cause Notice was defective and the proceedings were initiated without applying classification discipline, the appeal was dismissed.

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2015-TIOL-142-CESTAT-MUM Bombay Paints Ltd vs. Commissioner of Central Excise, Mumbai- II

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Full credit availed on capital goods in the first year itself instead of 50%, at the most liable for interest, seeking reversal of credit and imposition of penalty is not warranted.

Facts:
The Appellant took 100% credit on capital goods used in manufacture. CENVAT Credit was denied to the extent of 50% and interest and penalty was also imposed.

Held:
Although, CENVAT Credit entitled was 50% in the first year instead of 100%, however the remaining credit of 50% is available in the subsequent year therefore at the most interest for the intervening period can be demanded and demand for duty and penalty was set aside.

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[2015-TIOL-108-CESTAT-MUM] – Matunga Gymkhana, Tahnee Heights Co-op . Hou. Soc. Ltd, Mittal Tower Premises Co-operative Society vs. Commissioner of Service Tax, Mumbai

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Services to members of club/co-operative housing society is not a service by one to another and is not liable for service tax.

Facts:
The demand of service tax in all these cases is based on the premise that the Appellants are providing “Club & Association” service.

Held:
Relying on the judgments of Ranchi Club vs. Chief Commr. Of C. Ex. & ST, Ranchi 2012 (26) STR 401(Jhar), Sports Club of Gujarat vs. Union of India-2013-TIOL-528- HC-AHM-ST and M/s. Federation of Indian Chambers of Commerce & Industry vs. Commissioner of Service Tax, Delhi-2014-TIOL-701-CESTAT-DEL701-CESTAT-DEL, where it was held that in view of mutuality and activities of the club there is no service by one to another and thus the levy of service tax is ultra vires, the appeals were allowed.

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[2014]-TIOL-2388-CESTAT-AHM Venketeshwar Filaments Pvt. Ltd. vs. CCE & ST, Vapi.

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Any stay order passed by the CESTAT, if it is in force beyond 07-08-2014 it would continue till the disposal of the appeal

Facts:
The Initial stay order passed by the Bench expires on 20- 08-2014

Held:
With the omission of the 1st, 2nd and 3rd proviso in section 35C(2A) vide section 103 of the Finance (2) Act,2014, there is no provision for making any further applications for extension of stay nor has the Tribunal have powers for hearing and disposing the applications from 07-08-2014. However, the initial stay order in force after 07-08-2014 does not lapse.

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[2014]-TIOL-2460-CESTAT-MUM M/s Hindustan Coca Cola Beverages P. Ltd vs. CCE, Nashik

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The outdoor catering service used in relation to business activities and not ‘PRIMARI LY’ meant for personal use or consumption of the employee, is a valid input service.

Facts:
The Appellant has availed CENVAT Credit on outdoor catering services provided to its employees post 01/04/2011 i.e. after the insertion of the clause in the definition of input service excluding services ‘primarily’ for personal use of the employees.

Held:
The word PRIMARILY used by the legislature should be given the due effect. The outdoor catering service is used in relation to business activities for all employees in general and forms a part of cost in relation to manufacture of the final product. It was also observed that since the expenditure did not form part of the salary of the employee as a cost to the company it was not meant for personal use, the credit cannot be denied.

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[2015-TIOL-632-HC-KERALA-ST] Muthoot Finance Ltd. vs. Union of India, Commissioner of Central Excise Customs and Service Tax.

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The right of appeal that is vested is to be governed by the law prevailing on the date of institution of the suit or proceeding and not by the law that prevailed on the date of its decision or on the date of filing of the appeal.

Facts:
The demand of service tax was confirmed against the petitioner who could prefer an appeal before the CESTAT ; however a pre-deposit of 7.5% of the tax amount is required to be made in view of the amended provisions effective from 06-08-2014.

Held:
The suit commenced in 2012 therefore the appeal to be filed would be governed by the statutory provisions as they stood prior to 06-08-2014. The Appellate Tribunal shall consider the application for waiver of pre-deposit, stay of recovery and thereafter proceed to hear the application in due course.

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Certain specified services exempted Notification No. 12/2015-Service tax-dated 30 04 2015

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By this Notification, the following services are exempted from whole of the service tax :
1) Services of life insurance business provided under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY);
2) Services of life insurance business provided under Pradhan Mantri Jan Dhan Yojana (PMJDY);
3) Services of general insurance business provided under Pradhan Mantri Suraksha Bima Yojana (PMSBY);
4) Services by way of collection of contribution under Atal Pension Yojana (APY).

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Definition of Chit Find removed Notification No. 13/2015-Service taxdated 19-05-2015

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The Central Govt. had withdrawn abatement in relation to Chit Fund vide Notification No. 8/2015 dated 1st March, 2015 & thereby made consideration received by Chit Fund fully taxable w.e.f. 01 04 2015. Now by this Notification, the Central Govt. has completely removed the definition given in the Principal Abatement Notification No. 26/2012 dated 20th June, 2012.

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Service tax rate of 14% applicable from 01-06- 2015 Notification No. 14/2015 – Service Tax- dated 19-05-2015

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Finance Minister while presenting the Budget, 2015 had increased the rate of service tax from 12.36 % to flat 14%. However, the date from which the new rate would be applicable was not announced. On 19th May, vide this Notification, Finance Ministry has announced that the new service tax rate of 14% will be applicable from 1st June, 2015.

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Effective date for mega exemption and abatement Notification No. 15 & 16 of 2015 dated 19-05- 2015

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By these notifications, effective date of applicability of amendments in the Mega Exemption Notification relating to services by way of job work on alcoholic liquors for human consumption; and Services by way of right to admission to exhibition of film, circus, dance or theatrical performances, sporting event, is notified as 1st June, 2015.

Further effective date of applicability of changes in abatement rates of Service Tax for Air Travel Agent, Life Insurance Business, Foreign Exchange Brokers and Distributor & Selling Agent of Lottery is also notified as 1st June, 2015.

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[2015-TIOL-633-HC-MUM-ST] Indokem Ltd. vs. The Union of India and ORS

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Under VCES, there is no provision whereby designated authority can undertake the task of bifurcating or computing the liability by showing a disparity in the figures of ST-3 returns and the declaration made.

Facts:
Petitioner provided its commercial premises on leave and license. The occupants challenged the levy of service tax on renting of immovable property service. On account of the ongoing litigation, the computation of liability was not in terms of the statutory provisions. Service tax liability of Rs 31,51,010/- was declared in the ST-3 returns filed and VCES declaration was filed for Rs 31,54,010/-. The declaration was rejected under the first proviso to section 106(1) of the Finance Act, 2013.

Held:
The Hon’ble High Court noted that as per section 106 of the Finance Act, 2013, any person can declare his tax dues in respect of which no notice or order of determination u/s. 72 or 73 or 73(a) has been issued before 01-03-2013. Provided if a return is furnished u/s. 70 disclosing true liability but the payment is not made in full or in part then such person would not be eligible for making a declaration. There is no provision which allows the authority to bifurcate or compute the liability by showing some differences between the ST-3 returns and the declaration filed and thus rejection of the scheme outright by the exercise undertaken was not permissible. The Writ Petition succeeded and the declaration was directed to be scrutinised in terms of the scheme and the rules made in this regard.

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15-TIOL-318-CESTAT-MUM] CCE vs. M/s Jay Iron & Steel Industries Ltd.

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As long as duty payment is accepted on output, benefit of credit cannot be denied on flimsy grounds like suspicion or presumption.

Facts:
The Respondent, a manufacturer availed CENVAT Credit on various inputs. CENVAT Credit was denied on the ground that the dealers did not supply any scrap but only issued invoices.

Held:
The Tribunal noted that the Respondent made full payment of duty indicated in the invoice by cheque, the transaction and the payments are properly recorded in the books of Account and therefore the onus under Rules 9(2), 9(3), 9(4) and 9(7) of the CENVAT Credit Rules, 2004 which requires to ensure that appropriate duty of excise on inputs paid was discharged. Further the suppliers were registered with the department and thus their identity and address were never in doubt and thus the benefit of CENVAT credit being a substantial benefit granted by law cannot be denied on flimsy grounds.

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[2015-TIOL-360-CESTAT-MUM] M/s. ABL Infrastructure Pvt. Ltd vs. CCE

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No infirmity in paying service tax under works contract (Composition Scheme) when a new contract was entered into on 05/06/2007 and the contract for construction was terminated on 31/05/2007.

Facts:
Appellants were executing the contract of Commercial or Industrial Construction Service. Due to dispute, the contract was terminated and thereafter fresh bids were evaluated and the contract was again awarded to the Appellants and a new contract was executed with effect from 05/06/2007. Various documents viz. tender documents; affidavits regarding the entire sequence of events were placed on record to establish that the work was executed under the new contract.

Held:
On verification of the documents, the Tribunal held that it is apparent that two contracts are different in factual details and thus it was concluded that a fresh contract was executed with effect from 05/06/2007 and thus there is no objection to classify the service rendered in this contract as Works Contract Service. It was also held that the Appellants are eligible for the composition scheme as paying service tax at the composition rate in the returns filed is enough indication and sufficient compliance with Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

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[2015] 53 taxmann.com 424 (New Delhi – CESTAT)-Commissioner of Central Excise, Delhi-I vs. Hero Honda Motors Ltd.

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CENVAT Credit on duty paid on mirror assembly, sari guard and tool kit used in manufacture of motorcycle are parts of motorcycle is allowed as these products are cleared along with the motorcycle.

Facts:
Assessee, a manufacturer of motor cycles, took CENVAT Credit of mirror assembly, sari guard and tool kit treating them as ‘inputs’. The Commissioner allowed the CENVAT Credit. The revenue filed the appeal on the ground that the said items are not used in or in relation to the manufacture of the motor cycle and therefore are not eligible to be called inputs as per the law prevailing prior to 01/03/2011.

Held:
Tribunal observed that, it is not disputed that all three impugned items are cleared along with the motor cycle and the value thereof is included in the assessable value of the motor cycle. The Tribunal relied upon the decision in the case of CCE vs. Honda Motorcycle & Scooter India (P.) Ltd. 2014 (303) ELT 193 (P&H) wherein it was held that the final product cannot be given restricted meaning so as to mean as the engine of the vehicle or the chassis but all things which are necessary to make the final product marketable. Thus, for motor vehicle, the tool kit and the first aid kit has to be part of the vehicle before the same can be put to use. Applying the said ratio in respect of sari guard and rear view mirror assembly, the Tribunal dismissed Revenue’s appeal.

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[2015] 53 taxmann.com 268 (New Delhi – CESTAT)-Coca Cola India (P.) Ltd. vs. Commissioner of Service Tax, Delhi.

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Where service tax is paid by service provider under one category of taxable service, the same cannot once again be demanded from service receiver, under RCM by changing the category of service.

Facts:
The appellant entered into a contract with an agreement with KPH Dream Cricket Pvt. Ltd. for sponsoring cricket team Kings XI Punjab. On the said contractual consideration, service tax was collected by M/s. KPH from the appellant and deposited with the Central Government under Business Auxiliary Service. However, revenue contended that the agreement between the parties falls under the category of sponsorship service and as such, the tax liability falls on the appellant under reverse charge basis.

Held:
The Tribunal observed that, in Hero Motocorp Ltd. vs. CST [2013] 38 taxmann.com 182, cricket has been held to be not covered by the sponsorship service. Further, the service tax on the same transaction already stands deposited by service provider under the category of Business Auxiliary Services. Demand of service tax in respect of the same transaction under a different category cannot be held justifiable.

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[2015] 53 taxmann.com 206 (New Delhi – CESTAT)- Jai Mahal Hotels (P.) Ltd. vs. Commissioner of Central Excise, Jaipur.

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Prior to 01/07/2010 – Renting of buildings used for purpose of accommodation including hotels, meaning thereby, renting of a building for a hotel, is not liable for service tax under “Renting of Immovable Property Services”.

Facts:
The assessee entered into a joint venture agreement with M/s. IHCL whereby the assessee was to lease its building for running hotel business therein and therefore to share the profits and losses alike. One of the issues for consideration before the Tribunal was whether the arrangement is taxable since under sub-clause (d) under Exclusions to Explanation-1 to section 65(105)(zzzz), a building or buildings used for hotels falls outside the purview of the taxable service. The lower authorities while taxing the transaction recorded a reasoning that, the legislative intent in respect of sub-clause (d) is explicit and clear, not to tax immovable property used (not meant) for accommodation which includes hotels; only the service of accommodation provided by a hotel is outside the purview of the taxable service.

Held:
The Tribunal held that the reasoning given by the lower authorities in taxing the transaction is fundamentally flawed. On a true and fair construction of provisions of the exclusionary clause under Explanation 1 to section 65(105)(zzzz); and in particular sub-clause (d) thereof, renting of buildings used for the purpose of accommodation including hotels, meaning thereby renting of a building for a hotel, is covered by the exclusionary clause and does not amount to an “immovable property”, falling within the ambit of the taxable service in issue.

Note: The above judgment is in respect of the period prior to 01/06/2010, i.e., before insertion of clause (v) in inclusion part of explanation 1 to section 65(105)(zzzz)

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2015 (37) STR 185 (Kar.) E. M. Mani Constructions Pvt. Ltd. vs. Union of India

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Writ petition cannot be entertained by High Court against a SCN issued by the authority against whom refund claim is filed.

Facts:
The petitioner had filed refund claim of service tax paid on exempted services by mistake. The appropriate authority issued a SCN directing the petitioner to show cause as to why the claim should not be declined and if found to be eligible, why the same should not be appropriated against the arrears of service tax. It was argued that the SCN was issued in a pre-conceived manner and no purpose would be served in relegating the petitioner to go before the authority since the grounds given in SCN indicated the minds of the authority.

Held:
Article 226 of Constitution of India cannot be invoked unless the High Court is satisfied that the SCN was totally non est in the eyes of law for absolute want of jurisdiction to investigate into the facts, writ petitions should not be entertained.

SCN do not impose any penalty but discloses the prima facie findings so as to afford an opportunity to the petitioner to put forth their contentions.

The petitioner has invoked the power of refund under a specific statutory provision. Therefore, theHigh Court refrained from interfering with the proceedings.

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2015 (37) STR 172 (All.) H. M. Singh and Co. vs. Commissioner of Customs, C. Ex. & Service Tax

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Penalty not leviable if service tax with interest paid before issuance of adjudication order.

Facts:
The appellants engaged in providing taxable services of “manpower recruitment and supply of agency services” was reimbursed provident fund in respect of manpower supplied and no service tax was discharged on this amount. It was contended that gross amount charged included provident fund component which was a statutory liability of service provider. Service tax with interest was paid before issuance of adjudication order. There was mass unawareness on the subject matter in view of various such notices floated by department. Whether the penalty u/s. 77 and 78 of the Finance Act, 1994 should be levied when they were under a bonafide belief regarding nonapplicability of service tax on reimbursement of provident fund amount, there was no case of fraud, collusion, wilful mis-statement or suppression of facts. Accordingly, the penalties should be dropped.

Held:
Having regard to the circumstances of the case and relying on the Hon’ble Supreme Court’s decisions in case of Anand Nishikawa Co. Ltd. 2005 (188) ELT 149 (SC) and Padmini Products 1989 (43) ELT 195 (SC), it was observed that there was no intention to evade tax, in view of payment of service tax with interest before issuance of adjudication order. Further, since the amount involved was trivial, the matter was not remanded back and was answered in favour of the appellants.

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2015 (37) STR 41 (Ker.) Kerala Non-Banking Finance Com vs. UOI

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Service Tax levy on equipment leasing and hire purchases upheld.

