Category: Recent Decisions: Part A: Service Tax

Facts:
The assessee, a manufacturer of satellite components and aircraft components, also provided service of renting of immovable property. They used the credit in Cenvat account for paying excise duty on the goods cleared by them and also for paying service tax on service rendered under the category of Renting of Immovable Property. SCN was issued alleging that capital goods, inputs and input services on which credit was taken had no nexus with the renting of property service and thus Cenvat credit could not be utilised by them and demanded service tax accordingly along with interest and penalty.

Held:
It was held that a manufacturer of excisable goods is entitled to use the credit from a common pool to which different categories of specified excise duties, customs duty and service tax are allowed to be taken of.

Facts:
The assessee, a manufacturer of footwear, availed the services of goods transports agency i.e., for transportation of inputs and final products. The respondents while depositing service tax mentioned the name of the transporter inadvertently on the challan instead of their own name. On realising their mistake, remitted the tax again vide TR6 challan. The respondents filed an application for refund of tax paid by them earlier and submitted a disclaimer certificate from the transporter stating they have no objection in the said amount being refunded to the respondent. The Department contended that the refund could be granted only to the transporter who made the actual payment as per TR-6 challan and not to the respondent.

Held:
The Tribunal observed that any person was authorised to claim the refund if the applicant is able to furnish documents to establish that duty of incidence has not been passed on. It was held that in the present case, the duty of incidence was paid by the respondents and hence the Revenue‘s appeal was rejected.

Facts:
The appellants were providing services of mandapkeeper and paid service tax for the said activity. They also had parking space for which they charged separately from by their clients who enjoyed the services of mandap. A service tax was demanded on the charges for the said parking charges along with interest and penalties.

The appellants contended that they issued separate invoices for the charges and the same was reflected in their balance sheet separately. Also, the major portion of the demand was time-barred. Relying on the judgment in the case of Merwara Estates v. CCE, Jaipur 2009 (16) STR 268 (Tri.-Delhi), the appellants submitted that the penalties are not to be imposed in cases involving interpretation. Further, extended period of limitation was not invocable as suppression could not be alleged on the basis of balance sheet. The appellants relied on the judgment in the case of Martin & Harris Laboratories Ltd. v. CCE, Gurgaon 2005 (185) ELT 421 (Tri.-Delhi). The respondents submitted that without the parking space the mandap could not have been enjoyed by the clients and the car parking charges were not being collected from the persons parking their cars.

Held:
Taking into consideration the definition of ‘Mandapkeeper services’ u/s.65(105)(m) of the Act and the nature of services provided by the appellants, it was held that the services of car parking was in relation to use of the mandap as the car parking was a necessary facility for the use of mandap. The fact of separate collection of car parking charges was not coming clearly in the balance sheet. Extended period of limitation was held invokable as the appellants suppressed the facts from the Department. As regards penalty, it was observed that the appellants were not granted the option of paying 25% of the penalty within 30 days of the order of adjudication as held in the case of K. P. Pouches (P) Ltd. v. UOI, 2008 (228) ELT 331. Also, penalty once imposed u/s.78, penalty u/s.76 is not maintainable. Accordingly, demand of service tax was confirmed along with interest. As regards penalty, an option to pay 25% of the penalty within 30 days of the communication of this order was granted to the appellants.

Facts:
The
appellants engaged in the manufacture of telecommunication equipment,
UPS Systems, and primary and secondary instruments, etc., chargeable to
Central Excise duty. In addition, the appellants also designed,
installed and commissioned the electronic control systems, provided
operational training to the customer’s employees and also undertook
repair and maintenance of these equipments as per the contract with
their customers. Pursuant to the introduction of ‘Consulting Engineers’,
‘Installation & Commissioning’ and ‘Repairs and maintenance’ as
taxable services under section 65 of the Act), the appellants took
service tax registration for ‘Repair & Maintenance’ on 1-8-2003 and
for ‘Installation & commissioning’ and ‘Repairs & Maintenance’
on 20-1-2004. A show-cause notice was issued against the appellants in
respect of the ‘Consulting Engineer’ services provided prior to 1-8-2003
for service tax amounting to Rs.40,71,946 along with interest and
penalty.

