Category: Recent Decisions: Part A: Service Tax

Facts:
The appellant running computer coaching centres imparted computer education at different locations in India. They entered into agreements with persons to provide computer training on franchisee basis and from the fees received, they transferred the amount to the related franchise’s account after retaining 15%. The department treated this as a “franchise service” and confirmed service tax and imposed an equivalent amount of penalty apart from penalties u/s. 76 and 77 of the Act. The appellant did not contest the demand as the issue was decided against the appellant in another decision of Tribunal in similar case. For the penalty the appellant pleaded bonafide belief that the services as to non-taxability as franchise service.

Held
The penalty u/s. 78 was dropped on the ground that there is no specific allegation in the showcause notice for suppression of facts with intent to evade Service Tax and that mere omission to declare the activity would not amount to suppression of fact.

Facts:
Appellant engaged in manufacturing of excisable goods paid the duty. Appellant received services of marketing & management consultancy from certain foreign service providers located out of India. During the course of audit, audit party pointed out the applicability of service tax on the receipt of the services from out of India. Appellant obtained the service tax registration and paid service tax with interest. Show Cause Notice was issued levying service tax, interest & penalty and were confirmed in the Order. Appellant challenged the imposition of penalty.

Held:
Since imposition of tax on import of services was under dispute at various fora and got final after the Bombay High Court gave decision in Indian National Ship Owners Association [2009 (13) STR 235 (Bom)], the Appellant deposited service tax after being pointed out by the Revenue.

Also the payment of service tax was revenue neutral exercise since it was available for credit against excise duty and therefore penalty was set aside.

Held:
Tribunal observed that electricity is regarded as goods as per Excise Tariff Heading 27 of CETA and as per Schedule A-20 of the Maharashtra VAT Act. Also Notification No. 12/2003 provides exemption for supply of goods and hence, service tax was held not applicable on reimbursement of electricity.

Facts:
Appellant an insurance service provider adjusted the service tax refunded to the intermediaries on the cancelled insurance policies against the service tax liability on the insurance premium for subsequent period. Revenue objected to the adjustment after noticing that in case of intermediaries, Appellant did not refund the actual amount of cancelled premium and service tax by way of cheque but had passed credit entries in the balances appearing in its books of accounts. Respondent considered this to be unsatisfactory, confirmed the demand.

Held:
Tribunal observed that, prima facie a credit in the account of intermediaries amounted to refund of money, however for the purpose of verification of the claim, the matter was remanded for de-novo adjudication.

Facts:
The Appellant provided “Business Auxiliary Services” (BAS) and had centralised registration. It provided BAS services to banks and therefore was allotted part of the bank premises and the bank charged rent plus service tax to them. The bank issued debit notes on the Appellant and all the details as stipulated under Rule 4A of the Service Tax Rules, 2004 and Rule 9 of the CENVAT Credit Rules, 2004 were provided in the annexure to the debit notes issued by the bank. The Appellant availed the credit based on the said debit notes. CENVAT credit was denied on the grounds that all the details were not mentioned on the debit note but in the annexure and the annexure cannot be treated as CENVAT document. Further that the Appellant had not registered bank premises from where the taxable service was provided.

Held:
The details as required under the provisions of law for claiming the CENVAT credit were provided and also the provisions do not lay down any particular format for the CENVAT claiming documents thus the CENVAT cannot be denied if all the details are provided as required under the law. The Appellant had obtained centralised registration and thus seeking registration of all the premises from which it provides taxable service will make the Rule 4B of the Service Tax Rules, 1994 granting centralized registration redundant and therefore the CENVAT credit cannot be denied on the grounds as implied by the department.

Facts:
The Appellant is a bank registered under centralized registration under service tax and discharged all its liabilities from its head office i.e. centralised registered premises. The Appellant took the CENVAT credit based on invoices pertaining to the head office kept at the head office and that pertaining to branch office was kept at the respective branches. During the CERA audit, invoices on which CENVAT credit was availed were demanded and the Appellant offered the invoices available at the head office but on account of huge volume, no checking was done and the CENVAT credit was denied. Secondly, the Appellant paid the service tax liability under the wrong accounting code and therefore they was asked to pay the said service tax again. Relying on the case of Arcadia Shares & Stock Brokers Pvt. Ltd. vs. CCE, Goa 2013 TIOL 1044 CESTAT Mum, the Appellant pleaded bonafides regarding use of erroneous code. However, they informed that the department itself regularised such a subsequent irregular payment and on intimation by the department and produced the relevant documents as evidence.