Facts:
The appellant, an association of non-banking financial companies have filed writ petition challenging the constitutional validity of section 137 of the Finance Act, 2001 by which Service Tax was introduced on “banking and other financial services” which includes ‘equipment leasing and hire-purchase’. It was contended that the Parliament has no authority to legislate on hire- purchase and leasing transactions since the State has such powers in this regard under Entry 54 of List II of seventh Schedule to the Constitution of India. After the 46th Constitutional Amendment and as per Article 366 29A (c) & (d), States were authorised to levy sales tax on hire-purchase and leasing transactions.

The transaction of leasing goods between the financier and the Hirer is almost similar to the hire purchase agreement. In case of leasing of goods, machinery/ other articles required by the lessee are identified and the purchase terms with the manufacturers/dealers are finalised. Thereafter, lessee approaches financier who advances the loan under the lease agreement executed. After finance is arranged, supplier raises invoice on the Financier and delivers the goods. While the financer continues to be the owner of the goods, lessee enjoys the right to use the goods and as and when installments of loan and other charges are paid, lessee either becomes owner or has option to purchase the goods by paying balance price.

Appellants have not denied that they were not collecting anything other than installments of loan and interest thereon and they were not collecting any charges for services rendered in the leasing arrangement. It was argued that the decision of the Supreme Court in BSNL’s case would be applicable in as much as levy of sales tax is possible on sale of goods involved in the transaction while service tax can be levied on the service charges received in the transaction.

Held:
The High Court after observing that a Hire purchase was for the vehicles and vehicles for this purpose were purchased from manufacturers/dealers after agreement between the Financers and price in part or full was advanced by the financier as a loan under agreement. Further, the vehicle was purchased in the name of the hirer and in the certificate of registration under the Motor Vehicles Act, hire purchase/hypothecation in favour of the financier was endorsed. Besides Appellants collected charges under various heads including interest etc. under hire purchase agreement.

Appellants could not deny or dispute that hire purchase agreement involves only sale of goods and no service was rendered by them. Admittedly they rendered services and service charges were also collected along with interest on loan advanced. In fact, hire purchase agreement between the financier and the hirer of the vehicle did not affect sales tax liability, whether it was payable at the point of sale of vehicle from the manufacturer or dealer to the financier or to the hirer or whether it was payable on delivery by the financier to the hirer under the Hire purchase agreement etc.

It was further observed that even if financier retained ownership under the hire purchase agreement, still sales tax was payable on delivery of vehicle. Therefore it was held that there was no conflict between the levy of sales tax on the sale/deemed sale of vehicle and the service tax payable on services rendered by the financier under the hire purchase agreement. Since interest was excluded through Notification, the incidence of service tax does not fall on interest on loan advanced.

Accordingly, the incidence of service tax was held to be not on sale/deemed sale of goods pertaining to leasing and hire purchase transactions covered by the said Article 366(29A) (c) and (d), the levy was upheld.

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2015 (37) STR 6 (Bom.) P C JOSHI vs. UNION OF INDIA

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Service Tax on legal services provided to business entities held to be constitutionally valid.

Facts:
Appellant, an advocate claimed to be affected by the service tax levy on advocates u/s. 65(105)(zzzzm) of the Finance Act, 1994. It was argued that they are engaged not only for aid and advice but also for appearance and representation of a case in the Court. Administration of justice, a sovereign and legal function of the State and Advocates were part of the same, could not be said to be rendering any services under the Act. Legal profession had not been understood as a profit making activity or venture. It was not a business or trade. It was a solemn duty which was performed for the litigants including the State who were major stakeholders in the judicial system. The levy of service tax imposed a heavy additional burden on litigants and also disabled them from approaching the Court. The amendment violated Article 14 of the Constitution as it discriminates between representation made on behalf of an individual and a business entity. The purpose to exempt representation and arbitration on behalf of individual seems to be to cater to the need of Article 39A of the Constitution. Equal treatment be given if the services are provided to Corporations/ Partnership firms.

Held:
The High Court after observing the amendment to the definition u/s. 65(105)(zzzzm) held that service tax was levied on Advocates providing service to business entity. However, service provided to individual by individual advocate continues to be exempted as legal advice, aid and assistance should be available to poor and needy section at lower cost In making this distinction, legislature was reasonable and did not overlook constitutional guarantee as envisaged in preamble and Article 14, 21 and 39A of Constitution of India. It was not a case where un-equals were treated equally. Such classification cannot be termed as arbitrary, discriminatory, unfair, unreasonable and unjust. As burden of service tax was on receiver of service and not on advocates, there was no violation of Article 19(1)(g) ibid. Also, Notification No. 25/2012 ST exempted services provided by individuals as advocate or a partnership firm of advocates by way of legal services to any person other than business entity or business entity with turnover up to Rs.10 lakh in preceding financial year. Hence small businessmen, petty traders and persons carrying on business in individual capacity would be able to afford services of individual of individual advocates or partnership firm of advocates.

Service tax on Advocates providing service to business entity does not mean that legal profession has been treated on par with commercial or trading activities or dealings in goods and services. Like any other service provider advocates are pushing themselves by rigorous marketing and advertisement, branding themselves as specialists in Corporate Law, Intellectual, Matrimonial and Family Laws, etc.

Notification No. 30/2012-ST shifting burden of paying service tax to litigants cannot be given retrospective effect because Legislature has decided to grant exemption and shift burden on to recipient from particular date, viz. prospectively and not retrospectively which does not mean that doctrine of equality has been violated. In matter of taxation-legislature has wide choice in taxation whereby it can include/exclude from tax bracket persons or classes of persons, decide cutoff date, and legislate retrospectively.

Accordingly, High Court dismissed the appeal and upheld the constitutional validity of service tax on legal service.

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[2015] 53 taxmann.com 24 (Calcutta)- McleodRussel (India) Ltd. vs. Union of India

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Security services provided by ASIF to tea
plantation estate owner whether amounts to “support services” liable
under RCM – High Court quashed the notice of demand but did not answer
the issue – leaves it for adjudication to decide following the
adjudication procedure u/s. 71 of the Act.

Facts:
The
Petitioners had tea plantation estates in the State of Assam located in
a disturbed and highly volatile area at which there was a constant
threat of damage to the estate. The consortium of owners of tea gardens
approached the Government of Assam for protection. A force-ASIF was
created by the Assam Government comprising of policemen as well as home
guards. The administrative control rested with the Director General of
Police and Commandant General of Home Guards, Assam. As per the MOU
signed with the Government, the force was deployed in the area to
protect planters and their property. The members of the force are
servants of the State of Assam. Their appointment, management,
discipline and pay are controlled by that State. It does not have power
to carry out any investigation. In case they detect the commission of
any cognisable offence they have to report it to the nearest police
station. For providing the service, the Assam Government charged a fee.
In other words, they ask the tea plantation owners to reimburse them of
the salary they have to disburse to the force. The Superintendent of
Service Tax wrote that the above service provided by the Assam
Government to the writ petitioner would be considered as a security
service and to be more specific a support service exigible to service
tax “in the hands of service receiver” and issued notice of demand.
Aggrieved by the same, Petitioners filed writ

Held
The
department contended that these personnel private security guards
provided by the State to the tea plantation owners for protection of
their persons and property and their functions were limited and
personalised. They had no police power or power of investigation. Hence,
it was “support services” provided by Government to business entity
liable under reverse charge in hands of the assessee. According to
petitioners, the service rendered are a part of the sovereign functions
of the State covered under list II entry1 of the 7th schedule to the
Constitution of India as the State has obligations to maintain law and
order, peace, prevention of crime in the tea growing and manufacturing
area of the State. Thus, discharging sovereign functions by the State
cannot be equated with providing support services by it. The High Court
observed that the basic foundation of the case that the force employed
by the State in the tea plantations discharges the sovereign function of
the State of maintaining peace and security in the region has not been
specifically denied in the affidavit-in-opposition filed by the
department and therefore the Court did not take into account any
statement made from the bar. On that basis, the Court held that, the
statement of the writ petitioner that the appointments to this force,
its management, control, finance, discipline etc., are regulated by the
Government is uncontroverted. That the nature of its function is to
protect the plantations and the personnel working therein against
unlawful acts is also uncontroverted. Therefore, prima facie there is
every indication that the service rendered by this force is sovereign
and hence not a “support service”.

The Court held that the value
of sovereign functions of a State is not taxable in the hands of the
citizens. Support services rendered by the Government are taxable.
Whether the service in question is taxable or not is a question of fact.
Leaving the matter to the judgment of the department to determine
whether the petitioner received support services or otherwise, the
notice was quashed and set aside. However, it was left open to the
department to adjudicate following an appropriate procedure as to the
matter being exigible to tax.

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[2015] 53 taxmann.com 445 (Chhattisgarh)- Union of India vs. Raj Wines.

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Reimbursement received for incentive paid on behalf of its principal by a commission agent, to various retailers selling products of its principal is not includible in value of BAS.

Facts:
The assessee was engaged in marketing and promoting various kinds of Indian Made Foreign Liquor (IMFL). It received consideration from the beer manufacturer under various heads like Primary Claim/Retail Scheme, commission, merchandise expenses, fixed office expenses, other expenses. Department was of the view that service tax be levied on the entire consideration received by the assessee under “Commission Agent” (Business Auxiliary Services). The Commissioner (Appeals) held that service tax would be levied only on commission. In department’s appeal before the Tribunal, it was held that assessee is also liable to pay service tax on merchandise expenses, fixed office expenses and certain part of the other expenses excluding expenses of registration and transportation. Department further preferred appeal before the High Court contending that amount received under the head Primary claim/Retailer scheme is also liable to service tax

Held:
The High Court held that the head of primary claim/retailer scheme is the amount which the service provider gave to retailers on behalf of manufacturer for achieving certain quota of sales. It was then reimbursed to it. Rule 5(2) qualifies the conditions under which fixed expenses or costs incurred by the service provided is to be excluded. It was observed that Commissioner (Appeals) after discussing the material on record recorded a finding that this was the expense that was done by the assessee as a pure agent and this finding has also been upheld by the Tribunal. Therefore, Revenue’s appeal was dismissed.

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[2015] 53 taxmann.com 209 (Rajasthan)-Union of India vs. Hindustan Zinc Ltd.

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CENVAT – Cement used for the purpose of building construction, cannot be said to be an input – foundation made of cement does not fall under the category of “capital goods”.

Facts:
Assessee, a manufacturer took credit of inputs namely, cement, explosive, lubricant oil and grease used in mining area treating them as inputs. Department argued that cement was used by assessee for purpose of filling gaps in form of cut and fill for excavation of ores; and obviously, cement had been used as a construction material so as to provide safety to roof of mining area and was, therefore, ineligible for credit

Held:
The High Court observed that the matter is squarely covered in favour of the revenue in the case of Union of India vs. Hindustan Zinc Ltd. 2008 (225) ELT 183 (Raj) where it was held that cement, being a building material used for the purpose of building construction, cannot be said to be an input used for manufacturing of final product and hence, no CENVAT Credit is available so far the cement is concerned. Further, that the foundation made of cement does not fall under the category of “capital goods” in terms of Rule 2(b) of the Rules of 2002; and therefore cement cannot be said to be ‘inputs’ in terms of Explanation-II to Rule 2(g) of the Rules of 2002. Relying upon the same, department’s appeal was allowed.

Note: Readers may also read decision in the case of Lloyds Metal & Engineering Ltd. vs. CCE 2008(226) ELT 599 (Mum- Tri) in which the above judgment of Hindustan Zinc 2008 225 ELT 183 is distinguished interalia on the ground that the issue of eligibility to CENVAT Credit on steel and cement themselves as capital goods being component or accessories or spare parts of specified capital goods was not under the consideration of the High Court. Also Refer CCE vs. APP Mills Ltd. 2013 (291) ELT 585 (Tri- Bang.) distinguishing Vandana Global Ltd vs. Commissioner 2010 (253) ELT 440 (Tri- LB)

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[2015-TIOL-408-HC-MUM-ST] Maharashtra State Electricity Distribution Company Ltd vs. Commissioner of Central Excise, Pune-III

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Delay of 579 days in filing appeals before CESTAT on the ground of depleted staff strength condoned upon imposition of costs.

Facts:
Appellant, a Government department had vacancy in the position of Junior Manager and there was none attending to the files pertaining to accounts and financial matters. On appointment of a competent officer appeal was filed before the CESTAT .

Held:
The Hon’ble High Court held that Government departments are working with depleted staff strength and vacancy in the post of Finance and Accounts Manager being a vital factor, delay in filing appeals condoned upon imposition of cost.

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Nature of Lease Transaction, contradictions

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Introduction
By deeming clause in
Article 366 (29-A) of the Constitution, the transaction of “Transfer of
Right to Use Goods” (Lease transaction) are made taxable under Sales Tax
Laws. The nature of lease transaction is not defined in the
Constitution or in any Act. The interpretation is done in light of
various judicial pronouncements.

Important judgment on interpretation on nature of lease transaction
Though there are several judgments, reference can be made to the followings:

Bharat Sanchar Nigam Ltd .(145 STC 91)(SC)
The
issue in this case was about levy of lease tax on services provided by
Telephone Companies. The Supreme Court held that no sales tax is
applicable as the transaction pertains to service. While holding so, one
of the learned judges on the Bench, observed as under in para 98 about
taxable lease transactions:

“98. To constitute a transaction for
the transfer of the right to use the goods the transaction must have
the following attributes:

a. There must be goods available for delivery;
b. There must be a consensus ad idem as to the identity of the goods;
c.
The transferee should have a legal right to use the goods –
consequently all legal consequences of such use including any
permissions or licenses required therefore should be available to the
transferee;
d. For the period during which the transferee has such
legal right, it has to be the exclusion to the transferor – this is the
necessary concomitant of the plain language of the statute – viz. a
“transfer of the right to use” and not merely a licence to use the
goods;
e. Having transferred the right to use the goods during the
period for which it is to be transferred, the owner cannot again
transfer the same rights to others.”

Based on above parameters,
there are further judgments at various forums where the nature of lease
transaction is decided. Reference can be made to following judgments:-

Smokin’ Joe’s Pizza Pvt. Ltd . (A 25 of 2004 dt.25.11.08)(MSTT)
The
facts in this case were that the dealer was holding the registered
Trade mark “Smokin’Joe’s” and allowed its use to its franchisees. The
franchise agreement provided for non exclusive right to use the
registered Trade mark. The agreement also provided for providing various
services to Franchisee. The lower authorities held the transaction as
taxable lease transaction. The Tribunal held that it is not a lease
transaction as it is not exclusive. This judgment is now before the
Bombay High Court by way of Reference.

Malabar Gold Pvt. Ltd . vs. Commercial Tax Officer, Kozhikode (58 VST191)(Ker)
This
judgment is of the Kerala High Court. In this case also, the
transaction was about granting of franchise right on non-exclusive
basis. The Hon. High Court has held that when the grant of franchise is
non exclusive it is not lease transaction and not liable to VAT.

On the other hand, there are a few contrary judgments as discussed below:

Nutrine
Confectionery Co. Pvt. Ltd. vs. State of Andhra Pradesh (40 VST
327)(A.P). In this case, the transaction was for allowing use of the
trade mark. The said use was also on non-exclusive basis. Still, the
Hon. A.P. High Court has held that the transaction is a lease
transaction. The Hon. High Court felt that the judgment of BSNL about
exclusive use cannot apply in relation to intangible goods like trade
mark.

Latest Judgment of THE Hon. Bombay High Court
Latest
in the series, there is a judgment from the Bombay High Court in case
of Tata Sons Ltd. vs. State of Maharashtra (W.P.No.2818 of 2012 with
Notice of Motion (L) No.214 of 2013 dt.20.01.2015).

