Category: Recent Decisions: Part A: Service Tax

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”.

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.

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.

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”.

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.

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.

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.

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.

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.

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.

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.

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.

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.