Category: Recent Decisions: Part A: Service Tax

Facts:
The appellants had filed rebate claims under the Export of Service Rules, claiming rebate of Service tax paid on input service used for export of GTA service. The claims were rejected since the rebate was claimed on GTA service which was an input service and there was no export of any service. The appellants contended that they had inadvertently filed rebate claim instead of refund claim for Service tax paid on input services used in relation to export of goods. The appellants agreed that the refund claim was filed in wrong form.

Held:
During the period when the rebate claim was filed by the appellants there was no form prescribed for filing the refund claim. Therefore, filing of a letter with relevant details would have been sufficient. Thus, the appellants have made a clerical error which is a rectifiable error. Therefore, appeal was allowed.

Facts:
The appellants were entitled for refund of predeposit amount of Rs.50,000 in view of favourable order of the Commissioner(A). The refund accrued in the year 2001 but the appellants filed a refund claim in the year 2007. Hence, by applying the law of limitation, the refund claim was rejected.

The appellants relied on Board’s Circular dated 2-1-2002, wherein it was clarified that claim for refund of pre-deposit is not required to be filed by appellants and a mere letter would be sufficient. Apart from this, time limit u/s. 11B of Central Excise Act for claiming refund was held inapplicable to refund of pre-deposit implying that the Revenue ought to have suo motu refunded the same.

Held:
Refund claim of pre-deposited amount cannot be rejected by applying the General Limitation Act. The pre-deposit amount should be refunded by the Department suo motu without much delay.

Facts:
The appellants had deposited an amount of Rs.40,000 in terms of stay order passed by the Tribunal. At a later stage, the same was refundable to them as the order was passed in favour of the appellants. Consequently, the appellants took the credit suo motu by intimating the Revenue.

However, proceedings were initiated against the appellants on the argument that they should have applied for refund instead of taking credit suo moto. As a result, penalty of Rs.5,000 in addition to the amount mentioned supra was confirmed against the appellants.

Held:
Refund of pre-deposit accrued to the appellants immediately on passing of the Tribunal’s order allowing the appeal. It was held that Revenue cannot raise any objection for granting of Cenvat credit since the same was intimated to the Revenue and provisions of unjust enrichment do not apply to such refund of pre-deposit. Hence, appeal was allowed in favour of the appellants.

Facts:
The respondents were in the business of selling sim cards, recharge coupons, mobile phones, etc. On 17-10-2003, they declared unaccounted income, to the Income-tax Officers on survey, of Rs.4,00,000. Since the respondents were engaged in providing business auxiliary services, the unaccounted income was treated to be income from business auxiliary services.

The respondents contended that the entire income of Rs.4,00,000 cannot be attributed to business auxiliary service since the service had become taxable from 1-7-2003, whereas the visit of survey team was on 17-10-2003. Moreover, for generating income of Rs.4,00,000 during the period of three months, a turnover of Rs.2,50,00,000 would be required, which is practically not possible for a small business man. Apart from this, no inquiry was made with the respondent for ascertaining the source of unaccounted income. In absence of any evidence, the income cannot be attributed to taxable services provided by them.

Held:
Since no inquiry was undertaken by the Department as to whether the respondent’s turnover during the period of three months was to the tune of Rs.2,50,00,000 plus the evidence gathered by the Department was insufficient to establish even the prevalence of probability, the Revenue’s appeal was dismissed.

Facts:
The respondents had availed credit of Service tax paid on rent-a-cab service which was used by officials of the company for timely completion of their jobs, telephone service as landline phones were installed at residences of officials and bills were paid by the respondents, and professional service of Chartered Accountant which was directly related to the business of the respondents.

The Revenue was in appeal against allowance of credit on above-mentioned service as it contended that conveyance offered to officials was for their personal comfort and welfare purpose which was in no way connected to the respondent’s business activity.

Held:
By relying on various judgments, issue regarding eligibility of Cenvat credit on rent-a-cab service, telephone service and professional service of Chartered Accountant was settled in favour of the respondents as the services were connected with their business activity and accordingly the Revenue’s appeal was rejected.