In this
case, the use of brand name was allowed on nonexclusive basis. Before
the Hon. Tribunal, judgments including in case of Smokin’ Joe’s was
relied upon for nonliability. However, the Tribunal has confirmed the
liability. Therefore, this matter came up, before the Hon. Bombay High
Court, on behalf of the assessee. After referring the facts and various
judgments including in case of BSNL, the Hon. Bombay High Court has held
that even if use of right is given on non-exclusive basis, still it
will be a lease transaction. The observations of the Hon. Bombay High
Court are as under:

“50. Para 98 is relied upon by Mr. Chinoy.
However, that cannot be read in isolation and out of context. It must be
read in the backdrop of the underlying controversy, namely,
relationship between a telephone connection service provider and its
customer. Such a transaction is essentially of service.

51. It
is in relation to such a controversy that the observations, findings and
conclusions must be confined. We do not see as to how they can be
extended and in the facts and circumstances of the present case to the
enactment that we are dealing with. Going by the plain and unambiguous
language of the Act of 1985, we cannot read into it the element of
exclusivity and a transfer contemplated therein to be unconditional.
Therefore, the tests in para (d) and (e) cannot be read in the Act of
1985. 58. We are of the opinion that the Tribunal did not act perversely
or committed an error apparent on the face of record in rejecting the
petitioner’s appeals. May be the Tribunal could have rendered a detailed
finding and conclusion. However, upon perusal of the order passed by
the Tribunal we find that it referred to the facts. It has also adverted
to the contentions of the parties. It also referred to its own
conclusions rendered in the case of M/s. Smokin’ Joe’s etc. However, it
concludes that the facts and circumstances in the present case are not
identical to the cases dealt with by it and of the above franchisees. We
do not express any opinion as to whether the Tribunal’s conclusions in
the case of M/s. Smokin’ Joe’s (supra) and M/s. Diageo India (supra) are
accurate or correct. We are informed that separate proceedings in that
regard are pending in this Court. However, the Tribunal did not err in
holding that the cases which have been dealt with by it including the
Supreme Court judgment in the case of BSNL (supra) are on distinct
facts.”

Conclusion
Thus, the controversy is
increasing day by day. There is uncertainty in the mind of assessees as
to which is the correct tax applicable, whether service tax or VAT. In
fact, this has led to double taxation ultimately resulting in enhanced
cost to the assessees and correspondingly to the consumers. It is
expected that finality be brought to the above burning issue either by
legislative interference or by judgment of the Hon. Supreme Court.

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Reckitt Benckiser India Pvt. Ltd vs. State of Assam and Others, [2012] 56 VST 452 (Gauhati)

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VAT- Entry in Schedule-Rate of Tax- Sale of Harpic and Lizol – Falls Under Pesticides – Sale of Dettol- Falls Under Drugs and Medicine- And Not As Toilet Articles, Entries 1 of Sch. I, 19 of Part A of Sch. II and 21 of Sch. IV of The Assam Value Added Tax Act, 2003

Facts
The petitioner company engaged in the business of various household products, sold “Harpic and Lizol”; “Dettol” and paid tax @ 4% being covered by schedule entries relating to pesticides and drugs and medicine respectively. The vat authority in assessment levied higher rate of tax of 12.5% being covered by residual entry. The petitioner company filed writ petition before the Gauhati High Court against the impugned assessment order.

Held
The products “Harpic and Lizol” are admittedly disinfectants. By giving broader meaning of the term pesticides, disinfectants which primarily kill germs and bacteria would be covered within the meaning of “pests” and therefore liable to tax @ 4% under entry 19 of Pat A of Schedule II relating to pesticides. As regards sale of “Dettol” the High Court held that the main purpose of use of “Dettol” is to prevent infections which may occur due to minor cuts, injuries, abrasions, grazes, insect bites, etc. Thus by applying “users test”, it would be squarely falling under the definition of “Drugs’ as defined in Drugs and Cosmetics Act, as well as under the definition of Section of the Medicinal and Toilet Preparations (Excise Duty ) Act, 1955. The “Dettol” cannot be considered to be a cosmetic substance because the purpose of use of “Dettol” is to prevent infection and for sanitation because of its therapeutic and prophylactic properties. Accordingly, it was held as “Drugs and Medicine” covered by the entry 21 of the Schedule IV of the act and will not fall within the excluded category relating to cosmetic and toilet preparations under the Explanation. The High Court accordingly allowed the writ petition filed by the petitioner company and set aside the assessment orders passed by the department with direction to take consequential actions in accordance with law.

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State of Tamil Nadu vs. Steel Authority of India, [2012] 56 VST 441 (Mad)

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Central Sales Tax Act-Sale in Course of Import – Contract for Supply of Coin Blanks to Government of India – Not Occasioned Import of Goods In to India – Where Under Another Independent Contract Coin Blanks are Converted and Supplied By Foreign Supplier to the respondent – In turn Supplied To Government of India Under Independent Contract – Not Exempt from payment of Tax, section 5(2) of The Central Sales Tax Act, 1956 M/S. Cheema Paper Ltd. vs. Commissioner Trade Tax, (2012) 55 VST 473 Entry Tax- Rate of Tax – Duplex Board – Ordinarily Used As Packing Material-Made out of Paper – Not Covered by Entry “ Paper of All Kinds”, section 4 of The Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007

Facts
The respondent company entered into a contract with foreign supplier for conversion of still strips to blank coins at Italy. Thereafter, the company entered in to contract with Government of India for manufacture and supply of blank coins. The company claimed sale, to the Government of India, of blank coins as sale of goods in the course of import and exempt from payment of tax u/s. 5(2) of The Central Sales Tax Act, 1956. The Tribunal allowed the appeal against which the tax department filed a writ petition before the Madras High Court. 

Held
In order to earn exemption from payment of tax as sale in the course of import of goods into India u/s. 5(2) of the Central Sales Tax Act, the goods must move from the foreign country to India in pursuance of condition of contract of sale between the foreign supplier and the local purchaser. In present case, the goods were imported from foreign country in pursuance of the contract between the foreign supplier and the first respondent. A conjunct reading of both agreements would make it clear that these two agreements are independent to one another and are different entities. The first respondent entered in to these agreements for import of goods for its own purpose and there is no privity of contract between the local purchaser, the Government and the foreign seller. Therefore the sale of goods by the respondent company to the local purchaser i.e. the Government of India is not exempt from payment of tax as sale in the course of import under section 5(2) of the act. The High Court accordingly allowed the writ petition filed by the department and the order of the Tribunal allowing the claim was set aside.

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M/S. National Aluminum Company Ltd. vs. Deputy Commissioner of Commercial Taxes, Bhubaneswar III, Circle, Khurda, [2012] 56 VST 68 (Orissa)

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VAT- Input Tax Credit- Purchase of Coal, Alum,
Caustic Soda etc.- Used in Generation of Power- Used for Manufacturing
of Goods- Are Input- Eligible for Input Tax Credit, sections 2(25),(26),
(27), 17,20(8)(k),42 and 43(2) of The Orissa Value Added Tax Act, 2004

Facts
The
petitioner a Central Government public sector undertaking filed VAT
returns under the Orissa Vat Act and claimed input tax credit in respect
of tax paid on purchase of coal, alum, caustic soda, consumables used
on its captive power plant for generation of electricity which in turn
is used in continuous process of aluminum. The vat department in
assessment disallowed the input tax credit claimed by the company on
purchase of such goods that are used for generation of electricity,
which itself is a final product and exempt from payment of tax, and as
such no input tax credit is available under the act. The Company filed
writ petition before the Orissa High Court against such assessment
order.

Held
U/s. 17 of the act sale of goods
specified in Schedule A is exempt from payment of tax. Sale of
electricity appearing in item no. 13 of Schedule A is exempted from
payment of vat under the act. Consequently, no input tax credit is
allowed on purchases of input used in producing or manufacturing of
electrical energy in terms of section 20(k) of the act. Admittedly, the
company is not selling electrical energy but has used it in
manufacturing aluminum which is taxable under the act. Under the Act,
input tax credit is available on purchase of inputs either for resale or
for use in execution of works contract, or for manufacture and
processing against the output tax payable on sale of any taxable goods.
Power/energy is one of the primary and essential commodities which has a
direct relation in the manufacturing process. The purchase of inputs
used in generation of electrical energy which in turn is used for
manufacturing of aluminum taxable are “input” as defined in section
2(25) of the act and tax paid on purchases thereof is eligible for input
tax credit against output tax payable on sale of aluminum etc.

Accordingly,
the High Court allowed the writ petition filed by the company and
quashed the assessment order disallowing input tax credit on purchase of
such inputs.

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2015 (37) STR 238 (Tri.-Mum.) Commissioner of Service Tax, Mumbai vs. Toyo Engineering Corporation Ltd.

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Interest to accrue till the date of debit in CENVAT Credit Account notwithstanding balance lying in CENVAT Credit Account on due date.

Facts:
The respondents discharged service tax liability by way of utilisation of CENVAT Credit. However, debit in CENVAT Credit account was done belatedly. The department demanded interest for the period of delay vide section 75 of the Finance Act, 1994 from the due date for payment of tax to the actual payment of tax i.e. till the date of debit in CENVAT Credit Account. It was argued that there was sufficient balance in CENVAT Credit Account and only debit entry was passed belatedly. Accordingly, interest liability should not arise.

Held:
It was held that tax can be paid either in cash or by debiting in CENVAT Credit account or by both. If the tax is paid through CENVAT Credit, the date of debit in the CENVAT account should be considered to be the date of payment. Therefore, interest arises from the due date of payment of tax to the actual date of payment, i.e., the date of debit in CENVAT Credit Account in the present case.

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2015 (37) STR 286 (Tri.-Mum) Commissioner of Service Tax, Mumbai – I vs. Vodafone India Ltd.

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Telecom services provided to international
roamers travelling in India should be treated as export of services vide
Export of Service Rules, 2005.

Facts:
The
respondents provided roaming facility to international roamers
travelling in India. Whether the services were export of services in
terms of Export of Service Rules, 2005 or not.

Held:
It
was undisputed fact that the respondents provided services to customers
of foreign service provider and the consideration was received in
convertible foreign currency and therefore, following the ratio of
Tribunal’s own decision in respondent’s case (2013) 33 taxmann. com 358
(Mumbai-CESTAT ) and earlier precedents on the subject matter, service
tax paid in respect of such transactions was allowed.

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2014 (36) STR 1122 (Tri.-Mumbai) Ballarpur Industries Ltd. vs. Commr. Of C. Ex., Pune-III.

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Input services upto port of export are eligible for availment of CENVAT Credit since port is “place of removal” in case of exports.

Since issue of CENVAT Credit is highly disputed and subject to different interpretations by various Courts, penalties cannot be levied.

Facts:
CENVAT Credit in respect of certain input services was disallowed contending that the services were not related to business. The appellant contended that CENVAT Credit of travel agents services, courier services and insurance services was allowed by the Tribunal in its own case vide Final Order Nos. A/74 to 78/2011/SMB/C-IV & 23 to 27/2011/SMB/C-IV dated 10/12/2010. With respect to catering services, it was agreed to reverse proportionate credit to the extent the amounts were recovered from its employees and compliance report regarding such reversal was stated to be filed before the concerned adjudicating authority with a copy to the Tribunal. Relying on various judicial pronouncements, it was contested that construction services, travel, car services, catering services and clearing & forwarding agency services, were related to the business. Airport services, CHA services and port services were received for export of goods and port being the place of removal in case of exports, these services squarely qualify as eligible input services to claim CENVAT Credit.

Replying on the decision of the Calcutta High Court in case of Vesuvious India Ltd. 2014 (34) STR 26 (Cal), the department argued that only services upto the place of removal were eligible input services.

Held:
Courier services, storage & warehousing services, maintenance of xerox/fax machines and telephone services were related to the business of the appellants and service tax paid thereon was eligible CENVAT Credit. Security services were covered in the inclusive limb of the definition of input services. Since the factory of the appellants was located in a remote area, the said services were required for smooth running of the industry and therefore were allowed.

As the appellants did not press any grounds with respect to insurance services and servicing of motor vehicles, CENVAT Credit on these services was disallowed. Since complete facts were not known to the Adjudicating Authority regarding transport services, disallowance on ad hoc basis was held against natural justice and having regard to the contention of the appellants that transport services were mainly used to transport finished goods to its dealers, the matter was remanded back. In case of export, port is the place of removal. Accordingly, airport services, CHA services and port services were eligible input services. Since issue of CENVAT Credit is highly disputed and subject to different interpretations by various Courts and in absence of malafides, penalties were set aside.

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2014 (36) STR 1083 (Tri. – Del.) Tulip Global Pvt. Ltd. vs. Commissioner of Central Excise, Jaipur-I

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Adjudicating Authority is duty bound to respond to the request of assessees for extension for filing reply to SCN, specifically when the assessee appeared at each personal hearing.

Facts:
The appellants had asked repeatedly for extension to file reply to SCN on account of change in counsel and also in order to procure orders passed by other Authorities in respect of their distributors. During personal hearings, they appeared and prayed for extension of time. The Adjudication Authority, without accepting or rejecting their requests, passed ex parte order.

Held:
The Tribunal observed that as per recording of personal hearing, the appellants appeared and requested for extension of time to file reply to SCN. There was nothing on record regarding acceptance or rejection of such request from the Adjudicating Authority. If the assessee appears at each hearing and requests for extension of time, Adjudicating Authority is under a legal obligation to respond to the said request either by extending the period or by rejecting the request. Noncommunication regarding such request may be regarded as acceptance by the assessee. Since in the present case, principle of natural justice was violated, the matter was remanded back for fresh adjudication after providing reasonable opportunity of hearing.

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2014 (36) STR 1054 (Tri. Del.) Bharat Sanchar Nigam Ltd. vs. Commissioner of C. Ex., Jaipur

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Sanctioned refund cannot be adjusted against unconfirmed demand.

Facts:
The Appellant was given a SCN proposing rejection of refund claim. Thereafter, a corrigendum was issued to the effect that CENVAT Credit on capital goods was also liable to be rejected as it was availed based on a document issued by their Head Office which was not a registered dealer. Ultimately, refund was sanctioned of excess amount paid after deducting CENVAT Credit claimed on capital goods. Commissioner (Appeals) also upheld such adjustment of unconfirmed demand. Accordingly, present appeal was made before Tribunal.

Held:
Tribunal observed that the Assistant Commissioner had sanctioned entire refund claim and thereafter, deducted unconfirmed demand. Further, no Show Cause Notice was issued for inadmissibility of CENVAT Credit. The corrigendum could not take colour of a SCN u/s. 73 of the Finance Act, 1994 since it is neither mentioned that it was issued u/s. 73 nor did it contain any grounds to state that the demand was not hit by time bar. It merely stated that the said amount appeared to be not admissible and straightaway called upon to show cause as to why the refund claim should not be rejected.

Accordingly, the Tribunal held that confirmed demand can be adjusted from refund amount but there was no legal authority to adjust unconfirmed demand from refund amount.

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2015-TIOL-193-CESTAT-MUM Kala Mines and Minerals vs. CC,CE & ST.

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Once the appeal is filed by paying pre-deposit amount of 7.5% of the tax demand in terms of section 35F of CEA, 1944 and appeal is pending before the Tribunal, there was no need for freezing the bank accounts

Facts:
The Appellant complied with the provisions of section 35F of the Central Excise Act, 1944 while filing appeal. DGCEI wrote a letter to the bankers of the Appellant to remit the amounts lying with the bank to the Government exchequer, in pursuance to which, the bankers froze the bank accounts.

Held:
In our considered view and as also statutorily once mandatory deposit of 7.5% is made, there is no reason for recovery of any further amount from the appellant and the action of the Dy. Director, DGCEI seems to be beyond the scope of law.

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2015-TIOL-313-CESTAT-MUM M/s. Lamour Advertising Agency vs. CCE

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SCN should not be issued when service tax was paid along with interest on pointing out since there is no case for penalty.