Key contention of the appellants:
The
appellants did not provide any Consulting Engineer’s services but
executed lump sum turnkey contracts for design, engineering,
manufacture, supply, erection, testing and commissioning of control
systems. The lower Appellate Authority overlooked the law laid by the
Tribunal in the case of Daelim Industrial Co. Ltd. v. CCE, Vadodra 2003
(155) ELT 457 and a plethora of other cases holding that “lump sum
turn-key contracts for design, engineering, manufacture, supply,
erection, testing and commissioning cannot be vivisected to levy service
tax on the service components”. The view taken by the Tribunal in the
case of CCE, Raipur v. BSBK Pvt. Ltd., 2010 (253) ELT 522 (Tribunal-LB)
that after 46th Constitution amendment, the service part of a turnkey
contract can be separated from the goods part for levy of service tax
did not apply in the present case as the legal fiction under Article
366(29A) cannot be applied to the laws other than sales tax. The
appellants relied on a plethora of cases such as BSNL v. Union of India,
2006 (3) SCC 1, Southern Petrochemical Industries Co. Ltd. v.
Electricity Inspector, (2007) 5 SCC 447, Geo Miller & Co. (P) Ltd.
v. State of M.P., 2004 (5) SCC 209, etc. Relying on the decision in the
case of Patnaik & Co. v. State of Orissa, AIR 1965 SC 1655, it was
submitted that drawing and designs prepared were to be treated as
service provided by the appellant to themselves and not a consulting
engineer’s service provided to clients. Separate amount indicated in the
contract for ‘drawing/designing or engineering’ was only for a
milestone payment to be released on preparation and approval of drawings
and could be treated as value attributable to the drawings and
designing. The contracts in the case were indivisible turn-key contracts
with single-point responsibility which could be treated as severable
contracts. Such contracts became taxable as ‘Work contract services’
w.e.f. 1-6-2007 under 65(105)(zzza) of the Act and any activity under
work contract was not taxable prior to that date. The longer period of
limitation for demand of allegedly non-paid service tax was not
available to the Department as they were aware of the activities of the
appellants since 1991.

Key contention of the respondent:
The
services rendered as ‘consulting engineer’ were clearly distinguishable
as the clauses of the contract showed the intention to provide the
services and to charge separately for the same. The Tribunal in the case
of Transformers & Electricals Kerala Ltd. v. CCE, 2006 (1) STR 233
(CESTAT-DB) held that the engineering consultancy component of EPC
contracts was taxable. Further, the terms of the contract clearly
indicated that service tax was rightly demanded on the charges for
drawing, designs and other technical assistance. There was no provision
in the Act that taxable service mentioned in section 65(105) will not be
taxable if provided under a lump sum turn-key contract (LSTK) or as a
work contract. There was no documentary evidence produced to show that
charges for drawing, designs, engineering assistance, etc. in the
contracts and invoices were not the actual charges for these contracts. A
work contract is a service contract and if that service was taxable
w.e.f. 1-6-2007, the same would attract service tax prior to 1-6-2007,
even if it is provided as a lump sum work contract. In addition it was
contended that the decision of Daelim (supra) did not lay down any law
as SLP was summarily dismissed by the Supreme Court. The Karnataka High
Court decision of Turbotech Precision Engineering Pvt. Ltd. was not a
binding precedent as no reasons were provided in the said judgment for
holding works contract as not liable for service tax.