Comment:
With the recent changes in the CENVAT Credit Rules, taking credit on such items could be a challenge.

Facts:
The appellants were denied credit on outdoor catering service availed in guest-house, garden maintenance; house-keeping at guest-house, house-keeping at factory, picnic and jungle cutting services availed by them. The credit was denied on the ground that those services had no nexus with the business of the appellants.

The appellants expressed that services of garden maintenance, outdoor catering and house-keeping were related to the manufacturing activity undertaken by the appellants. Jungle cutting services were also related to the business of the appellants as the service was availed to keep the final product bacteria free. Apart from this, picnic service was availed to boost the employees for efficient working.

Held: The appellants were entitled for credit availed on outdoor catering service and house-keeping service except for the portion of service recovered from persons staying in guest-house. However, the credit on house-keeping services of factory, garden maintenance and jungle cutting services was fully allowed to the appellants. However, credit was fully denied on picnic services availed as it had no nexus with the business activity of the appellant.

Facts:
(a) The appellants contended that credit of Service tax paid on group insurance policy for employees who are not covered by ESI cannot be disallowed on the ground that it is not connected with the business activity, as company is required to pay compensation to employees who are not covered by ESI, in the event of accident.

(b) The appellants had availed CHA service for supply of goods for export on FOB basis, which implies that ownership of goods lies with the appellants till the delivery of goods on board the ship. The Department had challenged the availment of credit on CHA service. Reference was made to Board’s Circular dated 23-8-2007, which made it apparent that in case where sale is on FOB basis, place of removal shall be the load port only. Therefore, any service availed up to the place of removal shall be treated as input service and accordingly, credit shall be availed of Service tax paid on such input service.

(c) With respect to rent-a-cab service, appeal was filed by the Department against order of Commissioner (Appeals) allowing credit of Service tax paid on the said service. The Department had contended that rent-a-cab service was utilised for transporting vendors and clients from guest-house to factory and vice versa which is not related to business activities. Thus, credit shall not be admissible.

(d) With respect to general insurance service for export of goods, appeal was filed by the Department against order of the Commissioner (Appeals) allowing credit of Service tax paid on the said service. The Department had contended that the activity had no nexus with the manufacture or clearance of export of goods.

Held:
(a) Taking a group insurance is clearly in course of business activities and hence, is an eligible input service for claiming Cenvat credit.

(b) CHA service availed up to the load port shall be considered as an input service and Cenvat credit shall be allowed on the same.

(c) The activity of transportation of vendors and clients was indirectly related to business activity as vendors were the suppliers of raw materials required for final products and clients were the ultimate consumer of final products. Therefore, credit cannot be denied.

(d) Since the export of goods was on FOB basis, credit of Service tax paid on general insurance service was allowed.

Facts:
The appellants were engaged in work related to conceptualisation and writing contents of advertisement such as advertising films, print-ads, which was used by another service provider for production of final advertisement material. The period involved was May, 2001 to June, 2003 for which the Department had confirmed recovery of service tax from the appellants as advertisement consultant.

The appellant referred to Board’s Circular dated 23-8-2007, wherein it stated that a taxable service which is intended for use by another service provider does not alter the taxability of service provided. However, even if the appellant is held to be liable, liability would arise only from the date when Circular was issued. Apart from this, she further stated that service tax was required to be paid only when sub-contracting was for a different service category. However, the appellants were not providing any such service. Additionally, she had also produced a certificate that the tax had been paid by the service provider; however, the same was overlooked by the lower authorities.

The Revenue argued that the appellant was working on retainership basis and the relationship between service provider and the appellant was that of principal-to-principal. Moreover, the definition of advertising agency which is an inclusive definition also covers advertising consultants within the ambit.

Held:
In case the appellant was required to pay service tax, it would amount to taxing the same service twice. Furthermore, liability to pay tax lies with the service provider who actually provides the service and not with the sub-consultant. Thus, the case was remanded to the lower authorities in order to reconsider the certificate produced by the appellant.

Note:
On the same lines, the Mumbai Tribunal passed the same order on similar facts in the case of (2011) 22 STR 161 (Tri.-Mumbai) — Neil Enterprises v. Commissioner of Service Tax, Mumbai.