Facts:
During the course of Audit of the Appellant, discrepancy was noticed between the turnover in the balance sheet and the ST-3 Returns. On being pointed out the entire amount along with interest was paid. Show Cause Notice was issued for imposition of penalty u/s. 73(3) of the Finance Act, 1994. The Commissioner Appeals confirmed the demand hence the appeal before the Tribunal.

Held:
The Tribunal noted that the discrepancy is only because of the accounting system while the balance sheet was prepared on a mercantile basis, the payment of service tax was on receipt basis. Therefore, there was neither short payment nor any intention to avoid payment of duty. Further, Show Cause Notice should not have been issued when the service tax was paid within a week on being pointed out.

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Amendments to various Acts administered by the Sales Tax Department and notifications issued there under.

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Trade Circular 6T of 2015 dated 14.5.2015

Commissioner of sales tax has issued circular clarifying recent amendments

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Online grant of registration under the Maharashtra Value Added Tax Act, 2002 and Central Sales Tax Act, 1956.

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Trade Circular 5T of 2015 dated 6.5.2015 & 7T of 2015 dated 19.5.2015

Procedure of Online registration under Maharashtra Value added Tax Act and Central Sales Tax act explained in the given circular in detail now no need to visit sales tax office for submission of documents and even for photo signature, all the documents can be scan and upload if all documents are in order registration number will be communicated through email and registration certificate will be sent by post.

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Combined Application for New Registration under the MVAT, CST and PT Acts

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Trade Circular 4T of 2015 dated 9.3.2015.

To simplify the procedure of registrations, a single application under MVAT /CST & P.T.ACT is made available from 9.3.2015. Procedure for the same has been explained in this Circular. Utility to upload relevant documents for registration may be deployed soon on the website.

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Trade Circular 3T of 2015 dated 9.3.2015

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Detailed procedure to submit physical returns explained in this Circular for Dealers under the Luxury Tax Act & Sugarcane Purchase Tax Act in which taxes are paid electronically through GRAS. Professional Registration Certificate holders (PTRCs) file their returns electronically so for them no change in procedure.

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Circulars :

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Procedure for submission of returns under Profession Tax, Luxury Tax and Sugarcane Purchase Tax Act -after making Payment through GRAS

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Simplification of Registration Procedure

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Order No. 1/2015-Service Tax- dated 28 02 2015

CBEC, vide this order specified the documentation, conditions, time limits and procedure for registration of single premises under service tax and it has also been prescribed that henceforth the registration for single premises shall be granted within 2 days of filing of application. This order will be effective from 1st March, 2015.

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Notification under Sch. Entry C-70-Paper VAT 1515/CR 39(2)/Taxation-1 dated 27.3.2015

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Govt. of Maharashtra has notified goods which are covered under Schedule Entry 70 of Schedule C – Paper with effect from 1.4.2015.

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Circular 183 / 02 / 2015-ST dated 10.04.2015

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By this Circular, it has been clarified that the rate of service tax will be 12.36% and not 14% on the value of taxable services provided post 01.04.2015. The rate will change from the date notified by the Central Government after the enactment of the Finance Bill, 2015.

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Notification 11/2015 dated 08.04.2015 Benefits linked to Service Export from India Scheme (SEIS) under FTP 2015-2020)

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This Notification provides exemption to taxable services provided or agreed to be provided against Service Exports from India Scheme [SEIS] duty credit scrip issued to an exporter by the Regional Authority in accordance with paragraph 3.10 read with paragraph 3.08 of the Foreign Trade Policy.

The exemption can be availed if following conditions are complied:
1. T he duty credit in the said scrip is issued to a service provider located in India against export of notified services listed in Appendix 3D of Appendices and Aayat Niryat Forms of Foreign Trade Policy 2015-2020;

2. T he imports and exports are undertaken through the seaports, airports or through the inland container depots or through the land customs stations as mentioned in the Table 2 annexed to the Notification No. 16/2015- CUS (N.T.) dated 01.04.2015 or a Special Economic Zone notified u/s. 4 of the Special Economic Zones Act, 2005 (28 of 2005):

Provided that the Commissioner of Customs may within the jurisdiction, by special order, or by a Public Notice, and subject to such conditions as may be specified by him, permit import and export through any other sea-port, airport, inland container depot or through any land customs station.

3. Accordingly, the person claiming exemption benefit should be registered with the customs authorities and should provide services in the taxable territory.

4. The benefit of the scrip would be given after taking into consideration the benefit already availed under Notification 25/2012.

5. T he holder of the scrip presents the scrip debited by the said Customs Authority within thirty days to the said Officer, along with an undertaking addressed to the said Officer, that in case of any service tax short debited in the scrip, he shall pay such service tax along with applicable interest, based on which the officer shall verify and validate.

6. T he said holder of the scrip shall be entitled to avail drawback or CENVAT credit of the service tax so paid by way of debiting the duty scrip duly validated by the said Officer.

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Notification 10/2015 dated 08.04.2015 Benefits linked to Merchandise Export from India Scheme (MEIS) under FTP 2015-2020

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This Notification provides exemption to taxable services provided or agreed to be provided against Merchandise Exports from India Scheme [MEIS] duty credit scrip issued to an exporter by the Regional Authority in accordance with paragraph 3.04 read with paragraph 3.05 of the Foreign Trade Policy.

The exemption can be availed if following conditions are complied:

1. T he duty credit in the said scrip is issued against –
a. exports of notified goods or products to notified markets as listed in Appendix 3B of Appendices and Aayat Niryat Forms of Foreign Trade Policy 2015-2020 ;
b. exports of notified goods or products transacted through e-commerce platform as listed in Appendix 3C of Appendices and Aayat Niryat Forms of Foreign Trade Policy 2015-2020. In such cases the maximum free on board value, for calculation of duty credit amount, shall not exceed Rs. 25,000 per consignment.

2. The export categories or sectors specified in paragraph 3.06 of the Foreign Trade Policy and listed in Table annexed to Notification 24/2012 – CUS (N.T.) dated 08.04.2015 shall not be counted for calculation of export performance or for computation of entitlement under the Scheme.

3. T he imports and exports are undertaken through the seaports, airports or through the inland container depots or through the land customs stations as mentioned in the Table 2 annexed to the Notification 16/2015- CUS (N.T.) dated 01.04.2015 or a Special Economic Zone notified under section 4 of the Special Economic Zones Act, 2005 (28 of 2005)

4. Accordingly, the person claiming exemption benefit should be registered with the customs authorities and should provide services in the taxable territory.

5. The benefit of the script would be given after taking into consideration the benefit already availed under Notification 24/2012.

6. T he holder of the scrip presents the scrip debited by the said Customs Authority within thirty days to the said Officer, along with an undertaking addressed to the said Officer, that in case of any service tax short debited in the scrip, he shall pay such service tax along with applicable interest, based on which the officer shall verify and validate.

7. T he said holder of the scrip, shall be entitled to avail drawback or CENVAT credit of the service tax so paid by way of debiting the duty scrip duly validated by the said Officer.

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[2015] (37) STR 377] (Tri.-Mumbai) GTL Infrastructure Ltd. vs. Commissioner of Service Tax, Mumbai

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CENVAT credit is admissible on towers and cabins used as Passive Telecom Infrastructure for providing output service.

Facts:
Appellant is engaged in creating “Passive Telecom Infrastructure” to be used by Cellular Telecom Operators to provide their “Cellular Telephony Services” and the operations and maintenance thereof, taxable under business auxiliary services. Department objected to availment of CENVAT credit on the parts of Towers, Cabins etc. used for providing Passive Telecom Infrastructure.

Held:
The Tribunal observed that Rule 2(k)(ii) of the CENVAT Credit Rules,2004 is relevant as the Appellant id providing output service and Rule 2(k)(i) of the CENVAT Credit Rules,2004 and the Explanation-2 to the said rule are not relevant as it deals with manufacturing. The Appellant is providing a Business Auxiliary service to the cellular operators by creating a passive infrastructure for the transmission of signals and by virtue of Rule 2(k)(i) which allows CENVAT credit on all goods, except petrol and motor vehicles, used for providing any output service, the CENVAT credit is allowed.

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State of Uttarakhand and Others vs. Nestle India Ltd., (2012) 55 VST 145 (Uttarakhand)

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VAT- Rate of Tax-Entry in Schedule-Tomato Sauce-Is Processed Vegetables-Taxable at Four Percent, Entry 6 of Sch. II (B) of The Uttarakhand Value Added Tax Act, 2005

Facts
The respondent company had paid tax @ 4% under the Uttarakhand Vat Act on sale of tomato sauce being all kinds of processed vegetables and covered by entry 6 of the Schedule II(B) of the Act. The assessing authority levied tax of 12.5% based on circular issued by commissioner clarifying rate of tax on sale of tomato sauce as 12.5%. The company filed writ petition before the Uttarakhand High Court against the assessment order and the single judge allowed the writ petition filed by the company and quashed the circular and directed that the rate of 12.5% should not be recovered from the company on sale of tomato sauce. The revenue filed appeal before the division bench of High Court against the judgment of single judge.

Held
Under entry 6 of Schedule II(B), tax is payable at 4% on sale of all processed and preserved vegetables, vegetable mushrooms and fruits including fruit jams, jellies, fruit squash, paste, fruit drinks and fruit juices and achar (whether in sealed container or otherwise). Botanically, the tomato is a fruit but for the purpose of trade it is classified as a vegetable. It is common that tomatoes are widely used as canned vegetable in the form of juice, sauces, pastes and ketchup. Tomato sauce refers to tomato concentrate with salt, pepper, onion/garlic, sugar, spices and preservatives. It is a processed item, normally marketed in bottles and Cannes before being served as a dish. The tomato sauce being a processed and preserved vegetable is covered under entry 6 of schedule II(B) of the act liable to tax @ 4%. Accordingly, the High Court dismissed the appeal filed by the revenue and confirmed the order of single judge.

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M/S. ABB Ltd vs. Commissioner, Delhi VAT, (2012) 55 VST 1 (Delhi)

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Inter-State Sale – Works Contract-Manufacture of Goods outside the State- Used In Works Contract-Transaction of Inter-State Sale.

Sale In Course of Import- Works Contract- Import of Goods- As Approved by Employer- Used In Contract- Sale in Course of Import- Not Taxable, sections 3 and 5(2) of The Central Sales Tax Act, 1956

Facts
The appellant a Public Ltd. Company was awarded indivisible works contract for supply, installation, testing and commissioning of traction, electrification, power supply, power distribution and SCADA systems for Delhi Metro by Delhi Metro Rail Corporation (DMRC). The company manufactured certain goods required for the projects outside the State of Delhi and used in execution of works contract. Likewise, the company imported certain goods required for the projects and used in execution of works contract. The company took approval of the DMRC for purchase of goods as stipulated in the contract. The company while filing vat returns under the Delhi Vat Act claimed the exemption form payment of the tax on sale of goods purchased from outside the State of Delhi being inter-State sale not liable to tax under the Delhi Vat Act. Likewise it claimed exemption form payment of tax u/s. 5(2) of the CST Act in respect of sale of goods imported under the contract being sale in the course of import. The vat department rejected the claim of company both as inter-State sale as well as sale in the course of import and levied tax under the Delhi Vat Act. The company filed appeal before the Delhi High Court against the judgment of the Tribunal confirming the assessment order.

Held
On the facts of the case the High Court held that in the present case, there was a live and conceivable link between the sale and movement of goods. The goods were custom made. The DMRC was aware that the goods were to be sourced from the appellant’s factories which were outside Delhi. The reference to specific locations, in the list issued by DMRC, in respect of particular equipment which were integral to the contract. Accordingly, the High Court held the transaction as inter-State sale and not liable to tax under the Delhi Vat Act.

In respect of import of goods the High Court considering various conditions in the contract held that the transaction was a sale in the course of import exempt u/s. 5(2) of the CST Act. The High Court allowed the appeal filed by the Company.

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2014] 48 taxmann.com 11 (New Delhi – CESTAT) (LB) Great Lakes Institute of Management Ltd. vs. CST

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Larger Bench explains interpretation of “commercial training or coaching” u/ss 65(26), 65(27) in the light of reasons recorded in the decision of Magnus Society’s case. Effect of explanation appended to section 65(105)(zzc) with effect from 01-07-2003 also commented upon.

Facts:
This reference application was made to consider the issue pertaining to interpretation of “commercial training or coaching” and taxable service u/s. 65(105)(zzc) since the division bench expressed doubts on vitality of reasons recorded in the decision of Magnus Society vs. CC&CE [2009] 18 STT 193 (Bang- CESTAT) which tried to make a distinction between activities of an institution imparting a particular skill such as in computers, computer operations, spoken English or accountancy on one hand and a proper format of education imparted by institutions imparting “higher learning” such as MBA, management, computer science and such other disciplines; and concluded that institutions imparting higher learning like MBA, etc., cannot be characterised as commercial training or coaching centres; that institutions preparing students for entrance examination to various universities could be called commercial training or coaching centre; but not so in respect of institutions recognised by law.

Held:
The reference answered is summarised below:
• On analysing relevant statutory provisions it can be inferred that any institute or establishment providing commercial training or coaching where training or coaching is provided for consideration and irrespective of its constitutive or organisational basis or architecture; i.e., whether or not such centre or institute is registered as a trust, a society or other similar organisation under any law for the time being in force; and carrying on its activity with or without a profit motive, engaged in imparting skill or knowledge or lessons on any subject or field (excluding sports), irrespective of whether on culmination of the training or coaching regimen, a certificate is issued; and including coaching or tutorial classes, is a commercial training or coaching centre. Pre-school training and coaching centre or any institute or establishment which issues any certificate, diploma, degree or any other educational qualification recognised by law for the time being in force, are only excluded from the sphere of the defined entity.

• What “commercial training or coaching” means must be ascertained exclusively from the relevant provisions of the Act and applying the appropriate interpretative principles in case of grammatical, syntactic or contextual ambiguity. From the legislated definition, training or coaching therefore means imparting skill, knowledge or lessons on any subject or field. Parliament has not restricted the scope of “training or coaching” as is defined by super adding any conditions such as in terms of pedagogic methodology, course or training content, syllabus, duration, periodicity, tenure/ duration or like conditions. There is thus no scope for restrictive interpretation. A good faith interpretation of section 65(27) requires that wherever skills/ knowledge/lessons are imparted on any subject or field, the activity must be considered to be “training or coaching”. When Parliament enacts a generic and unambiguous definition mandating, that imparting skills/knowledge/lessons on any subject or field shall amount to “training or coaching”, the generic definition is required to be given effect to, legislatively ordained, without demur. Accordingly, dissecting the expression “training or coaching”, as defined in section 65(27) of the Act to identify distinctions on the basis of contemporaneous or potential advancements in educational methodologies, hierarchies or pedagogy would result in subversion of the legislative purposes underlying enactment of the definition of the provision of section 65(27). Where legislature has signaled a generic description, the judicial branch may not resort to mini-classification.

• Therefore subject to the excluded entities, expressly in section 65(27), any other institute or establishment which imparts skill/knowledge/lessons on any subject or field (excluding sports), would be a commercial training or coaching centre providing commercial training or coaching; a taxable service u/s. 65(105) (zzg), irrespective of the nature of training regime; the course content; and irrespective of whether the training or coaching is in respect of one or more disciplines of learning, skills or knowledge or a broader raft of academic disciplines. The Bench refused to consider the meaning of the term ‘commercial’ in the light of authorities cited by the counsel on the ground that, Parliament has introduced the retrospective ‘Explanation’ in section 65(105)(zzc) of the Act and this Explanation clarifies assumed ambiguities in ascertainment of the expression ‘commercial’. The Tribunal also did not analyse the several administrative constructions of statutory provisions in various circulars/notifications.