Held:
The
Tribunal held that the preparation of basic and detailed engineering
drawings, on the basis of which erection and installation work was done
and training of clients was technical assistance provided to the clients
and it had to be held as consulting engineer’s services. As regards the
issue of subjecting lump sum turn-key work contracts to service tax
payment and the levying of the same prior to 1-6-2007, the Tribunal
observed that a contract will attract service tax if the service is
taxable u/s.65(105) of the Act and the legal fiction of Article 366(29A)
was of no relevance in this case. Service tax shall be chargeable in
case of a work contract for a particular service which is taxable
u/s.65(105) of the Act, regardless of it being divisible or indivisible.
The meaning of work contract being a contract for work and labour i.e.,
a service contract prior to 1-6-2007 and hence service tax would be
levied on the same prior to 1-6-2007. The contract and the invoices
indicated that the clients were charged for drawings/designs,
engineering and technical training and hence the contracts contained
component of activity covered by ‘Consulting Engineer service’. Hence,
service tax was chargeable. The longer period of limitation of five
years for unpaid service tax was rightly invoked in the light of the
appel-lant’s failure to furnish any explanation for non-payment of
service tax and for not obtaining registration. Penalty imposed u/s.76,
77 and 78 were also rightly imposed as the facts were suppressed.

Facts:
The issue for consideration was whether the appellant could levy penalty at the rate of Rs.100 per day on failure to pay duty by the assessee for the period prior to 10-9-2004 or not. According to the assessee, the provisions of section 76 to levy penalty at the rate of Rs.100 per day came only from 10-9-2004 and thus it could not be levied retrospectively. The Department relying on the judgment in the case of ETA Engineering Ltd. v. Commissioner of Central Excise, Chennai 2004 (174) ELT 19 (Tri.- LB) contended that even for the period prior to 10-9-2004, the Tribunal had confirmed the order of levying penalty at the rate of Rs.100 per day.

Held:
The Tribunal observed that the judgment of ETA Engineering Ltd. was not applicable to this case as it did not consider effective date of the amended provision. It was held that penalty at the rate of Rs.100 per day was leviable for the period 10-9-2004 onwards and not prior to the said date.

Facts:
Service tax was demanded and penalty was levied. The applicant had filed a return under Rule 7 of the Service Tax Rules, 1994 and subsequently revised it. The lower authority had not taken into consideration the revised return as it was filed after a lapse of 11 months and as per the rules, the revised return was to be filed within 60 days.

Held:
It was held that revised return cannot be ignored simply on the ground that the same was filed after the period provided under Rule 7B by virtue of section 7C of the Service Tax Rules 1994. The appeal was allowed by way of remand.

Facts:
The appellants were exporting stationary items, namely, notebooks and exercise books which were exempted from duty. The appellants were availing Cenvat credit on the duty paid on inputs and accordingly filed among other applications, an application on quarterly basis for refund of the accumulated credit on account of export for an amount of Rs.69,024 for the quarter January 2007 to March 2007. The Commissioner (Appeals) upheld the order of the lower original authority and inter alia held that the second application filed by the appellants seeking refund of Rs. 69,504 was hit by condition 2(a) of Notification No. 5/2006-C.E. (N.T.) which allows for refund of Cenvat credit only in cases where claims for such refund are submitted not more than once for any quarter in a calendar year. The appellants contended that the Commissioner (Appeals) travelled beyond the scope of show-cause notice as the original authority had not rejected the refund claim on the ground of two applications being submitted for one simple quarter under the condition of 2A.

Held:
The Tribunal concurred with the order of the Commissioner (Appeals) and held that the plea for admissibility of refund was too feeble and devoid of any merits.

Facts:
The appeal was filed the Bank challenging the adjudication order levying service tax and cess. The appellant had followed all RBI guidelines and the debit slips in all transactions clearly disclosed interest and other receipts. The Department contended that the conditions of Notification No. 29/2004-ST exempting interests on overdraft facility, cash credit facility or discounting of bills, bills of exchange or cheques in relation to banking services were not fulfilled as the interest amount was not shown separately in any invoice, a bill or a challan issued for the purpose.

Held:
Strict interpretation was unwarranted if it is established that the claimant squarely falls within the exemption zone. However, it was necessary to satisfy the authority through evidence. Accordingly, the appeal was disposed of with a direction to the appellant to adduce evidence as required by the Notification.

Adjudication — Denial of request of cross-examination of persons whose statements were relied in SCN — Denial on ground that the case was based on documentary evidence and not on statements of persons.