Held:
CENVAT credit cannot be denied without verification only because the volume is huge. Joint effort be made to conduct verification and case is remanded for verification. The payment made under wrong accounting code cannot be demanded and remanded the case for verification of the Appellant’s case that the subsequent payment was regularised by the department.

Facts:
Appellant preferred the appeal against order of Revenue denying the service tax credit on mobile/ telephone installed at the residence of the Directors of the Appellant on the reasoning that the same did not qualify as input service definition.

Held:
Tribunal referring to the decision of the Bombay High Court in Ultratech Cement Ltd.-2010 (260) ELT 369 (Bom.) which held that services used by the manufacturer of excisable goods in the course of its business activity would be entitled for credit, allowed the appeal of the Appellant.

Facts:
Appellant had taken CENVAT credit in the year 2009 for the period pertaining to year 2004 to 2009. Respondent issued SCN and denied the credit and imposed the interest and penalties.

Held:
Tribunal observed that neither the Central Excise Act nor CENVAT Credit Rules prescribed any time limit within which credit should be taken, although it was prescribed that CENVAT credit would be available immediately. The appeal was allowed with consequential reliefs.

Facts:
Appellant constructed a hostel for an educational institution which was to be used for stay by the students of the said institution. Respondent issued SCN and demanded service tax on the activity of construction of the said hostel building. Appellant contended that since the building was constructed for the purpose other than commercial purpose, service tax was not applicable and Respondent did not dispute the facts. Revenue considered it taxable as no evidence of the claim of noncommercial use was produced.

Held:
Tribunal held that since the said building was constructed for the purpose of residence of students and there was absence of allegation that building was being used for any other purpose, set aside the demand and granted the relief.

Facts:
Appellant provided broadcasting & cable TV services and were registered as such. SCN was issued raising the demand of service tax on carriage fees received for providing desired frequency for broadcasting channels signals under business auxiliary service. Also demand was raised under Lease Circuit service for amount received for providing voice & data circuit service. Demand was confirmed with interest and penalties.

Held:
Carriage fees charged from different channels for providing desired frequency for broadcasting their channel’s signals which facilitates better quality view of channel. Better quality of channels enhanced the viewer-ship of channel and thus amounted to promotion of broadcasting channel and therefore classifiable under business auxiliary service.

Original authority classified voice & data circuit service under Lease Circuit service for a certain period and under telecommunication service for subsequent period. Appellate authority in its Order classified the said service under telecommunication service. Both the departmental authorities have not given any findings on the applicability of the said classification and therefore this issue was remanded to original authority.

Since no finding was recorded on the issue of invocation of extended period and penalties, the Appellant’s claim that proper disclosures were made in the service tax returns in respect of carriage fees, voice & data circuit fees received, the matter was remanded to the original authority.

Facts:
Appellant challenged service tax under one of the sub-clause of the definition of Business Auxiliary Service (BAS) and applicability of extended period of limitation and levy of penalty.

Appellant was appointed as Direct Sales Associate/ Agent of ICICI and HDFC banks for promoting various products of these banks at relevant times. Appellant obtained service tax registration by disclosing the nature of services rendered by it under BAS category under sub-clause “provision of service on behalf of client” which was made taxable from 10-09-2004 started paying taxRespondent issued demand on the basis that the services provided by Appellant were covered not under the clause of “provision of services on behalf of client” but under sub-clause “promotion/ marketing of services provided by client” which was taxable from 01-07-2003.

Held:
Tribunal after referring the agreement entered between Appellant & Banks held that Appellant by using its expertise, staff, infrastructure was marketing the products of Banks and these were nothing but the services provided by Bank. Hence services of the Appellant were classifiable under sub-clause “Promotion/marketing of services provided by the client” which was taxable w.e.f. 01-07- 2003. Further, non-disclosure of services rendered at the time of obtaining service tax registration in the year 2004 amounted to suppression of material facts for the period prior to year 2004 and hence invocation of extended period was justified. However, since Appellant filed an application under “Extra-ordinary Taxpayer-Friendly Scheme” in the year 2004, the case was considered covered u/s. 80 for setting aside the penalties.