Note: Reader may refer to the decision of New Delhi CESTAT in the case of N.I.B.S. & Corporate Management [2013] 36 taxmann.com 117 (New Delhi – CESTAT) wherein Tribunal has taken a prima facie view that the word ‘commercial’ in definitions at sections 65(26) and 65(27) and 65(105)(zzzc) cannot be considered to be superfluous and the Explanation added by Finance Act, 2010 may not be a sufficient reason to take a view that the impugned training to be a “commercial training”.

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[2014] 51 taxmann.com 73 (New Delhi – CESTAT) – Greater Noida Industrial Development Authority vs. CST, Noida

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Facts:
The appellant, a body corporate established under U. P. Industrial Development Act, 1976 (UPIDA) discharges statutory duties and functions which includes allotment of land on lease basis and providing municipal services in the Greater Noida, being notified as an industrial township by the Government of U.P In terms of UPIDA. The Appellant may sell, lease or otherwise transfer, whether by auction, allotment or otherwise, any land or building belonging to the Authority in the industrial development area on terms and conditions it may think fit. The appellant accordingly allocated vacant land to various persons for residential/group housing, institutional, commercial or industrial purposes on 90 years lease term. In respect of such allotment of vacant land, the appellant, in addition to an amount called premium also collected lease rent. Besides this, the appellant have also rented a constructed building for commercial purposes in respect of which they paid service tax on the rent since 01-06- 2007. Based on the above facts, the following issues were framed.

Issue 1:
• Whether providing vacant land on lease for construction of building or structure at a later stage for furtherance of business or commerce, service tax is chargeable only with effect from 01- 07-2010?

Held:
Yes. Relying upon the decision of New Okhla Industrial Development Authority’ [2014] 44 Taxmann.com 287 (New Delhi-CESTAT), the Tribunal held that, giving of vacant land on license, rent or lease for construction of structure at a later stage for furtherance of business or commerce became taxable only with effect from 01-07- 2010 under Clause (v) of Explanation I to section 65(105) (zzzz) and this activity was not taxable during the period prior to 01-07-2010.

• Whether rent received during the period from 01-07-2010 in respect of leases of vacant land for construction of buildings or temporary structures for commercial use granted during the period prior to 01-07-2010 are also liable to service tax?

Issue 2:

Held:
Yes. Unlike manufacture of goods and clearance of manufactured goods which are one-time events, the provision of service in pursuance of an agreement for the same, may after starting the provision of service, continue for some time for several days, months or years, depending on the terms of the agreement and in between, a service which at the time of initiating the provision of service was non-taxable may become taxable. Since the taxing event for service tax is provision of service, not the event of entering into an agreement for provision of service, the service provided from the date on which the same became taxable, would attract service tax, irrespective of the fact that at the time of entering into an agreement for provision of service, the same was not taxable. Issue 3: • Whether service tax is chargeable only on the lease rent?

Held:
Yes. Relying upon the decision of New Okhla Industrial Development Authority’ case (supra), the Tribunal held that all the leases of immovable property viz. short-term, long-term or perpetual as per section 65(105)(zzzz) would be covered for service tax.

Issue 4:
• Whether service tax is chargeable also on one time premium amount charged in respect of long-term leases?

Held:
No. Relying upon the decision of the Apex Court in the case of CIT vs. Panbari Tea Co. Ltd. [1965] 57 ITR 422, the Tribunal held that the premium is the price paid for obtaining the lease of an immovable property. While rent, on the other hand, is the payment made for use and occupation of the immovable property leased. Since taxing event u/s. 65(105)(zzzz) read with section 65(90a) is renting of immovable property, service tax is leviable only on the element of rent, i.e., the payments made for continuous enjoyment under lease which are in the nature of the rent irrespective of whether the rent is collected periodically or in advance in lumpsum. Service tax u/s. 65(105)(zzzz) read with section 65 (90a) cannot be charged on the ‘premium’ or ‘salami’ paid by the lessee for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the property leased.

Issue 5:
• Whether service tax is payable on the processing charges for approval of building plans for transfer charges, miscellaneous income such as map revision fee, map validation fee, forfeiture charges, penalty, restoration charges, documentation charges, etc., and also on the rent received from the staff for residential premises?

Held:
As per the amended provisions effective from 01-06-2007, section 65(105)(zzzz) covers not only the service of renting of immovable property to any other person for use in the course of furtherance of business or commerce but also any other service in relation to such renting. Therefore, the services in connection with renting of immovable property for business/commerce would also be taxable. Therefore, processing charges for application for land allotment would be taxable. However, the services like processing and approval of building plan, map revision, malba charges connected with building of structures on the land allotted on lease basis have no nexus with the renting of immovable property for business or commerce, and as such, the charges of map approval, validation, map revision, malba charges, etc., would not attract service tax. Further, restoration charges or penalty being in the nature of penalty for violating conditions of the lease, the same cannot be treated as consideration for lease and hence not taxable. Similarly, rent from the staff towards residential premises is also not for furtherance of commerce or business would not attract service tax.

Issue 6:
• Whether the allotment of vacant land to builders for construction of residential complexes would attract service tax u/s. 65(105)(zzzz) read with section 65(90a)?

Held:
No. The Tribunal observed that Explanation 1 to section 65(90a) defines the term ‘for use in the course of or for furtherance of business or commerce’ as including the use of immovable property as the factories, office buildings, warehouses, theatres, exhibition halls and multiple use buildings. However, when a building is constructed on a vacant land leased is purely a residential one, the same cannot be said to be a building to be used for furtherance of business or commerce. Therefore, such allotment of land to the builder or a group housing society for construction of residential complex would not be covered by section 65(105)(zzzz) read with section 65(90a).

Issue 7: •
Whether extended period under proviso to section 73(1) is applicable in the present case and consequently whether Penalties under sections 76,77 and 78 of the Act are leviable?

Held:
No. Tribunal found merit in the plea of bonafide belief as to non-taxability of long term lease. Therefore invoking section 80, all penalties were waived. Note: Readers may refer to New Okhla Industrial Development Authority vs. CCE [2014] 44 taxmann.com 287 digest provided at case No.50 335 (2014) 46-A BCAJ.

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[2014] 51 taxmann.com 33 (New Delhi – CESTAT) Kisan Cooperative Sugar Factory Ltd. vs. Commissioner of Central Excise, Meerut

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Welding electrodes used for repair and maintenance of plant and machinery are inputs and covered by the expression in or in relation to manufacture – Held, CENVAT Credit allowed.

Facts:
The appellant, a manufacturer of sugar and molasses took credit of welding electrodes used for repair and maintenance of plant and machinery. The department denied the said credit relying upon the judgment of Tribunal in case of 2008 taxmann.com 532 (Kol-CESTAT) SAIL vs. CCE on the ground that SLP filed against Tribunal’  decision was dismissed by the Apex Court vide judgment reported in 2002 (139) ELT A-294 (SC). Assessee contended that regular repair and maintenance of plant and machinery was necessary for smooth manufacturing operation and therefore the impugned order disallowing credit was not justified.

Held:
The Tribunal observed that the definition of input during the period of dispute, as given in Rule 2(k) of the CCR, covered all the goods which are used in or in relation to manufacture of final products whether directly or indirectly and whether contained in the final product or not. It held that, the expression “used in or in relation to manufacture of final products whether directly or indirectly” is obviously wider in scope than the expression “used in the manufacture of”, as the former expression expands scope of the latter expression. The Tribunal relied upon the decision in the case of 1997 (91) ELT 34 (SC) J. K. Cotton Spinning & Weaving Mills Co. Ltd. vs. Sales Tax Officer to hold that goods used in an activity, without which manufacturing operations, though theoretically possible, are not commercially feasible, have to be treated as, used in the manufacture of the final products. Tribunal observed that it is nobody’s case that manufacturing activity is commercially feasible with malfunctioning machinery, and leaking pipes, tubes and tanks and accordingly held that repair and maintenance of plant and machinery, though by itself not a manufacturing activity, has to be treated as an activity in relation to manufacture and inputs used in repair & maintenance would have to be treated as goods used in relation to manufacture.

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[2014] 51 taxmann.com 226 (New Delhi – CESTAT) Palmtech Institutions India (P.) Ltd. vs. Commissioner of Central Excise & Service Tax, Jaipur

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CENVAT Credit on input services of outdoor catering and mandap keeper used for organising a function to felicitate students prior to 01-04-2011 is allowable.

Facts: The appellant provided commercial training and coaching services and as a part thereof, they organised a function to felicitate students for which the appellant did not recover any charges from the students and availed CENVAT Credit on input services of outdoor catering and mandap keeper services. The Department alleged that such services are not input services as per section 2(l) of the CCR.

Held: The Tribunal noted that neither any evidence of recovery of any expenses against the appellant was available nor any allegation by revenue was made for this. It also took a view that decision of the Karnataka High Court in the case of [2012] 20 taxmann.com 699 Toyota Kirloskar Motors (P.) Ltd. vs. CCE is squarely applicable to this case and accordingly allowed the credit.

Note: In Toyota Kirloskar case, while interpreting Rule 2(l) the Court followed the test as to whether there is a nexus with the manufacture of final products as well as the business of manufacture of final product. It was further held that, to find out whether there is a nexus with the manufacturer of final products, it is necessary to keep in mind the exhaustive definition contained in input service and then the word used therein, i.e., the activities relating to business and then decide whether any particular service would constitute input service. The Court took a view that such expenses are incurred in connection with activities relating to business and hence allowable as CENVAT Credit. Therefore, this decision may not apply in respect of period after 01-04-2011 when scope of inclusive part of the definition was restricted by deleting the expression “activities relating to business such as”.

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[2014] 36 STR 569 (Tri. – Ahmd) Shreeji Shipping vs. CCE&ST, Rajkot

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Stevedoring service and lighterage service provided at minor ports in Gujarat prior 01-07- 2010 is not exigible to service tax under “Port Service”.

Facts:
The appellant provided stevedoring services (loading/ unloading of export cargo) and lighterage services (sea transportation from the location where the mother vessel is anchored till the jetty an vice versa) at minor ports in Gujarat and not paid service tax under port services for the period prior to 1st July, 2010. The revenue demanded service tax u/s. 65(105)(zzl) considering the appellant’s service as taxable port services and the appellant challenged the demand on the ground that the definition required that the service provider is to be authorised by the port and this being absent in its case, no service tax is leviable. The appellant also contended that only w. e.f. 1st July, 2010 when the definition of port service was amended, any service provided within the port can be considered as “port services” and this cannot be the ground to levy service tax for the period prior to 1st July, 2010. The Commissioner (appeals) confirmed the service tax demanded in the SCNs.

Held:
The Tribunal relying on the Apex Court’s decision on Aphali Pharmaceuticals vs. State of Maharashtra reported at 1989 (44) ELT 613 held that the expression “authorised by the port” can have no other meaning than what has been given to it under the laws governing ports in India and such an interpretation is consistent with the scheme of the Finance Act, which has borrowed the scope and ambit of several services with respect to the cognate legislation governing such service. The appellant provided documentary evidence that other party was authorised under the Gujarat Maritime Act, 1981 and no such authorisation is given to the appellant and in absence of authorisation the appellant is not authorised by the port. The Revenue had relied on the Apex Court decision in the case of Onkarlal Nandlal vs. State of Rajasthan – AIR 1986 SC 214 and submitted that only the definition of ‘port’ is to be referred in Major Port Trusts Act and no other provision is to be applied. The Tribunal held that the said judgment is not applicable as facts of the said case are different as in the said case an exception to the section was sought to be read and therefore was negated by the Supreme Court. Further in response to the respondent’s reliance on the case of Western Agencies Pvt. Ltd. & Ors. vs. CCE reported in 2011 (25) STR 305, the Tribunal relying on Sir Silk Ltd. vs. Textile Committee & Ors – AIR 1987 SC 317 held that the principle of pari material statute can be applied and therefore levy of service tax on port services is with reference to services provided by a major port/minor port or any person authorised by them and the persons covered under the Finance Act, 1994 are pari material. The Tribunal also held that no cognisance was taken of the amendment made to the definition of port service wherein any service provided within the port is treated as “port services” which means that the person providing the services within the port may not be an authorised person by the port. The Tribunal in relation to the invocation of extended period relied on the Apex Court’s decision in the case of Jayprakash Industries Ltd. vs. Commissioner 2002 (146) ELT 381 (SC) and held that the dispute being of interpretation and different views taken at different times and further as substantial portion of the demand is time barred by limitation, extended period cannot be invoked and in view of the above judicial pronouncements the impugned order was set aside.

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[2014] 36 STR 593 (Tri. -Mumbai) Seed Infotech Ltd. vs. CCE, Pune – III

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Longer period of limitation cannot be invoked and penalties not imposable in absence of suppression with intent to evade tax payment. Recruitment services cannot be taxed before 16-06-2005.

Facts:
The appellant provided computer training to corporate clients as well as students. It also provided recruitment agency services, it allowed its clients to use software owned by itself and provided space for conduct of examination/conference for its clients in relation to recruitment. The demand was confirmed under the above four categories by invoking the extended period of limitation and also confirmed penalty. The appellant contended that computer training services was exempt under the notification 9/2003-S.T. dated 20-06-2003 and therefore not liable to service tax. The said exemption for computer training was withdrawn by 24/2004-S.T. dated 10-09-2004 and later reinstated vide notification 19/2005-ST dated 07-06-2005. The computer training services were not exempt during the period 10- 09-2004 till 07-06-2005 but the Tribunal in the case of Sunwin Techno Solutions Pvt. Ltd. vs. Commissioner 2008 (10) STR 329 held that the computer training services were exempt for the period 10-09-2004 till 07- 06-2005. However, the Supreme Court has reversed the Tribunal’s decision. The appellant in the meantime had paid service tax in relation to computer training provided to corporate clients under the Extra Ordinary Taxpayers Friendly Scheme and its declaration was accepted. Further, they sought clarification from the jurisdictional Assistant Commissioner whether computer training to students was exempt. However, they did not receive any reply. The appellant’s contention in relation to recruitment services was that the definition u/s. 65(68) and 65(105) (k) of the Act was amended only w. e. f. 16-06-2005 and therefore demand prior to the said period is not sustainable. In relation to usage of software the appellant submitted that it is franchise services and not intellectual property services and therefore not liable to service tax during the impugned period. Similarly, the appellant contended it did not provide any business support services and therefore the question of payment of service tax does not arise.

Held:
The Tribunal held that the facts and the action of the appellant seeking clarification indicates clearly that there was no suppression with an intention to evade tax and therefore the demand beyond the normal period and penalty was set aside. Demand under manpower supply services for recruitment is not sustainable for the period before 16-06-2005 and therefore the penalties imposed to be reduced accordingly. The Tribunal upheld the demand and penalty imposed under the intellectual property services as well as business auxiliary services.

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2014] 36 STR 704 (Tri. -Mumbai) Mercedes Benz India Pvt. Ltd. vs. CCE, Pune – I

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Trading was not an exempt service prior to 01- 04-2011 but CENVAT Credit on common services is required to be reversed on the basis of turnover

Facts:
The appellant, a manufacturer of motor vehicles also imported motor vehicles and sold them in domestic markets and therefore was a manufacturer as well as a trader. The appellant availed CENVAT Credit on common input services such as “advertising services”, “event management services”, “business auxiliary services” and “business support service”. The CENVAT Credit on the said input services was denied on the ground that ‘trading’ is an exempt service as per the explanation introduced under Rule 6(3) of CCR, 2004 and extended period was invoked as the appellant provided exempt services was not disclosed in the ST-3 returns and the Commissioner (Appeals) disallowed the entire CENVAT Credit on common services for the period March 2005 till March 2011 and also appropriated CENVAT Credit in relation to input services used exclusively for trading and further demanded 6% of the amount of trading turnover for the period post March 2011. The appellant submitted that the explanation was introduced w. e. f. April 2011 and therefore ‘trading’ can be considered as exempt service only from April 2011.