Facts:
The appellants were engaged in activity of bottling, labelling, affixing the hologram sticker and sealing of glass bottles of country liquor manufactured by them. They contended that the packaging activity undertaken by them amounts to manufacture and does not attract Service Tax. Furthermore, the definition of packaging activity as per the Finance Act, specifically excludes packaging activity amounting to manufacture as per the Central Excise Act.

The respondents stated that liquor manufactured by the appellants was not excisable goods as liquor was not mentioned in the Central Excise Tariff Act. This implies that activity was not covered by definition of manufacture as per the Central Excise Act and the activity was covered under ‘Packaging activity services’ under the Finance Act. Additionally, they relied on MP High Court’s judgment in the case of Vindhyachal Distilleries Pvt. Ltd. v. State of MP, 2006 (3) STR 723 (MP) in which it was held that bottlers are required to pay Service tax.

Held:
The decision which was relied upon by the respondents was overruled by the larger Bench judgment of the MP High Court in which it was held that packaging and bottling of liquor is covered by definition of manufacture. Accordingly, no Service tax was chargeable. Thus appeal was allowed in favour of the appellants.

Facts:
The
Department had issued a Circular dated 17-12-2003 clarifying that
software services were out of the purview of Service tax and section
65(19) defining ‘Business Auxiliary Services’ specifically excluded
information technology services. However, the Supreme Court’s judgment
in case of Tata Consultancy Services v. State of Andhra Pradesh, (2005) 1
SCC 308; (2004) 178 ELT 22 considered canned software as ‘goods’.
Therefore, the Department issued another Circular dated 7-10-2005,
holding software to be ‘goods’ and maintenance thereof leviable to
Service tax.

The petitioners argued that the Circular dated
7-10-2005 was ultra vires section 83 of the Finance Act read with
section 37B of Central Excise Act and 65 (19) of the Finance Act.

The
Revenue contended that section 65(19) excluded only designing and
developing of computer software, and maintenance of software was not
excluded therefrom and the Circular only explained the scope of services
and interpretation of law and did not override the legal provisions.

Held:
The
definition of ‘Business Auxiliary Services’ excluded maintenance of
software specifically till introduction of the Finance Act, 2007. The
amendment made through the Finance Act, 2007 was not with retrospective
effect. Moreover, computer software was included in the definition of
‘goods’ only with effect from 1-6-2007 under the Finance Act. Therefore,
the Circular was held to be overriding the statutory provisions and
software maintenance was held to be liable to Service tax only with
effect from 1-6-2007.

CENVAT credit — The respondents avai led credit on the basis of xerox copy of the bill of entry — The original copy of the same was not available with them and hence they also lodged a police complaint — They also made efforts to obtain a certified copy of the same from the Commissioner who refused to do the same — Held, CENVAT credit was allowed because credit could not be disallowed on the ground of mere technical violence.

The respondents availed CENVAT credit on the basis of the xerox copy of the bill of entry. A show-cause notice was issued for wrong availment of credit on the basis of xerox copy of the bill of entry. Penalty also was imposed. The appellant contended that the original copy of the bill of entry was not available with them and they had lodged a police complaint. Further they put in efforts to obtain a certified copy of the bill of entry from the Commissioner who denied their request.

Held:

It was held that the respondents were entitled for CENVAT credit availed by them on the strength of xerox copy, because they had made efforts to obtain a certified copy of the bill of entry which was denied to them. Also it was not disputed that the goods had suffered duty and they had been used in the manufacture of final product. The credit could not be denied on the basis of mere technical violence.

CENVAT credit — The appellant reversed credit on obsolete inputs — Penalty u/s.11AC was imposed on the ground that they reversed it only when pointed out and hence their intention was to evade duty — Held, for imposing penalty under this section there should be fraud, suppression or willful omission, etc. and for imposing such a penalty  mens rea has to be proved — Also a short delay in reversal does not prove that their intention was to evade duty.

