Category: Recent Decisions: Part A: Service Tax

Facts:
Service tax was demanded from the Appellant as Rent-a-cab operator. The scope of contract with the client stipulated that vehicles were required for transportation of personnel of client under their instructions/directions and vehicles would move on official duty to outstation, depending upon exigencies of client work for which no other extra charge was to be paid. Further, vehicles were provided normally on the basis of 12 hours of duty in a day.

Hiring charges were calculated for actual number of working days on pro rata basis and maintenance etc. was responsibility of the assessee and no extra charge was to be paid. Assessee was assured minimum fixed charges per vehicle per month yet was required to maintain log book and invoices had to be based on the usage.

Held:
Vehicles were not rented to client-had it been otherwise, client would have to ensure maintenance, repairing, proper running and fuelling of the vehicle. Possession and ownership of vehicle remained with assessee and he was only required to provide service for 12 hours in a day. In case of rent, owner of property is de-possessed and possession passes on to person who has taken it out for usage. It was immaterial whether hiring of vehicle is for a day or a month. The fact that payment had to be made after verification of log book showed that monthly payment may vary from vehicle to vehicle based on kilometres run and not on monthly rent basis.

Payment of minimum fixed charges per vehicle per month was only a safety measure to ensure some minimum payment to avoid nil payment, if client did not use the vehicle at all, and could not lead to conclusion that vehicle was let out on rent and liable to service tax u/s. 65(91) of the Finance Act, 1994- Section 65(105)(o).

Facts:
The appellant was a manufacturer exporter. The appellant sent certain documents, samples and goods via courier to their foreign client and claimed refund of service tax under Notification No.41/2007-ST. Courier services is specifically mentioned as one of the services under the said notification. The said claim was rejected only on the ground that the sending of documents, samples did not yield into realisation of forex. The appellant submitted that the realisation of forex was not one of the conditions to claim refund under the said notification. The refund is awarded to exporters with the intention to neutralise all taxes and duties borne by the exporter in the course of exports.

Held:
The appellant vide documentary evidence proved that the courier services were used for export of goods and thus the appellant was entitled to claim the refund of the service tax paid on courier services.

Facts:
The respondent was in the business of procuring orders for the company located in Germany for machineries supplied to persons in India and also installed and maintained the machinery during the warranty period. The respondent’s employees went to Germany for the training. Revenue demanded service tax on expenditure captured in forex alleging that it was towards the training fees paid to the parent company while the respondent submitted that it was reimbursement of expenses of the employees who went for training to Germany. The first appellate authority in the order recorded the finding that the respondent had produced evidence that no training fees were paid and it was supported by the certificates of the parent company. Further sample invoices were submitted by the respondent to support his contention that the payments were only reimbursement of expenses namely, travel, accommodation, etc. incurred during their stay in Germany and thus it cannot be contended that the balance amount pertained to training fees.

The demand was confirmed by invoking Rule 3(ii) of the Services (Provided from outside India and Received in India) Rules, 2006, whereby the service was held taxable if it was partly performed in India. The adjudicating authority had not recorded that the services were partly performed in India and hence the contention of the respondent was accepted. The first appellate authority also held that as the respondent filed returns for the relevant period, thus the department was aware of the activities of the respondent and hence the extended period was not invokable.

The Tribunal held that not finding any infirmity in the order and upheld the order and dismissed the appeal of the revenue.

Facts:
Service tax erroneously paid by assessee club on entry fee received from non members by working backwards from the gross fee as the same was not collected. The invoices evidenced this fact. Both lower authorities held that the assessee club was not liable to service tax. The refund claim for the mistakenly paid tax was rejected by the department. However, the revisionary authority held that the respondent was eligible for refund. Relying on the case of V. S. Infrastructure Ltd. 2012 (25) STR 170 (Tri–Del) containing identical fact, it was pleaded that there was no unjust enrichment. Revenue filed an appeal on the grounds that the charges collected from both members and non-members were inclusive of service tax. Thus, service tax was said to be collected from the client. Thus, the amount so collected as representing service tax was required to be paid u/s. 73A(2) which was rightly done. Thus, subsequent refund of such amount did not arise as it would tantamount to unjust enrichment. According to the Respondent, the adjudicating authority, in his order specifically recorded the finding “copy of the invoice reflects that there is no service tax and consequently receipt of non-membership income is without service tax.”