Facts:
Appellant preferred refund claim for service tax paid twice (second time at the instance of department) against the Order of CESTAT rejecting the appeal filed by Appellate.

Appellant deposited service tax on billing basis instead of receipt basis that too before the due date. Respondent passed the orders raising the demand of service tax on the receipts realised in subsequent period, without adjusting the service tax paid at the time of billing. Appellant deposited the service tax demanded with interest and preferred a refund claim. Respondent rejected the refund claim on the ground of limitation and also due to possibility of unjust enrichment.

Held:
High Court after referring to provisions of section 68(2) & 68(3) of the Finance Act as existed at the relevant time, held that, Appellant had already deposited the entire tax on billing basis thus had complied the requirement of section 68. The logic advanced in the Order of Respondent while demanding the tax was fundamentally incorrect. Question of limitation in case of retention of service tax which was paid twice would not arise and such retention was without authority of law. Appellant has deposited the tax separately and second time under insistence of Revenue which was the subject matter of refund, hence principal of unjust enrichment was not applicable. Appeal was allowed with direction to refund the tax paid.

Facts:
The respondent a registered co-operative society formed with the object of improvement of tapioca cultivation and tapioca sago and starch industry and of the economic condition of tapioca cultivators and sago and starch manufacturers in some area. Their activities involved in the case were as under:

Members of the society sent their products to the society’s premises by making their own arrangements for loading, transport and unloading of the goods. The said goods were weighed and sent to the godown maintained by the society. Samples were drawn for quality testing as well  as for display in the tender hall. On receipt of the tenders from the registered merchants, who also happened to be members of the society, the higher rate offered for each lot was displayed. On confirmation of the price by the principal, the buyer was intimated suitably to make his arrangements to lift the stock. Thereupon the society prepared the statement of bill to the members, wherein, deductions were made towards advance paid, interest payable, godown services charges, godown rent, unloading charges, marking charges, bank service charges and courier charges etc. According to the society, it acted as agent between the members and buyers; provided warehousing facility and gave advance money to the members before sale if so requested by the members

As contended by the Revenue, the society received the goods from principal, effected sales only after obtaining the concurrence of the principal; they maintained the records for receipts, despatches and the stock available with them in the warehouse and therefore tax was sought to be levied under “clearing and forwarding service” and it was confirmed in the first appeal.

The Tribunal allowed the assessee’s appeal holding that the consignments of sale were brought by the principal to the premises of the society for auction and that the society did not clear the consignments from its premises. After the sale, the goods were delivered to the buyer at the sales premises by the owner/principal. As such there was no forwarding took place. Referring to the decision in Mahavir Generics vs. CCE [2007] 6 STT 523 (New Delhi-CESTAT) the Tribunal held that the assessee was not doing forwarding services and consequently, there was no liability to pay the service tax. Before Hon. High Court, the Revenue placed reliance on the CBEC Circular in F.No. B/43/7/97 TRU dated 11-07-1997 which the society contested and placed reliance on section 65A(2) (b) of the Finance Act that even assuming that there is a combination of different services, the Revenue must find out the essential character of the service to bring the society within the framework of the activity of clearing and forwarding.

High Court held as under:

• There is no evidence to show that the assessee had a responsibility of arranging despatch of goods purchased by the buyer in the auction nor had responsibility to collect the goods from the principal’s premises. It is only the principal who brought their products on the society’s premises to make use of the common market platform of the Society for its members and on the request of the principal, the society offered the storage facility.

• On reading of the nature of activity rendered by the society, it is clear that except for receiving the goods which were brought to its doorsteps by its principal and displaying the goods received for sale, practically, nothing else was done by the society in the matter of taking the goods from the principal and for further despatching of the goods to the buyer by engaging transporter or on its own. The conduct of the society, handling the goods on receipt raising invoices on sale or maintaining records as to the stock availability, rate at best, indicates it only as an agency offering storage facility. This act, per se, does not convert the assessee’s transaction as that of a clearing and forwarding agency. The essential character of the activity of providing a platform for the sellers and buyers to meet in a common place, providing a storage facility to the manufacturer, the financial help etc. do not, take the society anywhere near the activities discharged by a clearing and forwarding agent. The incidental services offered in the transaction in arranging the transporting of the goods to the buyer would not, decide the nature of the transaction as one of clearing and forwarding agency.