The appellants were manufacturers of bulk drugs and they availed CENVAT credit on inputs used in the manufacture of their final products. The quality control store department rejected some inputs and with reference to a report titled ‘Status of Obsolete, slow-moving, non-moving materials’ the officers directed that the CENVAT credit availed on such inputs should be reversed immediately and the appellant reversed the same. Later the Department issued a showcause notice imposing penalty u/s.11AC on the ground that the appellant had intention not to reverse the credit and they reversed the credit only because the report regarding unusable inputs was detected by the officers of the Department. The appellant contended that the due date for reversal of duty was 20-12-2002 and they reversed the same on 4-12-2002 and the Department contended that they reversed the credit only when the appellant was caught on the wrong foot.

Held:

For imposing penalty u/s.11AC short levy of duty should have arisen by reason of fraud, collusion or any willful misstatement or suppression of facts and to impose penalty such contravention should be made with an intention to evade payment of duty. Hence to impose penalty under this section mens rea (i.e., guilty mind) has to be proved. In this case the company was in the process of writing off such inputs in their stores and there was nothing to suggest that they would not have reversed the credit at the time of writing off the inputs in their stock. A short delay in reversal did not prove that they had intention to evade duty.

The appellant manufactured stranded wire in their factories and received permission from M.P. State Electricity Board to generate electricity from windmills — Availed services of erection, installation and commissioning, repair, maintenance, insurance and took CENVAT credit — Department denied CENVAT credit as windmills were located far away from the factory and the power generated by the windmills was not directly received in the factory of the appellant — Held, appellant was eligible to CENvAT credit in respect of abovementioned services — it may not be always possible to locate windmills in the vicinity of factory.

The appellant manufactured stranded wire in their factory and received electricity from their wind-mills at Dewas through wheeling arrangement in terms of their agreement with the M.P. State Electricity Board. The appellant availed the services of erection, installation and commissioning, repair, maintenance and also insurance and took CENVAT credit of service tax paid on these services. The Department was of the view that since windmills were located far away from the factory and the power generated by the windmills was not directly received in the factory, the appellant was not eligible to CENVAT credit.

Held:

In case of wind-power generator, it may not be possible to locate it in the vicinity of factory as wind-power generators have to be located at places where wind with sufficient speed is available throughout the year. The appellant’s factories were situated far away from the windmills and they had obtained permission from M.P. State Electricity Board and in the permission, wind mills were mentioned as for captive use by the appellant. Therefore it was held that windmills were to be treated as captive plant and the service of erection, installation and commissioning, repair and maintenance and also insurance used in respect of the same are eligible for CENVAT credit. Services received had clear nexus with the business of manufacture since electricity generated by the windmills was used for running appellant’s factories.

Respondent providing service of Pandal or Shamiana — On investigation it was found that respondent was providing the customers premises for organising marriage functions — They also provided furniture, fixtures, etc. for the same — Respondent of the view that during the time of dispute the marriage function was not treated as social function — Held, respondent’s activity of providing such facilities was treated as temporary occupation of Mandap and that marriage was still a social function during the period of dispute.

 The respondent was registered for providing taxable service of Pandal or Shamiana. On investigation it was found that the respondent was allowing temporary occupation to the customers for organising marriage functions and for this purpose, besides permitting temporary occupations of the premises, the respondent was also providing furniture, fixtures, lighting, catering, etc. A specific provision w.e.f. 1-6- 2007 was made that social function included marriage and hence, respondent contended that for the period prior to 1-6-2007, marriages were not social functions. The respondent was of the view that giving their premises to their clients mainly for marriage functions would not be considered social functions prior to 1-6-2007 i.e., during the period of dispute and providing the service in relation to use of Mandap or providing Pandal or Shamiana service for marriage function was not taxable.

Held:

The activity of the respondent was treated as allowing temporary occupation of Mandap for some consideration and was treated as service in relation to use of Mandap which was taxable during the period of dispute. It was held that even though the period of dispute was prior to 1-6-2007, it could not be construed that marriage was not a social function prior to 1-6-2007.

Appellant, a service provider under advertising Agency Service — Department of the view that the appellant did not discharge service tax liability and also had wrongly availed CENVAT credit — Terms of agreement stated that the appellant was entitled to 10% commission on gross amount spent which included print advertisement and also other expenses incurred — Held, all such expenditure or cost shall be treated as consideration for the taxable service provided and shall be included in the value for the purpose of charging service tax on the said service — CENvAT credit allowed for the same — Penalty waived.