Held:
The Respondent paid service tax on the income received from the non-members, working backwards to determine service tax liability. Adjudicating authority recorded a factual finding that the respondent did not charge service tax on any amount which had been charged to the nonmembers and the provisions of section 73A of the Finance Act, 1994 are not attracted. The facts of the case V. S. Infrastructure (supra) being similar to the facts herein, it is settled that the question of unjust enrichment does not arise.

Facts:
The appellants engaged in construction of residential complexes sold the same to the prospective buyers. During the period October, 2005 to July, 2006 they did not pay any service tax for advances received during the said period for such activity. A Show Cause Notice was issued in this regard and adjudicated confirming a demand for tax amount of Rs. 14,50,311/- along with interest and penalty as revenue’s view was that service tax was payable on such activity u/s. 65(105)(zzzh) of the Finance Act, 1994 read with section 65(30a) of the Finance Act, 1994 during the stated period. The lower appellate authority set aside the adjudication order on the ground that the appellant had engaged their own labour and constructing buildings on lands owned by themselves and thus there was no service provided by the appellant to the prospective buyers and placed reliance on the clarificatory letter issued by CBEC vide F. No. 332/35/2006-TRU, dated 01-08-2006. The Revenue contending that the Respondent received advances from the prospective buyers for the flats and therefore there was a service rendered in terms of the explanation inserted u/s. 65(105)(zzzh) by the Finance Act, 2010. Revenue relied on the decision of the Punjab & Haryana High Court in the case of G.S. Promoters vs. UOI, 2011 (21) S.T.R. 100 (P&H).

Held:
The explanation added at the Finance Act, 2010 was not effective retrospective and this issue was already decided by the Tribunal vide Final Order No. ST/A/190-197/2012 of 13-03-2012 in Appeal No. S.T./463/2008 (Delhi) and Others in the case of CCE, Chandigarh vs. M/s. Skynet Builders, Developers, Colonizer and others – 2012 (27) STR 388 (T). It was held that the decision of Punjab & Haryana High Court in G S Promoters (supra) did not examine service tax liability for the period prior to the date of the explanation, therefore not applicable in the instant case. Appeal by the department was dismissed accordingly.

Facts:
The appellant engaged in the rendering of IT- enabled services such as technical support services, back office services, customer care services etc. to its clients situated outside India were taxable services under the Act.

Rule 5 of the said Export Rules provided for “Rebate of Service Tax” which, interalia, provided that where any taxable service was exported, the rebate of service tax paid or duty paid on input services or inputs would be available subject to conditions or limitations as specified in the notification issued for the purpose. Accordingly, Notification No. 12/2005-ST dated 19-04-2005 provided that, rebate of the duty on inputs or service tax and cess paid on all taxable input services used in providing taxable service exported out of India will be granted subject to conditions and procedures specified. The appellant lodged two claims for rebate in respect of service tax paid on input services like night transportation, recruitment, training, bank charges etc. However, the declaration required to be filed in terms of the Notification was filed after the date of export of taxable service. The rebate claims were rejected on the ground of late filing of the declaration beyond the date of export.

Held:
The very bedrock of the business of Call Centre relates to attending of calls on a continuous basis. It is difficult to conceive of any possibility as to how the appellant could not only determine the date of export but also anticipate the call so that the declaration could be filed prior to the date of export. Further, filing of declaration after date of export of services is not such a non-compliance as to disentitle exporter from rebate. Nature of service is such that they are rendered seamlessly, on continuous basis without any commencement or terminal points, and it is difficult to comply with requirement ‘prior’ to the date for export, except for description of services. Estimation is ruled out because of the words “actually required”. However, if particulars in declaration are furnished to Service Tax authorities, within a reasonable time after export, along with necessary documentary evidence, and are found to be correct and authenticated, object/purpose of filing declaration would be satisfied and appeal, thus, was allowed.