Held:
Adjudicating authority pre-judged the issue and acted with pre-conceived mind — Natural justice principles to be followed by quasi-judicial authorities depending on facts/circumstances of case.

Appeal — Right to appeal not taken away and cannot be denied on ground of delay.

Facts:
An SCN was issued to the appellants demanding duty on unaccounted produces pursuant to the search and seizure. Notices were also sent to transporters. The Commissioner addressed a letter dated 26th September, 2008 to one of the appellants whereby the appellants’ request for cross-examination of witnesses was rejected and final date of hearing was intimated to the appellants.

The two issues requiring consideration are relating to misconstruction of provisions of law comprised u/s.33-A of the Act and the arbitrary rejection of the request for cross-examination of the persons whose statements were recorded and relied upon documents for conclusion in the matter.

The appellants contended that the Commissioner misconstrued the provisions contained in section 33-A of the Act which provided for granting of adjournment of hearing to a party for not more than three times as this was only an outer limit for number of days for hearing and thereby pleaded denial of natural justice. Referring to the Supreme Court decision in the case of State of West Bengal & Ors. v. Shivananda Pathak & Ors., (1998) 5 SCC 513 it was contended that the letter dated 26th September, 2008 clearly disclosed that the Commissioner had pre-judged the issue and had a biased approach in relation to the right of the appellants to cross-examine the persons whose statements were recorded and to be relied upon for the findings. This amounted to violation of principle of natural justice. According to the Revenue, the allegation of the appellants of biased attitude was devoid of substance. Such allegations cannot be made at a later stage after the final order was delivered. The appellants were uncooperative from the commencement of the proceedings. Further, relying on the decision in the case of Debu Shah v. Collector of Customs, 1990 (48) ELT 302, inter alia it was contended that in quasi-judicial proceedings authorities were not bound by strict rules of evidence and procedure and further contended that the information received from various sources could be relied upon without making it available to the parties.

Held:
The Tribunal observed that the fourth adjournment could be granted u/s.33A of the Act on the basis of valid and justifiable reasons. The decision of the Commissioner to decide about the claim of the appellants for cross-examination of the witnesses was premature on account of the fact that there was no defence placed on record for the appellants. Following the decision in the aforementioned Shivananda Pathak’s case, it was observed that the rejection of the request for cross-examination on part of the Commissioner clearly disclosed legal bias. Also, the rules of natural justice are applicable to quasi-judicial authorities depending upon the facts and circumstances of the case as observed in the case of A. K. Kraipak v. Union of India, AIR 1970 Supreme Court 150. The appellants were well within their rights to challenge the appeal as the appellants had the right to challenge the interlocutory order either immediately after the passing of order or to challenge the same along with the final order. Setting aside the impugned order, the appellants were permitted to file detailed reply to the SCN on or before 20th October, 2009 and the Commissioner was directed to dispose of the matter, in any case before 31st March, 2010. The appellants would not be entitled to seek adjournment more than three times in the matter. The matter was remanded with the consent of both the parties before the Commissioner at Indore to avoid further complications in the matter.

Facts:
The appellants being an ‘Individual professional videographer’ was denied exemption of service tax as exemption was not claimed earlier. The Department argued that the appellant being an individual videographer operating from his home was not liable to pay any service tax. Notification No. 7/2001-ST, dated 9-7-2001 stated that service tax on taxable service provided to a client by an individual professional videographer in relation to video tape production was exempt.

Held:
Though the benefit of the Notification was claimed in the first appeal, the authority had rejected the claim on the ground that it was not claimed earlier. However, the Tribunal stated that exemption could be claimed at any stage if it was available to the litigants, and thus the exemption was allowed to the appellant.