The appellant was a service provider falling under the category of ‘Advertising Agency Service’. On scrutiny of records, it was found that the appellant had not discharged the service tax liability on the gross amount received by them in respect of services rendered and further they wrongly availed CENVAT credit on vehicle maintenance/insurance. Accordingly, service tax was demanded disallowing the credit and also demanded interest and penalty. The client had appointed the appellant to act as an advertising agent/consultant on the terms set out in the agreement and the agreement stated that the appellant will act as an exclusive creative agency of the clients for certain brands specified in the agreement. The terms of agreement also indicated that the appellant was entitled for an agency commission of 10% on gross media spent which included print advertisement, outdoor hoardings and all other expenses incurred on behalf of the client, third party, etc. The appellant got only the agreed commission from the customers and they had discharged service tax on the said commission income and also the appellant did not avail any service tax credit on the service tax paid by the advertisers.

Held:

It was held that if any expenditure or costs are incurred by the appellant i.e., the service provider in the course of providing taxable service, all such expenditure or cost shall be treated as consideration for the taxable service provided and shall be included in the value for the purpose of charging service tax on the said service. However, the appellant was held eligible to take credit of the excise duty/ service tax on input/input services used in or in relation to the provision of output service subject to providing necessary documents in respect of such credit and the penalty also was waived.

valuation — Reimbursement of expenses — Whether includible in taxable value — Held, yes, if the same were required to be spent in order to provide taxable service.

The appellant was providing clearing and forwarding services to M/s. Whirlpool India Private Limited during the period April 2001 to September 2005 and was receiving payment as commission/service charges. Apart from this, the appellant was also receiving amounts for service charges for employment, freight for distribution/transportation of goods, loading/unloading of goods, phone expenses, etc.

The appellant was required to arrange transportation of goods for which the appellant was paid fixed remuneration. Although as per the agreement, this charge was called ‘freight charges’, the same was not on actual basis. The Department was of the view that the remuneration received as freight charges was also remuneration for clearing and forwarding services and they further stated that various expenses reimbursed to the appellant were nothing but consideration for providing clearing and forwarding services. The Department further was of the view that these amounts should be added to the value of commission received by the appellant and service tax should be paid on such gross receipts and demand for service tax was made by the Department along with interest and penalty.

Held:

 It was held that without engaging clerks and utilising telephones and having godowns for storing the goods and without paying the loading and unloading charges, the appellant could not have rendered the clearing and forwarding services and even if these expenses were separately billed to the client, the expenses will form a part of value of taxable services. In case of transportation services, they were provided by the person operating the vehicles and there was no proof of the fact that the appellant had the responsibility to deliver the goods at the door-steps of the client. For freight revenue, it was conceded that it could be considered as reimbursable expense so long as the actual freight amounts were claimed. For expenses of pre-dispatch inspection, octroi and detention charges, it was held that these expenses were not towards any activity that would constitute service rendered by the appellant and therefore, excludible. Abatement from gross receipts received could be allowed for the expenses subject to production of vouchers for such expenses.

Appellant engaged in providing service of booking of air tickets, arrangement for food, local travel, etc. at places outside India — Appellant paid service tax under the category of ‘Air Travel Services’ but Department demanded tax for providing ‘Tour Operator Service’ — Held, out-bound tours outside the purview of service tax — Pre-deposits of the dues were waived.

The appellant was engaged in arranging tours/ tour packages within India and out of India. The appellant undertook activities like booking of air tickets, arrangements for hotel stay at places outside India, food, local travel at places outside India, etc. and they also undertook work related to Visa formalities. The appellant paid service tax under the category ‘Air Travel Services’ in respect of tickets booked from a place in India to the first place outside India and air travel from last destination in foreign country to the first destination in India. The Department was of the view that the amount collected from tourists like air fare and expenses for other arrangements was to be included under the category of ‘Tour Operator Service’ for which the Department raised service tax demand along with interest and penalty.