(Note: It may be noted that, decision of Mahaveer Generics relied upon by the Tribunal has been approved by P&H High Court in the case of CCE vs. Kulchip Medicines 2009 (14) STR 608, however it has been subsequently reversed by Hon’ble Karnataka High Court in the case of Commissioner of C.Ex (Bangalore) vs. Mahaveer Generics 2010 (17) STR 225 (Kar) distinguishing the said decision of P&H High Court (supra).

Facts:
Appellant was engaged in the trading of household articles, electrical and electronic goods and sold these goods to its customers by placing orders with various manufacturers. The terms of sale were on ex-factory basis and the sale price was charged as per price list issued by the manufactures. Thereafter Appellant arranged for the transportation from the place of manufacturer to the customers by collecting transport charges. Further Appellant charged for the installation of these items at the place of the customers. The invoices raised by it had three components – sale price, transport charges and installation charges. Appellant deposited VAT on the sale price and paid service tax on the transport charges and installation charges. Authority demanded VAT on transport and installation charges for which the present writ is filed.

Held:
The High Court after referring to section 2(36) of KVAT Act held that, the said section specifies the term ‘turnover’ which means the aggregate amount for which goods are sold shall include any sum charged for anything done by the dealer in respect of goods sold at the time of or before the delivery thereof. If the transfer of title to goods is to be at the place of seller then the subsequent charges for transporting goods & installation do not form part of the amount for which goods are sold. From the price lists and sale invoices of the Appellant, it becomes clear that the sale prices are on ex-factory basis and do not include the installation. Therefore the sale price of the goods at the ex-showroom price attracts sales tax/VAT. Subsequent to the transfer of title in goods at the place of seller, Appellant acts as agent of customers for transportation of goods and installation. Therefore the transportation and installation charges do not become part of the sale price of goods. In this case, Appellant has collected transport & installation charges and deposited service tax thus Appellant has discharged its legal obligation of paying service tax. The State Government cannot be enriched by wrongly bringing the transport and installation charges as part of sale price of the goods. Thus the writ was allowed and the order was quashed.

Facts:
The Appellant filed appeal before Commissioner Appeals in time. However, on defects being pointed out by the office of Commissioner (Appeals), the appeal was filed afresh removing those defects, which led to 10 days delay. The Appellant did not file any application for condonation of delay. The Commissioner (Appeals) dismissed the appeal on the ground of limitation.

Held:
Tribunal held that, since there was no delay in filing the original appeal and the new appeal was filed only to remove the defects pointed by office of Commissioner (Appeals) there cannot be said to be delay and matter was remanded to Commissioner (Appeals) for adjudication on merit.

Facts:
Indus is a company registered with the Department of Telecommunication for providing ‘passive infrastructure services’ and ‘related operations and maintenance services’ to various telecommunications operators in India on a shared basis. Its business is to provide access to the telecom operators, on shared basis to the telecom towers installed by it and to a shelter which is a construction. It would also provide diesel generator sets, airconditioners, electrical and civil works, DC power system, battery bank, etc. All these are known as “passive infrastructure”.

Inside the shelter the telecom operators are permitted to keep and maintain their base terminal stations (BTS), associated antenna, back-haul connectivity to the network of the sharing telecom operator and associated civil and electrical works required to provide telecom services. This is known as the “active infrastructure”.

Whereas the active infrastructure is owned and operated by the sharing telecom operator, passive infrastructure is owned by Indus. There could be several operators who may use the tower and shelter which are parts of the passive infrastructure by keeping their BTS, etc., therein and sharing the entire passive infrastructure on an agreed basis.

The active infrastructure which is owned and put up by the sharing telecom operators needs certain conditions for proper functioning and uninterrupted telecom network/signals. These conditions are maintenance of a particular temperature, humidity level, safety, etc. which are ensured by the passive infrastructure made available by the petitioner to the sharing telecom operators.

Issue:
The issue involved in the case was in the context of section 2(l)(zc)(vi) of the Delhi VAT Act, 2004 that, whether, in the facts and circumstances, the provision of passive infrastructure services by the applicant to sharing operators would tantamount to ‘Transfer of right to use goods.

VAT authority considered the entire amount of consideration received for providing access to the passive infrastructure as one for “transfer of the right to use goods.

The Petitioner contended that there was no transfer of the right in any goods by the petitioner to the sharing telecom operators and therefore the levy of VAT on the assumption to the contrary was wholly untenable.