Facts: The appellants were running chit business in the State of Kerala and contended that they are not covered by the Kerala Chitties Act, 1975 as the Chit Funds Act, 1982 was not notified within the State of Kerala. Appellants also contended that service tax can be imposed only vide positive incorporation of the particular service and not by way of deletion vide a circular by invoking powers u/s. 37 of the Central Excise Act, 1984 read with section 83 of the Finance Act, 1994. According to the Appellants, Chit fund was a systematic and periodic contribution of fixed measure of funds deposited with a trustee. It was disbursed to needy persons through draw of lots (Chit/Kuri/Kurip). Trustee/ Foreman had his share as well as commission. It was not a money lending business and there was no debtor-creditor relationship between subscriber and foreman. It essentially was management of cash/fund generated and distributed without much time gap.

Held:
High Court held that liability to service tax of chit fund was sustainable as it was based on statutory provisions, and not on CBEC circular ibid. Plea that tax liability could not be imposed by deletion from existing provisions, rejected as power to tax includes amendment either by incorporation or by deletion. If statute grants power to tax particular instance, but gives some exclusion, and when the exclusion is deleted by amendment, it comes within the taxable net. After the amendment, all forms of cash management were liable for service tax, and it was not necessary to enumerate each of them. Reference to section 45(1) of RBI Act, 1934 was only made in the CBEC circular to show that financial institutions carried out the chit business as well. The plea that despite its existence since enactment of Finance Act, 1994 till the amendment in the year 2007, chit business was not made taxable does not provide any estoppel against the provisions of law. It was held that procurement of funds from different subscribers, putting it together, sharing dividend, disbursement of amount to prized subscriber after commission payable to foreman etc. was a service liable to service tax in the hands of a financial institution and power of exemption is inclusive of power to modify or withdraw it.

Service tax demanded on construction of apartments for a client who in turn allotted it to its employees for residence — The issue highly debatable, however Board’s Circular No. 332/16/2010, dated 24-5-2010 in favour of appellant — Held: Activity covered by exclusion clause of the definition of ‘residential complex’ as per section 65(105) (zzzh) — Stay and waiver granted.

The appellant constructed residential complexes during March, 2007-March, 2008 for ITC Ltd. who provided the apartments for residence of its employees. Invoking extended period in July, 2009, service tax was demanded and penalty was levied. The appellant contended that residential construction was done for personal use of ITC Ltd. and hence was covered by exclusion clause u/s.65(91a) of the Act and relied on Board’s Circular 332/16/2010, dated 24-5-2010, wherein it was clarified that residential complex constructed by National Building Construction Corporation Ltd. (NBCC) for officers of the Central Government was not taxable. Support was also placed on Khurana Engineering Ltd. v. CCE, (2011) 21 STR 115 (Tri.-Ahmd.) wherein residential complexes constructed by the assessee for PWD/Government of India for residential use of the Central Government employees were held to be covered by the exclusion clause. The Revenue, on the other hand distinguished the situation wherein a person building on one’s own and not through a contractor, only would fall within the ambit of exclusion clause.

Held:

The issue is highly debatable, however the Board’s Circular and Tribunal’s decision (supra) could be taken support of. Further, considering that the appellant also had good case on limitation, recovery of dues was stayed, but the case was posted for early hearing.

Services of mining, loading, transportation and unloading — Whether cargo handling service or goods transportation service — Since tax paid as receiver of GTA service — Contract indicated small component of loading and unloading — Handling or transportation within factory or mining area does not amount to ‘cargo’ is well settled — In the contracts of appellants handling is incidental to transportation — Held revenue’s attempt to convert this to cargo handling appears far-fetched — Demand set aside.

The appellant provided integrated services of mining for excavation of bauxite ore, loading it into trucks at stock yards and transportation of the same by road and unloading the same at a specified area for two aluminium companies during August, 2002- March, 2006. Revenue proceeded the case considering this as cargo handling service. From 1-1-2005, the appellant discharged service tax as recipient of GTA service on consideration received for transportation of goods. For services other than transportation. The appellant paid service tax from 16-6-2005 under Business Auxiliary Service as services in relation to production were covered under Business Auxiliary Service. According to the appellant, services covered under mining service were not liable prior to 1-6- 2007. Relying on several decisions including Sainik Mining & Allied Services (2008) 9 STR 531 (Tri.) and Modi Construction (2008) 12 STR 34 (Tri.), the appellant contended that handling of goods within factory or mines could not be considered handling of cargo. The Revenue contended that argument of the assessee that mining was a dominant activity was incorrect and relied in support on Gajanand Agarwal v. CCE, (2009) 13 STR 138.