Held:

The planning and arrangements undertaken are primarily relating to out-bound tours and the same involve coordination with agencies outside India. According to the Board’s Circular F. No. B. 43/10/97- TRU, activities of out-bound tours are outside the purview of service tax. Hence the pre-deposits of the dues were waived.

Pre-deposit by way of debiting CENVAT Account allowed.

The appellant was directed to make pre-deposit of an amount as a condition of hearing appeal before the Commissioner (Appeals). The appellant debited the amount in CENVAT credit account. The Commissioner (Appeals) took a view that this did not amount to pre-deposit and rejected the appeal.

Held:

The Tribunal disposed of the stay petition holding that pre-deposit made by debiting CENVAT account was sufficient compliance and directed the Commissioner (Appeals) to hear the matter and decide the issue on merits after giving reasonable opportunity of hearing without further pre-deposit since the matter was not decided on merits.

CENvAT credit — Respondents purchased an induction furnace and took CENvAT credit for the same after nine years — They sold the machine and paid duty on transaction value — Department was of the view that the duty was payable of the amount equal to the CENvAT credit availed at the time of purchase — Held, respondents had paid the correct amount of duty — Machine cannot be treated as cleared as such when it was sold after putting into use for nine years.

The respondent was engaged in the manufacture of non-alloy steel ingots who purchased an induction furnace in the year 1994 and took credit CENVAT for the same. It used the said machinery till 2003 and then sold it after payment of duty which was equal to 16% on the sale price. The respondent paid duty on the transaction value but the Revenue was of the view that respondent should have paid duty equal to CENVAT credit availed at the time of purchase of the machinery and also imposed penalty on them.

Held:

It was held that the respondent had paid the correct amount of duty because capital goods are used over a period of time and that they lose their identity as capital goods only after use over a period of time. The same became inserviceable and fit to be scrapped. The object of CENVAT credit on capital goods is to avoid the cascading effect of duty. For this, it is provided that if the machines were cleared ‘as such’ the assessee shall be liable to pay duty equal to the amount of CENVAT credit availed. The machine cleared after putting into use for nine years cannot be treated as cleared ‘as such’.

A show-cause notice was issued imposing penalty on the respondents for late payment of service tax in spite of the fact that the respondents had already paid service tax along with interest — Held, no such notice was required to be issued.

In both the cases, show-cause notices were issued imposing penalty for delayed payment of service tax in spite of the respondents paying the service tax along with interest before issuance of SCN.

Held:

It was held that no notice shall be served on the persons who have paid service tax along with interest. If notices are issued, the person to be punished is the person issuing such a notice and not the person to whom the notice was issued.

Service of order — Whether sending of order by speed-post complies with the provision of section 37C(1)(a) of the Central Excise Act — Held: Order is to be served on the assessee or his agent by Registered Post A.D. or any other mode specified in section 37C  ibid.

The High Court admitted the appeal on substantial question of law as to whether CESTAT was justified in holding that the pre-conditions of section 37C of the Central Excise Act, 1944 were complied with and therefore the appeal filed by the appellant was barred by limitation. The case of the assessee was that the copy of the order passed by the Commissioner (Appeals) on 31st March, 2008 was not served upon them and only when the recovery proceedings were initiated, they obtained the copy of the order dated 31-3-2008 on 20-2- 2010 and thereupon filed an appeal before CESTAT within three months. Thus, it was contended that it was filed in time. CESTAT dismissed the appeal holding it to be time-barred on the ground that the copy of the order was dispatched on 1st April by speed-post and therefore it must have been received by the assessee in 2008. This complied with the requirement of section 37. Held: As per section 37C(1)(a) it was mandatory for the Revenue to serve a copy of the order by registered post with acknowledgement due to the assessee. Since in this case, the order was not sent by registered post but by speed-post, there was no evidence of tendering decision to the assessee. In the circumstances, the requirements of section 37C were not complied with. Further reliance by CESTAT on the decision of P&H High Court in Mohan Bottling Co. (P) Ltd. (2010) 255 ELT 321 was held incorrect as in that case, the order was sent by registered post. As such, the claim of the assessee that copy of the order was received for the first time on 26-2-2010 would have to be accepted.