Held
On examination of various clause of sample Master Service Agreement (MSA), High Court held as under:

• The right to use the goods—in this case, the right to use the passive infrastructure—can be said to have been transferred by Indus to the sharing telecom operators only if the possession of the said infrastructure was transferred to them. They would have the right to use the passive infrastructure if they were in lawful possession of it. There has to be, in that case, an act demonstrating the intention to part with the possession of the passive infrastructure.

• Various aspects in the MSA clearly provided that Indus had to be in possession of the passive infrastructure and cannot part with the same in favour of the sharing telecom operators.

• The High court also referred to various provisions in the agreement while examining the contents of the agreement and observed that with several restrictions and curtailment of the access made available to the sharing telecom operators to the passive infrastructure and with severe penalties prescribed for failure on the part of the Indus to ensure uninterrupted and high quality service provided by the passive infrastructure, it is difficult to imagine how Indus could part with the possession of part of the infrastructure.

• Therefore, it was held that, the limited access made available to the sharing telecom operators could not be considered transfer of “right to use” the passive infrastructure when the possession of the said infrastructure always remained with Indus. The sharing telecom operators did not therefore, have any right to use the passive infrastructure. The High Court placed reliance on decision of Indus Towers Ltd. vs. Dy. CIT (2013) 29 taxmann.com 301 (Kar)

Facts:
The respondent’s request for centralised registration as service receiver in respect of GTA service was rejected by the department. CCE (Appeals) admitted appeal against the impugned letter of rejection and allowed centralised registration to the respondent on the ground that in respect of GTA service, the recipient of the service has to discharge tax liability and if the recipient maintains centralised accounting system in the head office, such office can be allowed to be registered with the department for discharging service tax liability.

The Revenue filed appeal against this order before Tribunal on two grounds viz. the letter rejecting respondent’s request for centralised registration is not an appealable order and therefore the appellate authority should not have entertained the appeal. Secondly, as per Rule 4(2) of the Service Tax Rules, only service providers are eligible for centralised registration subject to certain conditions and not service recipients.

Held
As regards the first ground, it is the settled position of law that if a letter conveys the ground of rejection and also the rejection, the same can be treated as an order eligible for appellate remedies. In Bhagwati Gases Ltd. vs. CCE 2008 (226) ELT 468 (Tri – Delhi) in a similar situation, this Tribunal held that “where the order impugned determines the right of the party or is likely to affect its rights, communication thereof cannot be said to be a communication simplicitor” and appeal against such communication should be maintainable. As regards the second ground that the respondent being a service receiver is not eligible for centralised registration, it was observed that it would defeat the objective of registration. The purpose of registration in indirect tax laws is to identify the taxpayer. In this particular case, the taxpayer or the person liable to pay tax is the receiver of the service and for making the payment of service tax, the respondent is required to get registered with the department. Hence there is no reason that the benefit of centralised registration cannot be granted, if the person satisfies the conditions for such centralised registration.

Facts:
Appellant provided services of transportation of answer sheets from various district collection centres and delivered to Nagpur University and consideration was received on per kilometre basis. The lower authority held that the Appellant provided ”rent a cab operator’s services” and liable for service tax for the extended period also but restricted the penalty u/s. 78 upto 25%.

Held:
No evidence was provided by the Revenue that the Appellant was hired on monthly, weekly or daily basis and therefore the services of transportation of answer sheets could not be termed as “Rent a cab operator’s services”. Thus the demand as well as the penalty was set aside.

Facts:
Appellant, an exporter of goods, paid service tax on the transportation of goods from its mine to port and on stockyard rent and filed rebate claim. The claim was rejected for service tax on transportation on the ground that the exporter’s Invoice details were not mentioned on the lorry receipts which was in contravention to condition mentioned in the Notification No. 41/2007 ST as amended by Notification No. 3/2008 ST and further there was no co-relation between stockyard rent and export of goods.

Held:
Though the exporter’s invoice details were not mentioned on the Lorry receipts, the compliance with the conditions of the above Notifications could have been done by broad correlation of evidence of transportation with the service tax paid thereon and quantity exported and hence the Appellant was entitled to the rebate of service tax on transportation. For the rebate of service tax on the stockyard rent, it was held that, since the Appellant was unable to establish nexus between the input service (stockyard rent) and exported goods, the claim was not admissible. Thus claim was allowed partially.