Held:

The contracts indicated insignificant component of cargo handling service and main activities were mining and transportation. No separate rates were available for loading and unloading as available in the case of Gajanand Agarwal (supra). The Revenue’s attempt to convert such activity from transportation and deny abatement claimed appeared farfetched to find legal support. Loading and unloading combined with transportation service rendered in respect of transportation would not become cargo handling service. The appeal was accordingly allowed.

Penalty — Education cess is for welfare of the state and appellant not entitled to credit of the same, hence no penalty leviable u/s.76 of Finance Act, 1994 (penalty for failure to pay service tax).

Held:

The appellant was not entitled to avail credit of education cess against credit for service tax. The penalty u/s.76 of the Finance Act, 1994, upon the appellant was waived.

Appellant, a labour contractor — Conversion pro-cess of tin plate to containers in the premises of M/s. NKPL — Tax levied on the appellant — The appellant was providing manpower recruitment or supply agency services — On the basis of facts it was held that there was no service tax liability.

The appellant was a labour contractor and was doing conversion of tin plate to containers to pet jars in the factory premises of M/s. NK Proteins Ltd. (NKPL). The machinery, space and all other facilities were provided by NKPL. The appellant was required to take the required labour to the factory of NKPL to undertake the conversion depending upon the requirement of NKPL. According to the agreement, the appellant was to pay specific amount determined on the basis of number of containers produced by the appellant. Proceedings were initiated against the appellant on the ground that the activity undertaken amounted to providing manpower recruitment or supply agency.

Held:

To determine whether the service is taxable under manpower recruitment or supply agency, first of all it should be provided by manpower recruitment or supply agency and secondly it should be in relation to manpower supply or recruitment. The appellant was doing only contract manufacturing work and there was no question of any labour supply or manpower supply or manpower recruitment agency. Nowhere in the agreement there was any mention with regards to manpower supply or recruitment and the agreement specifically talks about the products to be manufactured and payments to be made. The appellant was also registered with the labour department as a contract manufacturer and not as a labour supply or manpower supply or manpower recruitment agency. The Department totally failed to show in which manner the service provided by the appellant could be categorised under manpower supply or recruitment. Hence it was held that the appellant was not liable to service tax.

Mutual fund distribution — Liability to pay service tax on commission — As per Service Tax Rules, 1994 such liability was on recipient of services i.e., mutual fund company — If they did not pay it, liability was not transferred to mutual fund distributor.

The appellant was a distributor of mutual fund units who received commission from mutual fund companies or asset management companies. The commission received by the appellant from the said companies, was taxed by the authorities on the ground that it provided Business Auxiliary Services to the mutual fund company.

Held:

It was held that the liability to pay tax is of the service recipient i.e., the mutual fund company. If it was not paid by the company, proceedings have to be started against the company and the liability will not transfer to the mutual fund distributor.

Section 66A — Import of services — Constitutional validity upheld — Charge of service tax created on services provided from outside India by a person having a business establishment/fixed establishment from which the services are provided and received in India by a person who has a place of business, fixed establishment, permanent address or usual place of residence in India and the Rules in respect thereof made under powers conferred by sections 93 and 44 r.w.s. 66A of the Finance Act, 1994 are not unconstitutional on both grounds; legislative competence and/or extra-territorial operation of laws.