Held:
The Tribunal held that ‘trading’ was not a service till 31st March 2011 and therefore cannot be an exempt service. Amendment to rules cannot be applied retrospectively as Government has no powers to amend delegated legislation vide a notification. Rules can be amended retrospectively only by an Act. The Tribunal discussed the case of Metro Shoes Pvt. Ltd. vs. Commissioner 2008 (10) STR 382 (Tribunal), Loreal India Private Ltd. 2012 (281) ELT 264 and Orion Appliances Ltd. vs. Commissioner 2010 (19) STR 205 and held that the CENVAT Credit on common services is to be disallowed on the basis of trading turnover to total turnover (trading as well as manufacture turnover) and therefore directed the lower authorities to re-compute the liability. The Tribunal also held that ‘business’ used in the definition of “input service” under Rule 2(l) of CCR, 2004 relates to business of manufacture of final products and not to trading activity and therefore any input service in relation to “trading activity” is not to be treated as input service. The extended period of limitation is properly invoked as CENVAT Credit availed in relation to trading activity was not disclosed and therefore the penalty was also upheld.

Note: The Punjab & Haryana High Court upheld the order of the Tribunal disallowing CENVAT Credit on services relating to trading activity prior to 01-04-2011 reported at 2014-TIOL-2186- HC-Mad-CX.

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[2014] 36 STR 549 (Tri. -Del) Kunal Fabricators & Engineering Works vs. CST, Mumbai – II

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Repairs and maintenance services provided in absence of any agreement is not liable to service tax. Fabrication, erection and installation of steel storage tanks, dozers and settlers, etc. are not liable to service tax under “Business Auxiliary Services”.

Facts:
The assessee registered under Business Auxiliary Services and Goods Transport Agency Services also provided repairs and maintenance services on which no service tax was paid. Further, they also fabricated, erected and installed water tanks, etc., in the client’s factory and service tax was confirmed under “Business Auxiliary Services”. The Commissioner (Appeals) held that repairs and maintenance services provided by the respondent in terms of an agreement/contract are only liable to service tax and as the department was unable to produce such agreement, the said repair and maintenance service is not liable to service tax. Services of fabrication, erection and installation of storage tanks, etc., are not covered under “Business Auxiliary Services” and therefore not exigible to service tax. The department therefore filed this appeal.

Held:
In the absence of any evidence provided by the department that the services of repairs and maintenance were provided under agreement, the order of the Commissioner (Appeals) was upheld in this regard. Fabrication, erection and installation services were sought to be taxed under Business Auxiliary Services and the said services are not covered under “Business Auxiliary Services” as defined u/s. 65(19) and therefore the said services are also not exigible to service tax. The department’s appeal was dismissed.

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[2014] (36) STR 481 (Del.) Commissioner of Service Tax vs. ITC LTD.

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Show cause notice could be issued without mentioning specific sub clause of the definition of business auxiliary service if other contents are indicative of appropriate charge.

Facts:
Revenue was of the view that the assessee short paid/ not paid service tax and accordingly, issued show cause notice under business auxiliary services without specifying the sub-clause under which the service was covered. The respondent contested the demand on various grounds including that the activities were not in the nature of business auxiliary services. The orderin- original confirmed the demand and also specified the applicable sub-clause of business auxiliary service. Referring to various decisions on the subject matter, the Tribunal quashed the show cause notice on the grounds of violation of principles of natural justice since the show cause notice did not specify the sub-clause of section 65(19). The Tribunal observed that though the services were prima facie assumed to be in the nature of Business Auxiliary services, the reason for such assumption was not mentioned in the show cause notice. Being aggrieved, the department filed the appeal to the Hon’ble High Court after the due date and sought the condonation of delay in filing appeal.

Held:
After condoning the delay in filing appeal and noting the contents of the show cause notice, it was observed that the respondent knew the relevant facts and provisions were mentioned in the show cause notice. The object of the show cause notice is to inform assessee so that relevant facts and submissions can be brought on the record and the assessee is not prejudiced by manifestly vague notice which leaves him confused. The assessee must be given reasonable opportunity and made aware as to what he has to meet. The show cause notice cannot be read as a legislative enactment which is to the point, precise and required to show exceptional lucidity. The assessee is to be conveyed the allegations properly. After the show cause notice is served, the conduct of the parties, opportunity of personal hearing etc., are relevant factors to ascertain whether the decision was unjust or not and it was granted to the respondent. Though specific sub-clause of the definition of business auxiliary services was not mentioned in the show cause notice, the show cause notice was drafted in a way that the person reading the show cause notice can make out that the demand was raised under which sub-clause and therefore the appeal is disposed off in the said terms.

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[2014] 51 taxmann.com 8 (Allahabad) Commissioner of Central Excise, Noida vs. Samsung India Electronic Ltd

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CENVAT Credit on capital goods used for manufacturing exempted intermediate products and the said intermediate goods are used captively for dutiable final product – Held, CENVAT Credit is allowed.

Facts:
Samsung Electronics India Information and Telecommunication Ltd. (SEIITL) is manufacturing CTV chassis for the appellant on job work basis. SEIITL was amalgamated with the appellant with effect from 01- 04-2003. Prior to amalgamation, SEIITL took CENVAT Credit of duty paid on certain capital goods received from assessee and used exclusively for the purpose of manufacture of CTV chassis (exempted goods) supplied to the appellant. The said CTV chassis are used by the appellant for manufacturing of dutiable final product, i.e., Colour TV. The department denied CENVAT Credit of capital goods by invoking Rule 6(4) of the CENVAT Credit Rules, 2004 (CCR) as the capital goods were used exclusively in manufacturing exempted product. The Tribunal decided the matter in favour of appellant, aggrieved by which, the department preferred this appeal.

Held:
The High Court observed that Rule 3 of CCR allows the credit on capital goods received in the factory and used in the manufacture of intermediate products by a job worker. Further Rule 6(4) denies the CENVAT Credit only if capital goods are exclusively used in the manufacture of final products exempted from the whole of the duty of excise leviable thereon. In the appellant’s case, chassis manufactured by the job worker was an intermediary product which in turn would be used by the assesse in manufacturing TV, a dutiable product. The High Court referred to CBEC Circular No. 665/56/2002-CX dated 25-09-2002 which allows credit of capital goods to manufacturer in such cases. The Hon’ble High Court held that object of the CENVAT Credit is to avoid cascading effect of duty. Based on the circular and also relying upon various judicial pronouncements on the subject matter including the Apex Court’s decision in the case of 2004 taxmann.com 1332 (SC) Escorts Ltd. vs. CCE, the department’s appeal was dismissed.

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Advance Ruling

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Notification No. 9/2015-Service tax- dated 01 03 2015

The facility of Advance Ruling is being extended to all resident firms by specifying such firms as a class of persons under section 96A (b)(iii) of the Finance Act, 1994.

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Changes in Abatement Notification No. 26/2012- ST

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Notification No. 8/2015-Service Tax- dated 01 03 2015

A uniform abatement of 70% has been prescribed for transport by rail, road and vessel. Service tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat credit on Inputs, Capital goods and Input services.

The abatement for classes other than economy class (i.e. business/ first class) has been reduced from 60% to 40%. Accordingly, Service tax would be payable on 60% of the value of such higher classes.

Abatement for the services provided in relation to Chit fund stands withdrawn.

This changes in abatement shall come in to effect from 1st April, 2015

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[2014] 51 taxmann.com 450 (Madras) Commissioner of Central Excise, Salem vs. K.M.B. Granites (P.) Ltd

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Scope of GTA service – Held, “commercial concern” includes individual truck operator.

Facts: The appellant (manufacturer) availed GTA services for transporting its inward as well as outward transportation of goods. Revenue demanded tax under ‘GTA ’ service under reverse charge mechanism as per Rule 2(1)(d) (v) of Service Tax Rules, 1994. Appellant contended that services were availed from individual transport operators and not from GTA . Tribunal decided the matter in favour of the appellant following the judgments of the Bangalore Tribunal in cases of Lakshminarayana Mining Co. vs. CST [2010] 24 STT 61 and CCE & C vs. Kanaka Durga Agro Oil Products (P.) Ltd. [2009] 22 STT 435. Aggrieved by the Tribunal’s decision, revenue filed an appeal before the High Court.

Held:
The Hon’ble High Court relying upon its own decision in the case of CCE vs. Salem Co-Operative Sugar Mills Ltd. 2014 (35) STR (450) (Mad) held that individual operator would also be covered within the meaning of expression ‘commercial concern’ as appeared u/s. 65(50b) of Finance Act.

Note: While deciding this case, the High Court appears to be under the impression that the Lakshminarayana Mining Co.’s (supra) and Kanaka Durga Agro’s case (supra) relied upon by the Tribunal dealt with the issue as to whether individual can be regarded as commercial concern or not? In Kanaka Durga’s case, the issue before the Tribunal was not whether individual is covered within the meaning of “commercial concern” but whether GTA includes individual truck operators/owners or on the agents thereof. It was submitted before the Tribunal that the aspect of agency being absent when a truck owner or operator gives a truck without an agent being go-between, there can be no tax. From the definition of the GTA and also the clarification given by the Finance Minister in the budget speech, Tribunal held that individual truck owners and operators are not covered within scope of section 65(50b). Kanaka Durga’s decision was followed in Lakshminarayana Mining Co.’s case which was also affirmed by the Karnataka HC in i.

In Salem Co-Operative Sugar Mills Ltd. (supra) case, Tribunal relied upon Kanaka Durga Agro Oil Products Pvt. Ltd.’ s case and remanded the matter back to adjudicating authority to verify whether services are received from individual owners. When Salem’s case came up before the Madras High Court in 2014 (35) STR 450 (Mad), the High Court neither overruled nor distinguished Kanaka Durga Agro & Lakshminarayana Mining (supra). Hence, to that extent it appears that reliance on Salem’s case for the purpose of present matter is misplaced.

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[2014] 36 STR 543 (Kar) CST, Bangalore vs. Team Lease Services Pvt. Ltd.

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CENVAT credit on group mediclaim services is an input service under Rule 2(l) of CENVAT Credit Rules, 2004.

Facts:
The appellant claimed CENVAT Credit on input service on group mediclaim services for the period April 2007 to September 2010 and the said credit was allowed by the Tribunal. The revenue aggrieved by the Tribunal’s order filed the instant appeal.

Held:
The appeal was dismissed as reliance was placed on the cases of (i) Commissioner vs. Micro Labs Ltd. – 2011 (24) STR 272 (Kar) and (ii) Commissioner vs. Stanzen Toyotetsu India Pvt. Ltd. – 2011 (23) STR 44 of the same Court wherein the said CENVAT Credit was allowed.

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[2014] 36 STR 492 (Bom.) Dimensions Logistics Services Pvt. Ltd. vs. CST. Mumbai – II

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Recovery of destination charges for services provided by foreign-service provider for clearance of goods is liable to service tax under clearing & forwarding agent’s service. Freight margin earned from freight forwarding activity may not be exigible to service tax under clearing and forwarding services. Early hearing granted.

Facts:
The appellant registered under clearing & forwarding agent’s services was audited. The department found difference in the amounts captured in the ST-3 returns and the financials. The appellant did not provide reconciliation of the difference before the adjudicating authority but before the Tribunal reconciled it and submitted that the said difference was on account of (a) margin of freight on account of freight forwarding activity and (b) recovery of destination charges from its clients for service provided by foreign-service providers. The Tribunal considering the submissions of the appellant directed pre-deposit of Rs.40,57,603/- against which the appeal was made to the High Court. The appellant’s counsel submitted that freight margin was not exigible to service tax under the clearing & forwarding agent’s service and relied on the case of CCE, Panchkula vs. Kulcip Medicines Pvt. Ltd. 2009 (14) STR 608 (P & H). Recovery of destination charges is also not liable for service tax as service was provided outside India and therefore covered under Rule 3(ii) of the Import of Service Rules.

Held:
The Tribunal had found substance in the arguments of the appellant’s counsel and therefore scaled down the tax liability and further in respect of destination charges even though the Tribunal rendered a prima facie finding against the Appellant. The Hon. Court found this aspect arguable and therefore directed a pre-deposit of Rs. 20 lakh in cash and directed the Tribunal to hear the appeal in accordance with law and uninfluenced by any earlier observations.

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[2015] 55 taxmann.com 73 (Ahmedabad – CESTAT) –Commissioner of Central Excise, Customs and Service Tax, Rajkot vs. Reliance Ports and Terminals Ltd.

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Utilisation of CENVAT credit on capital goods is allowed to the extent of 50% in financial year of receipt and balance in subsequent financial year, even if capital goods are pending installation.

Facts:
Assessee was a provider of port services and availed credit of duty paid on capital goods during the period F.Y. 2006-07 and 2007-08. Department denied CENVAT credit on the grounds that capital goods were not installed. Department also disputed CENVAT credit of service tax paid by assessee under reverse charge on the ground that service tax paid u/s. 66A of the Act is not specified under Rule 3 of CCR,2004. Adjudicating Authority decided in favour of the assessee. Aggrieved department filed the appeal before the Tribunal.

Held:
The Tribunal held that as per para 8 of CBEC Circular No. B-4/7/2000 TRU dated 03/04/2000 in the case of capital goods, the CENVAT rules do not provide installation of capital goods as a pre-requisite for taking CENVAT credit. The credit can be taken as and when the capital goods are received in the factory. The Tribunal also observed that, in terms of CBEC Circular No. 267/26/2006-CX-8 dated 28-04-2006, condition of installation for availing CENVAT credit on capital goods was effective till 09- 09-2004 and not thereafter. Relying upon the decision of the Bombay High Court in the case of CCE vs. Ispat Industries Ltd. 2012 (275) ELT 79 (Bom) which held that, when the capital goods are lying in the factory for installation and process of erection is being carried out, the requirement that the goods were in the possession and use of the manufacturer in the year in which the balance credit was availed of can be said to have been fulfilled. Thus the credit on capital goods was allowed in the financial year of receipt and balance in subsequent financial year. As regards dispute on CENVAT credit of service tax paid under reverse charge, it was held that due to retrospective amendment under sub rule (1) of Rule 3 of the Finance Act, 2011 service tax paid u/s. 66A was eligible for credit from 18/04/2006. Revenue’s appeal was dismissed accordingly.

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[2014] 51 taxmann.com 365 (Kerala) Union of India vs. Kerala Bar Hotels Association, Cochin

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Constitutional Validity – “restaurant service” and “short term accommodation service” – Held, section 65(105)(zzzzv) & (zzzzw), respectively are ultra vires the Constitution.

Facts:
The department filed appeal against judgment of the single judge in case of [2013] 35 taxmann.com 568 (Ker) Kerala Classified Hotels & Resorts Association vs. UOI in which (i) levy of service tax on restaurants; and (ii) levy of service tax on renting of hotels was held as unconstitutional as it was challenged that the Union is incompetent to levy service tax on “Restaurant Service” [65(105)(zzzzv)] and “short-term accommodation service” [65(105)(zzzzw)].

Held:
The High Court observed in regard to the restaurant service that prior to 46th Constitutional amendment in relation to supply of food and beverages in a restaurant, the law was that the whole transaction is a service and therefore, the same would not come within the scope of “sale of goods”, for the purpose of imposition and levy of tax by the States. However, as a result of amendment in Article 366 (29A) (f), supply of goods, by way of service or otherwise, being food and other articles of human consumption, were deemed to be sale of those goods by the person making the transfer or supply to whom such transfer or supply is made. Relying upon decision in the case of K. Damodarasamy Naidu & Bros. vs. State of Tamil Nadu [2000] 117 STC 1, the High Court held that by virtue of the Constitution (Forty Sixth Amendment) Act, supply of food and beverages in a restaurant was also deemed to be a sale, conferring authority on the States to tax on the whole consideration received by the person making the supply of food and beverages. In other words, in view of the aforesaid constitutional amendment, it cannot be said that there is any service involved in the supply of food and other articles of human consumption in a restaurant. The High Court therefore affirmed the decision of the single bench. The High Court distinguished the decision of Tamil Nadu Kalyana Mandapam Assn. vs. Union of India [2006] 4 STT 308 (SC), on the ground that, it dealt with the variety of services extended by such mandap keepers to their customers and does not deal with the supply of food in a restaurant. The supply of food and other consumables in a restaurant cannot be equated with the services rendered by a mandap keeper in relation to the use of mandaps and also the services, if any, rendered by him as a caterer. The High Court did not agree with the decision of the Bombay High Court in the case of Indian Hotels & Restaurant Association vs. Union of India [2014] 44 taxmann.com 455 (Bom.).