Facts:
The appellants were engaged in providing containers to various units in SEZ. Service tax was demanded on the ground that containers have been used partly in and partly outside SEZ. According to the appellants, in terms of the SEZ Act, 005 and the Rules thereunder, payment of service tax was exempted if taxable services were provided to a unit in the SEZ and the appellants had exactly done that irrespective of the fact that the container had carried cargo out of the SEZ territory, exemption could not be denied to them. ST Notification No. 4/2004 which limits the exemption to service consumed within the SEZ uses the expression ‘for consumption of services’ within such SEZ, but at the same time, also uses the expression ‘taxable services provided to a unit of the SEZ.’

Held:
Section 26 of the SEZ Act and Rule 31 of the SEZ Rules, 2006 make it clear that there was no restriction regarding the consumption of the services and the exemption was extended to the services rendered to a unit in the SEZ for the purpose of authorised operation i.e., for bringing inputs for manufacture and carrying finished goods out of SEZ for export purpose, in the SEZ. Thus, the impugned services relating to supply of containers in SEZ units were exempted from service tax.

Facts:
The assessee provided storage and warehousing services. They used cement and TMT bars for construction of warehouses and took credit on Central Excise duty paid on cement and TMT bars which was disallowed, against which the assessee filed an appeal before the Commissioner (Appeals) who dismissed the appeal and allowed the Department’s claim of suppression regarding availment of Cenvat credit on ineligible goods.

Held:
CESTAT referred to the judgment of the Supreme Court in Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi III, 2009 (9) SCC 193 wherein it was held that “all goods used in or relation to the manufacturer of the final products qualify as inputs” and had rectified the decision of the Appellate Authority by allowing credit. The Court confirmed CESTAT’s stand on allowance of credit and consequently non-levy of penalty.

Facts:
The plaintiffs had a lease arrangement with the defendants in 2006 for maintenance of common services and facilitates in respect of leased premises. The agreement stated the liability to pay municipal, local and other taxes was of plaintiffs. However, there was no specific mention as to who would bear service tax. The Finance Act, 1994 introduced service tax w.e.f. 2007. The plaintiffs contended that the said tax being in nature of indirect tax, had to be deposited by the service provider only after collecting the same from the receiver. They claimed that the tax was on the service and not on the service provider; and by virtue of section 83 of the Finance Act, 1994, it is presumed by law that the tax is to be collected from the service receiver. According to the defendant, the plaintiffs was law bound to bear all or any taxes levied by MCA, DDA, L&DO and or Government, local authority, etc. The defendants also relied on the ruling of the High Court of Allahabad in Thermal Contractors Association v. Dir Rajya Vidyut Utpadan Nigam Ltd., 2006 (4) STR 18 which inter alia held that “The payer of service tax is entitled to realise the same from its consumer; however it always depends on the contract entered into between the parties”.

Held:
The issue was decided in favour of the plaintiffs. While observing the ruling of the Supreme Court in All India Federation of Tax Practioners v. Union of India, 2007 (7) SCC 527, the Court held that service tax is consumption-specific as it does not constitute a charge on the business but on the client. Further, relying on All India Taxpayers Welfare Association v. Union of India & Others, 2006 (4) STR 14, the Court observed that as per section 12A of the Central Excise Act, 1944 r.w.s. 83 of the Finance Act, 1944, invoice and other documents should bear the amount of service tax. Section 12B of Central Excise Act, 1944 r.w.s. 83 of the Finance Act, 1944 contemplates that service is deemed to have been passed on to the service receiver. The agreement was silent on service tax levy as it was not anticipated at the time of making argument.

Therefore, even in absence of an express provision in law, but based on the overall scheme of the legislation, service tax could be collected from the recipient and accordingly, the plaintiffs were eligible to collect service tax from the defendant.

Facts:
The Tribunal set aside penalty by taking into consideration the payment of service tax along with the interest by the respondent before the issuance of show cause notice (SCN). The Revenue contended that the Tribunal had no authority to discuss about the respondent’s claim for refund of excess interest paid, since the appeal was filed in relation to penalty. The respondent relied on the Circular published by the Department granting time for compliance with statutory provision in regard to payment of service tax.

Held:
The Court allowing the appeal partly, vacated the part of the Tribunal’s order declaring the respondent’s entitlement for refund of interest as interest was not connected with penalty, whereas penalty part was not interfered with.