The petitioner, a software manufacturer and 100% exporter had an agreement with a US company whereby the US company would promote petitioner’s business activity in US. Service tax was demanded on the amount paid to the US company for the period 2008-09. The petitioner challenged the levy on the said US company’s services viz. AMC charges for upgradation of software and online support services. The grounds of the challenge were (a) constitutional validity of section 66A and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (Import Rules) (b) extra-territorial jurisdiction of the levy based on the scope of section 64 of the Act which provides that the Act will extend to whole of India except State of Jammu & Kashmir. The petitioner contended that section 66A and the Import Rules create another taxable event/ incidence of tax from services provided to services received in India and which was against the legislative scheme. While challenging constitutional validity the petitioner in the context of Entry 92C of the Union list contended that services rendered in India which would form part of GDP were sought to be taxed as they significantly contributed to GDP. However, levying service tax on services rendered outside India being not part of GDP would be unconstitutional. The petitioner also contended that unlike the Income-tax Act, there did not exist double taxation treaty in service tax and therefore hardship in the form of multiple taxation on the same activity would be caused. They placed reliance upon All India Federation of Tax Practitioners v. Union of India, (2007) 7 STR 625 (SC). Discussing various parts of the said decision, it was contended that service tax is a VAT which in turn is both a general tax and destination-based consumption tax leviable on services provided within the country. Further reliance was placed on various decisions, including on Ishikawajma Harima Heavy Industries (2007) 3 SCC 481. The Revenue, on the other hand, contended that 66A was a valid provision and did not suffer from the vice of unconstitutionality and inter alia relied on Tamil Nadu Kalyan Mandapam Association v. UOI, (2004) TIOL 36 SC-ST (wherein constitutional validity of section defining Mandap Keeper’s service was upheld) and All India Federation of Tax Practitioners (supra) (wherein legislative competence of Parliament to levy service tax on chartered accountants, cost accountants and architects was upheld). Among other decisions, Indian National Shipowners Association v. UOI, (2009) 13 STR 235 (Bom.) was also referred to and noted.

Held:

Constitutional validity of the competence of Parliament to levy service tax has been upheld by the Supreme Court in Tamil Nadu Kalyan Mandapam Association (supra), All India Federation of Tax Practitioners (supra) and Association of Leasing and Financial Service Companies (2016) TIOL 87 SC-ST-LB. In the case under examination, the concern was for objection to the legislative powers of the Parliament on its extra-territorial operations, namely, the charge in respect of taxable events/ incidence of service tax on services provided outside India. Citing excerpts from the decisions such as Shrikant Bhalchandra Karulkar v. State of Gujarat, (1994) 5 SCC 459, State of Bihar & Ors. v. Shankar Wire Products Industries & Ors., (1995) Supp. 4 SCC 646 and GVK Industries Ltd. v. Income-tax Officer & Anr., (2011) 4 SCC 36, the High Court held:

As held in GVK Industries Ltd.’s case, Parliament does not have power to legislate for any territory other than territory of India or part of it and such laws would be ultra vires. It follows therefore that Parliament is empowered to make laws with respect to aspects or cause that occur, arise or exist or may be expected to do so within the territory of India and with respect to extra-territorial aspects or cause that have an impact on or nexus with India. Citing various terms in the agreement of the petitioner with the US company, it was concluded, “we find that taxable services provided from outside India are received and can be taxed in India u/s.66A(1)(b) of the Act.” Further that Import Rules made in exercise of powers conferred by sections 93 and 94 r.w.s. 66A of the Finance Act, 1994 do not suffer from the vice of constitutionality either on the ground of lack of legislative competence or on the ground of extra-territorial operation of laws.

Appellant claimed CENVAT credit — Based on de-livery notes — Revenue’s contention — Delivery notes cannot be considered as valid documents for availment — Held, credit cannot be denied — Delivery notes valid for availment of credit.

The appellant claimed CENVAT/Modvat of the duty paid on the basis of the delivery notes. The Revenue in its appeal against the Tribunal’s order, contended that delivery notes cannot be considered as valid legal document for availment of the credit.

Held:

It was held that the benefit cannot be denied on the grounds of non-compliance with procedures when sufficient evidence about the duty payment on inputs was available on records.

CENVAT credit of the service tax paid — Input services such as rent-a-cab service, outdoor catering services provided by the manufacturer to its employees working in the factory — held that such services are in relation to manufacture of final product — Hence, eligible input service.

The appellant claimed Cenvat credit of service tax paid by the appellant under rent-a-cab service and outdoor catering service to transport its employees to the factory and back and to provide food for them. The appellant was of the view that these services fall under input services which were entitled to credit.

Held:

Any service used by the manufacturer whether directly or indirectly in relation to the manufacture of the final product shall be considered to be eligible input service. Hence, CENVAT credit of the same can be availed.