As regards service tax on short-term accommodation service, the High Court after analysing the provisions of Kerala Tax on Luxuries Act and following the decision of the Supreme Court in case of [2005] 2 SCC 515 Godfrey Phillips India Ltd. vs. State of U.P. held that the matter covered by section 65 (105)(zzzzw) is a matter enumerated in Entry 62 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter and therefore cannot be liable to service tax.

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Mah. Amendment Act No. XVII of 2015

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Maharashtra Act No. XVII of 2015 published in the Maharashtra Government Gazette on 18.4.2015 after having received assent of the Governor.

Few important amendments in MVAT are as follows:-

• Definition of “Purchase price” and “sale price” amended to exclude Service Tax if separately collected.

• Late Fee for delayed return filed before thirty days reduced to Rs.1,000/- from Rs.2,000/-.

• Application u/s.23(11) for cancellation of assessment order also provided for order passed u/s. 23(5). • Dates for working of interest for filing annual revised return provided.

• Schedule Entry C-4 amended to include embroidery thread in category of sewing thread with effect from 1.4.2005.

• Notification under Schedule Entry C-54 amended to include white butter in relation to “Desi Loni” with effect from 1.4.2005.

• Schedule Entry C-91 amended so that spices shall include spices in all forms of varieties and mixtures of any of the spices with effect from 1.4.2005.

Amendment in Professional Tax Act :

Female Employee getting salary less than Rs. 10,000/- per month : Employee Professional Tax will be Nil.

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Amendments to Schedule ‘A’ and ‘C’ of MVAT Act VAT 1515/CR 39(1)/Taxation-1 dated 27.3.2015

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By this Notification, Schedule A & C are amended with effect from 1.4.2015.

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Changes in Mega Exemption list of services

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Notification No. 6/2015- Service tax- dated 01 03 2015 Following new exemptions are included in under notification no. 25/2012-ST :

(1) Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment is exempt from Service Tax. The scope of this exemption is being widened to include all ambulance services.
(2) L ife insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.
(3) Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted.
(4) Service by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables is being exempted.
(5) Service provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve is being exempted.
(6) Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of it’s members is being exempted.

(7) Service by way of (i) right to admission to exhibition of film, circus, dance or theatrical performances including drama, or ballet; (ii) recognized sporting event; and (iii) admission to other events where the consideration for admission is up to 500 shall be exempt from the date to be notified in this regard. F ollowing exemptions are withdrawn (or restricted) from Notification No. 25/2012-ST :

(1) Exemption presently available on specified services of construction, repair, maintenance, renovation or alteration service provided to the government, local authority, or governmental authority ( vide S. No. 12 of the Notification No. 25/12-ST ) shall be limited only to,-
(a) a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;
(b) canal, dam or other irrigation work; and
(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

Exemption to other services presently covered under S. No. 12 of Notification No. 25/12-ST is being withdrawn.

(2) E xemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn.

(3) E xemption to Services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theatre, has been restricted only to such cases where amount charged is not exceeding Rs. 1,00,000/- for a performance except performance provided by such artist as a brand ambassador.

(4) E xemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt.

(5) E xemption to Services of carrying out of intermediate production process of alcoholic liquor for human consumption on job work basis is withdrawn.

(6) E xemption is being withdrawn on the following service,-
(a) Departmentally run public telephone;
(b) Guaranteed public telephone operating only local calls;
(c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.

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Changes in Service Tax Rules, 1994 Notification No. 5/2015-Service Tax- dated 01 03 2015

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By this Notification, Service Tax Rules, 1994 have been amended with respect to the following matters :

(1) In respect of any service provided under aggregator model, the aggregator, or any of his representative offices located in India, is being made liable to pay service tax, if the service is so provided using the brand name of the aggregator in any manner. If an aggregator does not have any presence, including that by way of a representative, in such a case any agent appointed by the aggregator shall pay the tax on behalf of the aggregator. In this regard appropriate amendments have been made in Rule 2 of the Service Tax Rules, 1994 and Notification No. 30/2012 dated 20.06.2012. This change comes into effect immediately i.e., w.e.f. 1st March, 2015.

(2) Presently, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, are covered by the Negative List. The term ‘support’ has been omitted from the Clause (E) providing for liability of service receiver to pay Service tax under Reverse Charge in relation to support services provided or agreed to be provided by Government or Local authority.

(3) Exemptions are being withdrawn on the following services:
(a) service provided by a mutual fund agent to a mutual fund or assets management company,
(b) distributor to a mutual fund or AMC,
(c) selling or marketing agent of lottery ticket to a distributor.

Service Tax on these services shall be levied on reverse charge basis.

(4) In respect of certain services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent, the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994.

Consequent to the upward revision in Service tax rate, the composition rate is proposed to be revised proportionately on specified services, namely,

Air Travel Agent: From “0.6%” and “1.2 %”, to “0.7 per cent.” and “1.4 per cent of basic fares in the case of domestic bookings and international bookings respectively.

Life insurance service: From “3%” and “1.5%”, to “3.5%” of the premium charged from policy holder in the first year and “1.75% in the subsequent year”.

These amendments shall come into effect as and when the revised Service Tax rate comes into effect.

(5) New Rule 4C has been inserted and Rule 5 has been amended to include provision for issuing digitally signed invoices along with the option of maintenance of records in electronic form and their authentication by means of digital signatures. It is further provided that the conditions and procedure in this regard shall be specified by the CBEC.

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Exemption to service for Transport of Goods by Road to a land customs Notification No. 4/2015-Service Tax- dated 01 03 2015

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Transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from Service Tax vide notification No. 31/2012-ST dated 20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS) with effect from 1st April 2015.

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Notification No. 42/2012-ST dated.29.6.2012 rescinded Notification No. 3/2015- Service Tax- dated 1st March, 2015

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Existing exemption, vide Notification No. 42/2012-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect.

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A few suggestions for your kind consideration in the Maharashtra StateBudget 2015-16 and necessary changes in Sales Tax Laws

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7th March 2015

Shri Sudhir Mungantiwar
Hon’ble Finance Minister,
Government of Maharashtra,
Mantralaya, Mumbai.

Respected Sir,

Subject: A few suggestions for your kind consideration in the Maharashtra State
Budget 2015-16 and necessary changes in Sales Tax Laws

Sir, we the people of Maharashtra are eagerly awaiting to listen to your Budget Speech, which you are ready to deliver in a few days from now. We understand that we are too late to make any suggestions at this stage, but there are a few matters on which we would like to draw your kind attention.

All these matters may be very much petty and sundry but are of great concern to the tax payers. Your kind attention in such matters will certainly provide much needed relief to small and medium level businesses. Some of these suggestions would be helpful in smooth and straight administration of tax collection and at the same time remove undue fear amongst the traders and small tax payers.

We may mention here that as we could not get an opportunity to meet you personally, we have narrowed down our suggestions, in this memorandum, to a bare minimum and only those which are most urgent. For other suggestions and further discussion in these matters, may we request your good selves to kindly grant us an appointment on which day we shall meet you personally and discuss various aspects concerning protection of revenue of the Government and mitigating difficulties faced by small and medium tax payers.

Thanking you.
Yours faithfully
Bombay Charte red Accountants ‘ Societ y
Nitin Shingala
President

Govind G. Goyal
Chairman
Indirect Taxes & Allied Laws Committee

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M/S. Sujata Painters, Appeal No. 18 of 2013, decided on 9th March, 2015 by MSTT.

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VAT- Sale Price- Works Contract-Collection of Service Tax- Does Not Form Part of Sales Price, section 2 (25) of The Maharashtra Value Added Tax, Act, 2002.

Facts
The appellant was engaged in business of execution of works contract of powder coating raised bill to the customer by charging vat on 80% of total contract value by deducting 20% amount prescribed in rule 58 for labour and services and also charged service tax @ 12.36% on 40 % of total contract value. He applied to the Commissioner of Sales Tax for determination of disputed question u/s. 56 of the act whether amount collected by way of service tax forms part of sale price. The Commissioner of Sales Tax held that the amount collected by way of service tax forms part of sales price. The appellant filed appeal, against the said order of Commissioner, before The Maharashtra Sales Tax Tribunal.

Held
Service tax is leviable on service value. It has no relation to the goods. It is independently leviable on value of services under the Finance Act. So on a plain reading of inclusive part of the definition of “sales price” u/s. 2 (25) of the Act, the service tax could not form part of sale price. The service tax and vat are mutually exclusive. Therefore by no stretch of imagination service tax would be a part of sale price. Accordingly, the appeal was allowed and levy of vat on service tax amount was set aside and deleted.

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HP India Sales P. Ltd vs. State of Assam and Others, [2012] 56 VST 472 ( Gauhati)

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VAT- Entry in Schedule-Rate of Tax- Sale of
Inkjet Cartridges and Tonor Cartridges – Falls Under Parts and
Accessories of Computer System and Peripherals –Taxable at 4%, Entry 4
of Part B of Sch. II , The Assam Value Added Tax Act, 2003

Facts
The
petitioner company was engaged in the business of IT products, sold
“inkjet cartridges and toner cartridges” and paid tax @ 4% being covered
by entry 4 of part B of Schedule II of the act relating to parts and
accessories of items listed in serial nos. 1, 2 and 3 which includes
Computer Systems and Peripherals respectively. The vat authority in
three different assessment years levied higher rate of tax of 12.5%
being covered by residual entry which was confirmed by the appellate
authority. The petitioner company filed writ petition before the Gauhati
High Court against the impugned order.

Held
The
items in question are integral part of printer which undisputedly is
covered by entry 3. Principle laid down by SC about interpretation of
“accessory” also lends support to the contention of the assessee.

The
High Court accordingly allowed the writ petition filed by the
petitioner company and allowed the revision of assessment orders
accordingly.

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[2015] 37 STR 963 (Ker.) E. M. Mani Constructions Pvt. Ltd. vs. Commr. Of C. Ex., Cus. & S.T., Cochin

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Stay Order should be passed only after hearing the appellant and considering the merits put forth.

Facts:
During the hearing of stay application, the learned counsel for the appellant was not present and adjournment was requested. However, the Tribunal proceeded with the hearing and passed a stay order with the condition of payment of entire service tax with interest along with 50% penalty. Subsequently, the modification application of the appellant also was rejected. Therefore, the present appeal is filed.

Held:
Since the Counsel for the appellant did not remain present, the order was passed without hearing the appellant. Further, while the order rejecting modification application, the Tribunal focused on its limit on jurisdiction in review applications. Therefore, both the orders were passed without having regard to the merits of the case. Accordingly, in view of the above and having regard to the huge quantum of service tax demand ordered to be deposited, the matter was remanded for fresh hearing and stay order.

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Lease vis-à-vis Service, Supremacy

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Introduction There are a number of transactions in the commercial world which are to be executed by the doer with use of various equipments and instruments. There may also be such situations where the doer may be working for one specific customer for a sufficiently long period of time. Under above circumstances a question arises whether such transaction is for providing services or it is to be treated as ‘deemed sale’ by way of “transfer of right to use goods” i.e. lease transaction, which can be made liable under Sales Tax Laws.

By now there are a number of judgments and it can be said that the situation is very fluid in as much as there are contradictory judgments including from the Hon’ble High Courts.

Quippo Oil and Infrastructure vs. State of Tripura (77 VST 547) (Trip)

This is one of the latest judgments from the High Court of Tripura deciding on the controversy as referred to above. There were a number of petitions, but the facts as noted by the Hon. High Court in one of the cases, can be referred to as under:

The petitioner companies in this case entered into a contract with the ONGC for digging directional wells. As per the petitioners, digging directional wells has many components including Drilling Rig, Logging Services, Cementing, Mud Engineering, Directional Drilling etc. Directional drilling is one of the components of digging a directional well. According to the petitioners they have entered into a service contract providing service of directional drilling, and therefore, they are paying service tax to the Central Government. The petitioners contend that the contract does not amount to sale and no VAT can be levied on the same.

Based on above facts, the Hon. High Court has discussed the issue at length. The rival submissions are noted by the Hon. High Court by observing as under:

“The case of the State is that since a tax on the sale or purchase of goods includes in terms of sub-clause (d) of Article 366(29A) tax on the transfer of the right to use any goods for any purpose the petitioners are liable to pay value added tax on such transfer of right to use goods. The contention of the petitioners is that they have entered into a service contract and only the Union can levy tax on services and not the State. The petitioners have also urged that they are paying service tax to the Central Government under the provisions of law and since they are paying service tax, if there is conflict between the Central Law and the State Act the Tripura Value Added Tax Act must necessarily give way to the provisions which provide for imposition of service tax in the Finance Act of 1994.”

The Hon. High Court has referred to a number of citations, and, after full discussion arrived at the following conclusion:

“[33] As has been held by the Apex Court either a transaction shall be exigible to sales tax/VAT or it shall be exigible to service tax. Both the taxes are mutually exclusive. Whereas sales tax and value added tax can be levied on sales and deemed sales only by the State, it is only the Central Government which can levy service tax. No person can be directed to pay both sales tax and service tax on the same transaction. The intention of the parties is clearly to treat the agreement as a service agreement and not a transfer of right to use of goods. We are also clearly of the view that it is impossible from the terms of the contract to divide the contract into two portions and since the petitioners have paid service tax they cannot be also asked to pay value added tax. As held by the Delhi High Court in Commissioner, VAT , Trade and Taxes Department vrs. International Travel House Ltd. (supra), if there is a conflict between the Central law and the State Act then the Central law must prevail. The petitioners cannot be burdened with two different taxes for the same transaction.

[34] After carefully going through the contracts we are of the view that the contracts are mainly for hiring of services. There may be a very small element of transfer of right to use goods but according to us the pre-dominant portion of the contract relates to hiring of services and not to transfer of right to use the goods. We are aware that the dominant nature test is not to be used in composite contracts falling within the ambit of Article 366(29A) but from the reading of the contract it is more than apparent that the intention of the parties was to treat the contract as a contract for hiring of services. Moreover, it is impossible to divide the contract into two separate portions. Every element of the digging directional wells and Mobile Drilling Rig service contains a major element of provisions of services. In such an eventuality it is virtually impossible to divide the contract. It is not possible to work out the value of the right to use goods transferred under the contract. In cases, where the contracts are easily divisible or where the parties have by agreement clearly indicated what is value of the service part and what is value of the transfer of right to use goods part, the contract may be divided. We are in agreement with the Delhi High Court that when the contract cannot be divided with exactitude then the Central Law must prevail.

[35] Parties have also been paying service tax and if the State is allowed to tax any portion of the value of the contract then there has to be a proportionate refund of the service tax to that extent. This cannot be done without hearing the Union of India. If there is any dispute between the State or the Union of India then they must resolve it between themselves. The petitioners or the ONGC cannot be made liable to pay both the taxes for the same transaction.