Facts:

In both the cases, show-cause notices were issued imposing penalty for delayed payment of service tax in spite of the respondents paying the service tax along with interest before issuance of SCN. Held: It was held that no notice shall be served on the persons who have paid service tax along with interest. If notices are issued, the person to be punished is the person issuing such a notice and not the person to whom the notice was issued.

Contract of clearing and forwarding agent’s services entered into in 1998 providing that liability to pay service tax vested in service provider. Law amended retrospectively in 2000 to come into effect from 16-7-1997 to shift the liability to service recipient. The issue whether the change in legal provisions alter the legal rights or obligation arising out of contractual terms and whether or not the principal could deduct service tax from the bills of contractor — Held, nothing in law prevents the parties from agreeing that burden of tax would be borne by the service provider — Hence, arbitrator took possible view of the relevant clause in the contract which could not be interfered by the High Court.

The appellant, a Government undertaking manufactures steel products and the respondent firm provided transportation service under a contract for handling goods from the stockyard of the appellant. The terms of contract provided that the contractor would have to bear all duties and taxes. However, the appellant was held ‘assessee’ under the law as the service tax law was retrospectively amended in the year 2000, whereby the recipient of ‘clearing and forwarding service’ was required to pay service tax to the Government as ‘assessee’. The appellant deducted such service tax paid by it to the Government from payments made to the respondent-contractor. According to the respondent, since the appellant was the ‘assessee’ under the law in terms of retrospective amendment made in the service tax law, the tax payment was the responsibility of the contractee-appellant and the terms in the agreement of the respondent’s responsibility of payment of tax was only in accordance with the provisions of law prevailing at the time of entering into agreement. (At the time of entering into agreement, the service provider had to discharge the obligation of service tax.) Arbitration award given in favour of the appellant was earlier set aside by the High Court with the observation that the purpose of the relevant clause in the agreement was not to shift the burden of taxes from the assessee who is liable under the law to pay taxes to a person who is not liable to pay taxes under the law. The petition against the said decision of the High Court (given by the Single Member Bench) was dismissed by the Division Bench of the Bombay High Court and this was challenged in the Supreme Court.

Held:

The Finance Act, 1994 provisions determine the liability of the assessee towards tax authorities and it is irrelevant to determine rights and liabilities under the contract. Nothing in law prevents them from entering into contract regarding burden of tax arising under the contract between the parties. The Supreme Court after considering the submissions from both the sides also observed that assuming that the relevant clause in the agreement was capable of two interpretations, the view taken by the arbitrator was clearly a possible view if not plausible one. It cannot be said that the arbitrator travelled outside his jurisdiction or the view taken was against the contract. The High Court therefore had no reason to interfere with the award. Thus allowing the appeal, it was held that the appellant could not be faulted for deducting service tax.

Authorised service station — Authorisation has to be given by the manufacturer of vehicles only, not by any manufacturer and the services have to be provided only in relation to vehicles manufactured by that manufacturer — If respondent provided services to vehicle manufactured by other manufacturer for which he is not authorised to provide services, they cannot be held authorised service station vis-à-vis such manufacturer of vehicle and services provided in respect of those vehicles.

The respondents were authorised dealers for vehicles manufactured by General Motors and were covered by the category of authorised service station and they were also registered with the Service Tax Department under the category of Business Auxiliary Services. During the period October 2006 — December 2007, they also undertook servicing of vehicles manufactured by other manufacturers. The Department was of the view that they were liable to pay service tax in respect of such servicing of vehicles i.e., other than General Motors.

Held:

The definition of ‘authorised service station’ includes centre or station authorised by any motor vehicle manufacturer, to carry out any service in respect of vehicles manufactured by such manufacturer i.e., the authorisation has to be given by the manufacturer of vehicles. It was held that authorised service station was required to be authorised for providing services to the vehicles of such manufacturer and not by any manufacturer. Hence the Department’s contention that the service station may be authorised by any manufacturer and services provided by them in respect of vehicles manufactured by other manufacturers for which it was not authorised are to be held taxable, was not accepted.