Facts:
The appellants, M/s. UCAL Fuel System Ltd. were availing services in respect of preparation of documents for pre-shipment and post-shipment of export goods and were claiming credit of services paid on the same. The appellants were denied Cenvat credit of service tax of Rs.1,28,914 as the service provider did not mention the nature of the taxable services in any of the documents, on the basis of which appellants claimed the credit. The appellants argued that the services rendered had direct nexus with the business of the manufacture of the assessee’s final product and hence were in the nature of business auxiliary service.

Held:
After observing bills and other documents of the appellants, the Tribunal held that services availed by the appellants were business auxiliary services in nature and they were entitled to avail Cenvat credit of service tax paid on such services as per Rule 2(1) of Cenvat Credit Rules, 2004.

Facts:
The appellants were engaged in providing banking and financial services. The dispute arose in relation to the amount of Rs.8,06,059 collected on account of premium on pre-payment of direct loans from their customers 1-9-2004 to 31-3-2006. The demand of Rs.82,215 was confirmed against the appellants treating the amount collected as service charges received for services rendered under the category of banking and financial services. The appellants inter alia submitted that the amount received towards re-scheduling of loan and foreclosure of loan is not towards rendering any services and is in fact a case of ending the services.

Held:
Reflecting on the definition of ‘Banking and financial services’ as provided in section 65(10) of the Finance Act, 1994 during the relevant period, the Tribunal observed that the authorities did not indicate as to which sub-clause of the definition of the activity foreclosure falls under. Foreclosure premium was kind of a compensation for possible loss of interest revenue on the loan amount returned by the customers. Setting aside the appeal, it was held that the activity of foreclosure could not be treated as ‘Banking and financial services’.

Held: No intention to evade tax — Extended period not invocable — Demand, interest and penalty be consequently reduced — Penalty u/s.78 of the Finance Act, 1994 set aside.

Facts:
The appellants were a public sector undertaking engaged in the business of warehousing fertilisers and other items and were registered with the service tax authorities for payment of service tax on ‘Storage and warehousing charges’. During the audit conducted by the service tax authorities, it was observed that the appellants were recovering supervising charges from their customers which was being paid to the handling and transportation contractors appointed by them. The appellant started paying service tax on handling and transportation charges as also supervision charges under the ‘Cargo handling services’. A show-cause notice was issued against the appellants demanding tax as ‘Cargo handling services’ rendered during the past and sevice tax demand of Rs. 79,43,447 was confirmed against the appellants along with interest and penalty. The appellants inter alia contended that there was no intention to evade service tax and failure to pay service tax was due to the non-understanding of the appellants regarding the term ‘Cargo handling agency’ services provided by them. Therefore, the demand for period beyond 12 months be dropped.

Held:
The Tribunal considering the status of the appellants as a public sector undertaking and their conduct after the matter was pointed out to them held that there was no intention to evade payment of tax. Demand, interest and penalty u/s.75 was to be paid in respect of normal period and the penalty u/s.78 was held as not maintainable.

Facts:
The appellants were ordered by Rajasthan State Electricity Board (RSEB) for computerisation of energy billing and related MIS, relevant formats, performas and information, for which the appellant developed a software only for RSEB. SCN was issued alleging that the services rendered by them amounted to BAS and thus service tax was payable and penalties were leviable. On appeal by the party, the Commissioner concluded that service rendered were in the nature of information technology service which is not included under the category of business service. Relying on the decision in the case of Dataware Computers & Ors. v. CCE & CST (Appeals), Guntur 2008 (87) RLT 325 (CESTAT-Bang.), the appellants contended that they have merely undertaken computer-enabled service of data processing and generation of reports and bills which came under Information Technologies service and not under BAS.

Held:
It was observed that the assessee had not undertaken any service on behalf of their clients as they did not have contract with the customer of their clients and were not issuing bills directly to the customers of their clients. The work of data processing using custom-made software deserves to be considered as Information Technology services. Accordingly, the appeal was allowed and penalty set aside.