[36] In view of the above discussion, we are clearly of the view that in all the cases the transactions do not amount to sale within the meaning of the TVAT Act, 2004. Therefore, all the writ petitions have to be allowed. The State is not entitled to levy any sales tax or Value Added Tax on the transactions in question. It is, therefore, directed that the amount of tax, already deducted and received by the State shall be refunded to the petitioners along with statutory interest latest by 28th February, 2015. In case the amount is not refunded by that date then the State shall be liable to pay interest @12% per annum with effect from 1st January, 2015.”

Conclusion
The above judgment is one of the determinative judgments which is very clear in its verdict. The laws laid down by the Hon. High court will certainly be guiding law for time to come. The businesses, at present, are very much under pressure due to an attempt by both the authorities to levy Service tax as well as VAT . The nature of transaction is to be decided by its dominant nature and if it is for providing services, then even if some element of leasing of instrument etc. is involved, it cannot be enforced by State Authorities. The Service Tax should prevail over Sales Tax/VAT . We expect that taking note of the above judgment, the sales tax department will not ask to pay sales tax where Service Tax is already paid as well as if at all the transaction attracts sales tax then the departments will make adjustment of payment inter-se and not ask the dealer to discharge double tax. This will be a real relief to the dealers.

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Drilling Rigs on Time Charter – A Service of Hiring of Tangible Goods?

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In a recently reported Tribunal decision in the case of Great Ship (India) Ltd. vs. CST, Mumbai 2015 (37) STR 533 (Tri.-Mum), the issue posed before the Hon. Tribunal was to examine primarily whether a contract entered into for charter hire of drilling unit (including carrying out drilling activity), by the appellant therein, an Indian company with ONGC, involved dispute relating to taxability under mining of mineral, oil or gas service as defined in section 65(105)(zzzy) of the Finance Act, 1994 (the Act) or liable as Supply Of Tangible Goods service (SOTG) as defined under sub-clause (zzzzj) of the said section 65(105) of the Act. Considering that along with the drilling rigs brought in by the appellant, their significant number of personnel carried out actual drilling operations, the appellant contended that the contract is one of drilling service liable as mining service as defined under service tax law whereas according to the revenue, the core object of the agreement was to provide equipment (tangible goods) on hire to attract service tax u/s. 65(105)(zzzzj) of the Finance Act, 1994. According to the appellant, they provided drilling service with the use of the drilling equipment obtained by them on hire from a Singapore company on bareboat charter basis and under the contract with ONGC, they were required to carry out drilling operations after securing permit and licenses for operation of drilling by its own crew of various skills like engineers, technicians etc., totalling to about 45 persons and hence the activity was carried out to produce the output service required by their customer. They also contended that they were fully responsible for the job as a whole and therefore they controlled, directed and supervised drilling operations and did not transfer possession of the equipment so as to merit classification as SOTG. The issue pertained to the period 07-07-2009 to 27-02-2010. Therefore, alternatively and incidentally, it was also contended on behalf of the appellant that prior to the date of 27-02-2010, service tax did not extend to the area in which the drilling services were carried out as India did not include installations, structures and vessels in the Continental Shelf and Exclusive Economy Zones of India. However, for the analysis and discussion herein below, the aspect of territorial jurisdiction is kept aside as the same is not relevant. The appellant also put forth the fact of their paying service tax under mining service for the subsequent period viz. 01-04-2010 onwards and filed ST-3 Returns to such effect and thus contended that their classification was accepted by the department.

As against this claim, the revenue’s submission was that the issue involved was covered by the Hon. Bombay High Court’s decision in Indian National Shipowners Association (INSA) 2009 (14) STR 289 (Bom). The High Court examined the scope of SOTG service in the context of supply of offshore vessels to carry out various jobs like anchor handling, towing of vessels, supply of rigs or platform, diving or safety support, crane support etc., in designated or non-designated areas. The question before the High Court in the case of INSA (supra) was whether various independent services provided by the members of the association were in the nature of mining services defined under entry (zzzy) or the later entry (zzzzj) defining SOTG in section 65(105) of the Act. Since these activities were independently carried out by various and separate vendors, it was held that the services are liable to be classified as SOTG, when the right of possession and effective control of goods was not transferred as they did not carry out mining activity.

Statutory provisions:
For facilitating easy reference, both the relevant definitions of section 65(105) of the Act are reproduced below:

[zzzy]:

“Taxable service means any service provided or to be provided to any person, by any other person in relation to mining of mineral, oil or gas”.

{zzzzj}:

“Taxable service means any service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances.”

Scope of the contract:
The Tribunal on detailed examination of the contract between the parties inter alia found that the contract:

Was for a firm period of three years from the commencement date.

The compensation was based on per day of operation and only slightly lower compensation was payable (about 95%) even for a non-operation day. Similarly, even for the day when rigs were moved from one location to another, the lower rate of about 95% of the daily rate was still applicable to non-operation day.
The scope included provision of complete drilling rig and equipment as per technical specification.
Provision of capable and experienced rig crew.
The appellant was fully responsible for mobilisation of personnel, equipment and material and their safety.
Loss or damage to the drilling unit was on account of the appellant.
For undertaking any drilling, the appellant was entitled to additional charges.
Training the crew also was appellant’s responsibility.

The Tribunal on examining the definition of SOTG found that only two conditions were required to be covered by SOTG service viz. there should be supply of tangible goods and there should not be any transfer of right of possession and effective control. Whereas, the appellant’s contention that they did not transfer possession and control to ONGC was not relevant to determine liability under the category of SOTG.

Perusal of the ingredients of the contract in the light of the legal provisions, the Tribunal observed that the equipment and crew were of the appellant and therefore possession and effective control was of the appellant and the consideration was also expressed on per day basis. Thus, all the elements put together showed that there was no transfer of right or possession by the appellant to ONGC and therefore appellant’s contention that they should have transferred possession of goods to come within the scope of the taxing entry of SOTG was not tenable. On examining Bombay High Court’s decision in Indian National Shipowners Association (supra), the Tribunal concluded that the appellant’s service merited classification as SOTG. In support of its decision, the Tribunal also relied on the decisions of:

Atwood Oceanic Pacific Ltd. vs. Commissioner 2013 (32)STR 756 (Tribunal Ahmd)
Shipping Corporation of India 2014 (33 STR 552 (Tri.- Mum)
Srinivasa Transports 2014 (34) STR 765 (Tri.-Bang)

The Tribunal on concluding also noted that even on assuming that service was a composite service consisting of mining service and SOTG, the essential character of the service was SOTG service since 95% of the consideration was attributed for supply of tangible goods.

While analysing the above decision of the hon. tribunal, the fact of the matter to be noted is that the limited issue before the Bench was to examine and classify the activity under one or the other classification as the dispute raised in the show cause notice was in relation to classification. Similarly, when the hon. Bombay  high  Court  examined  the  case of INSA (supra), the trigger point for filing writ petition on behalf of members of the Shipowners’ association was that various offshore support vessels, construction barges, tugs etc., were provided by members for exploration operations on  time  charter  basis. This  summarily  may  be  described as  marine  logistics  services. The  revenue  initiated  action to recover service tax on the said activity under the entry  of mining service under the above sub-clause (zzzy). Vide this entry actually all the activities relating to mining were consolidated  by  the  finance act,  2007.  The  category  of SotG was introduced later from 16th may 2008. Therefore, in the case of INSA (supra) to put an end to dispute relating to taxability under the entry of mining service, the argument was advanced that the later entry of SOTG was the relevant classification. However, the scope of this taxing entry in (zzzzy) or taxability under the entry was per se not examined vis-à-vis a contract for hiring of equipment in detail  as there  did not arise such question before the high Court.   As a matter of fact, the decisions relied upon above by the tribunal in Great Ship (india) Ltd. (supra) viz. Shipping Corporation (supra), atwood oceanic (supra) etc., also, the dispute involved was limited to different classifications vis- à-vis SOTG and/or fact prior to the date of introduction of SOTG the service was not taxable.

Are Most Hiring Contracts Not of “Deemed sale”?:

On closely perusing the scope of the entry of SOTG one may find that only those hiring or leasing contracts would be covered by the scope of this entry whereunder, there is no transfer of right of possession and effective control over the equipment provided on hire. hiring contracts where such right is transferred are liable as “deemed  sale”  under  the  Vat  laws  of  the  States.  To examine whether a contract contains transfer of such right to use the goods or not, a test is laid down in the benchmark decision of Bharat Sanchar Nigam Ltd. vs. UOI 2006 (2) STR 161 (SC) which provides direction in the matter and which is also followed by various high Courts as listed below:

?    There must be goods available for delivery.
?    There must be consensus ad idem as to the identity of the goods.
?    The transferee should have legal right to use the goods
– consequently all legal consequences of such use including any permission or licenses required therefore should be available to the transferee.
?    For  the  period  during  which  the  transferee  has  such legal right, it has to be the exclusion of the transferor. This is the necessary concomitant of the plain language of the statute viz. a “transfer of the right to use” and not merely a license to use the goods.
?    Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.

If all the above ingredients are present, the contract is one of “deemed sale” in terms of article 366(29A) of the Constitution and exigible to Vat and therefore cannot be held as SOTG service. It may be noted at this point that under the negative list based taxation applicable from 01-07-2012, the said service of SOTG is included in the list of “declared Services” in section 66e of the act in clause (F) as “transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods”. While explaining the negative list based provisions, the Government in the education Guide dated 20-06-2012 has referred to the above test and has cited a few illustrations with reference to some judgments to advance its own interpretation. (readers may refer para 6.6.1 and 6.6.2 of the said education Guide). The said test referred above was followed interalia in another important decision of the andhra high Court in G. S. Lamba & Sons vs. State of Andhra Pradesh 2012-TIOL-49-HC-AP-CT involving contract of hiring of commercial vehicles and the aspect of transfer of right to use has been exhaustively analysed (refer BCAJ november 2012 issue under hiring of goods: declared Service or deemed Sale). An extract of a few important observations made in the said decision of G. S. Lamba (supra) is provided below:

“The right to use goods arises only on the transfer of such right to use goods and that the transfer of right is the sine quo non for the right to use any goods”.

“Effective control does not mean physical control and even if the manner, method, modalities and time are decided by the lessee, it would be general control over goods”.

“Article 366(29A) would show that the tax (i.e. VAT in the instant case) is not on the delivery of goods used but on the transfer of the right to use goods regardless of when and whether goods are delivered for use. This is subject to the condition that goods are in existence for use.”

“The entire use in the property in goods is to be exclusively utilized for a period under contract by lessee.”

Similar decision has also been pronounced by the Gauhati high Court in Deepaknath vs. ONGC (2010) 31 VST 337 (GAU) and Orissa High Court in K. C. Behra vs. State of Orissa (1991) 83 STC 325 (Orissa). On going through the terms of contract in the instant case of Great Ship (india) Ltd. (supra), one may find that the contract satisfies the test laid down by the Apex Court in BSNL’s case (supra) and conforms with all the observations made by andhra high Court in G. S. Lamba’s case (supra). Yet, paradoxically, the contract is subjected to service tax.

Conclusion:
There may exist several conflicting decisions for a common situation. Similarly, view of professionals also may differ. yet the test laid down by BSNL seems a decisive factor for the  situation  discussed  above.  Following  principles  laid down thereunder, the above contract does not appear to be a contract for service at all. However, since this aspect was  not  presented  before  the  tribunal  for  the  reasons best known to the appellant, the contract seemingly of “deemed sale” is held as service of supply of tangible goods liable for service tax. Entire service sector and professionals eagerly await the arrival of GST legislation in the hope of bringing an end to the battle between the aspect of ‘sale’ and ‘service’ in a transaction.

[2015] 55 Taxmann.com 111 (Mumbai – CESTAT) Deshmukh Services vs. CCE & ST.

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Multi-piece packing of soaps on job work basis amounts to deemed manufacture and hence cannot be taxed under Business Auxiliary Services – Matter remitted back to pass a reasoned order and also to consider the effect of Exemption Notification qua intermediate production processes.

Facts:
The appellant undertook job work activities in the nature of mixing of soap bits provided by the supplier company and returning the same in 50 kg. or bigger bags as per company’s instruction and multi-piece packing for which they received consideration. The department contended and confirmed the demand considering the activities as business auxiliary service.

Held:
The Tribunal observed that as per section 2(f)(iii) of the CE Act, 1944 ‘manufacture’ includes any process which in relation to the goods specified in the 3rd Schedule involves packing or re-packing of such goods in a unit container or labeling or re-labeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment to the goods to render the products marketable to the consumer and soaps were covered under Serial No. 40 of the said 3rd Schedule. Therefore, multi-piece packaging would fall under the category of “packing or re-packing of goods” and would be an activity of ‘manufacture’. The department’s contention that soap is already in packed condition and hence manufacture is said to be completed was not accepted by the Tribunal on the ground that, multi-piece packaging is done on the soaps already packed and therefore, it would amount to repacking and accordingly the activity would be covered under the definition of ‘manufacture’ u/s. 2(f)(iii). It was further held that if the soap noodles are sold as such after mixing and packing/re-packing, then the activity undertaken by the appellant would amount to ‘manufacture’. On the other hand, if they are not sold as such, but are subject to further processes, since the goods are moved under Rule 4(5)(a) of the CENVAT Credit Rules, 2004 it will be an intermediary process in the course of manufacture of soaps and since such movements are permitted without payment of excise duty, the question of levy of service tax would not arise at all in terms of Notification No.8/2005-ST dated 01/03/2005. However, since there was no finding in the order except that the appellant did not contest the duty, the matter was remitted back to give specific finding as to why the activity of the appellant did not amount to manufacture and if it does not amount to manufacture, why benefit of Notification No. 8/2005-S.T. cannot be extended.

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[2015] 55 taxmann.com 245 (Mumbai – CESTAT) – Malhotra Distributors Pvt. Ltd. vs. CCE

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Where the assessee merely procures purchase orders based on prices determined by the principal and does not deal with goods at all, his services would be that of commission agent and not of clearing and forwarding agent.

Facts:
The Appellant received commission from manufacturer of goods for rendering assistance in the marketing of goods, by obtaining orders and also ensuring that the goods are sold at the terms and discounts specified by the manufacturer. The Appellant contended that the activities are taxable under Clearing and Forwarding services.

Held:
The Tribunal observed that in terms of agreement between the parties, the Appellant has to only procure the orders from the stockists and forward them to manufacturers and ensure that the goods are sold at the terms and discounts specified in writing by the manufacturer. For the services so rendered, commission at prescribed percentage on the net sale value was receivable. Therefore, having regard to the terms of agreement and relying upon various cases including Larsen & Toubro Ltd. [2006] 4 STT 231 (New Delhi) the Tribunal held that the Appellant did not deal with the goods at all as is expected in the case of clearing & forwarding Agent and he was liable for service tax as commission agent.

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[2015] 55 taxmann.com 526 (Mumbai CESTAT) Behr India Ltd. vs. CCE, Pune.

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Purchase of goods from vendor and exporting the same to customer abroad at a markup value constitutes trading activity on principalto- principal basis and cannot be regarded as supply of goods on behalf of principal for commission, even if markup is stated in the books as commission.

Facts:
The Appellant purchased goods from vendor in India and sold the same to its principal foreign entity abroad at a markup of 3% of the purchase price. The goods were shipped abroad directly by the vendor, however invoices for the same were made on Indian entity and VAT was discharged on the same. The Appellant raised export invoice on the foreign entity and received the export proceeds from their foreign principal as evidenced from the bank realisation certificate and the proceeds were credited to the Appellant’s accounts. However, in the books of accounts the markup in the transaction was reflected as ”commission income”. Department contended that markup of 3% shown as commission is liable to service tax under Business Auxiliary Services provided to Indian vendor.

Held:
After going through the purchase order and sales invoice issued by the Indian vendor and observing that VAT liability was discharged and also noting that the Appellant has issued export invoice to foreign entity and also realised proceeds, the Tribunal held that transaction is that of purchase and sale of goods on principal-to-principal basis and not as agent of anybody else.

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