Category: Recent Decisions: Part A: Service Tax

Facts:
The appellants had received consulting engineering services from outside India for the period March, 2004 to September, 2007 and had paid service tax under reverse charge u/s. 66A of the Finance Act, 1994 read with Rule 2(1)(d)(v) of the Service Tax Rules, 1994. However, service tax was paid on the value of services excluding tax deducted at source (TDS) under the Indian Income Tax laws. The appellants contended that there should not be any tax on the amount of TDS specifically in view of the fact that the payment to foreign consultant should be the basis of service tax levy. The revenue contested that the agreement stated that the consideration was net of all Indian taxes and such taxes were payable by the appellants in addition to the amount payable to foreign consultant and therefore, forms part of the contract price. Further, vide section 66A of the Finance Act, 1994, the recipient was treated as service provider and therefore, by legal fiction, the consideration inclusive of TDS, shall be the assessable value. It was also the case of the respondents that the appellants could not prove its contention as to why TDS should not form part of the “gross amount charged” vide Rule 7 of the Service Tax (Determination of value) Rules, 2006, according to which, service tax was leviable on actual consideration charged for services provided or to be provided.

Held:
The Tribunal held that the appellants were not liable to pay service tax under reverse charge prior to 18/04/2006 in absence of statutory provisions in this regard as had been upheld by the Hon’ble Supreme Court in case of Union of India vs. Indian National Shipowners Association 2010 (17) STR J57 (SC). In the present case, as per the terms of the contract, TDS formed part of the contract price and therefore, was includible in the value of taxable services. The benefit of cum-tax should be available to the appellants while raising the modified demand on the basis of the observations made by the Tribunal. In view of the law being at the stage of inception, penalty u/s. 78 of the Finance Act, 1994, was set aside.

Facts:
The appellants availed CENVAT credit on the basis of an invoice issued on registered office and not on factory. Revenue relied on various Tribunal and High Court decisions and contended that the registered office should have taken input service distributor registration and thereafter, should have issued a separate invoice on factory for availment of CENVAT credit. However, the appellants contended that they had only one factory and therefore, there was no question of distribution by taking input service distributor registration. Further, it was not disputed by the department that the services were received in the factory of the appellants and relying on Tribunal precedents in case of CCE, Vapi vs. DNH Spinners 2009 (16) STR 418 (Tri.) and Modern Petrofils vs. CCE, Vadodara 2010 (20) STR 627 (Tri.-Ahmd.) the credit should not be disallowed.

Held:
The Tribunal observed that the decisions relied upon by the revenue were not applicable to the facts of the present case. All those cases dealt with the effective date of registration of an input service distributor, whereas the dispute in the present case is totally different. The dispute is whether the registered office of the appellant is required to be registered at all when they have one factory and where the credit has been taken by the factory on the basis of invoices issued by service providers. The Tribunal also observed that the case laws cited by the appellants squarely covered the present case. Therefore, the Tribunal held that CENVAT credit was available to the appellants since the appellants had only one factory and the services were received in the factory, though the invoice was in the name of the registered office.

Facts:
The appellants were engaged in providing renting of immovable property services. The appellants availed CENVAT credit of industrial or commercial construction services for construction of an immovable property. The department contested that vide Circular no. 98/1/2008-ST dated 04-01-2008, commercial or industrial construction services or works contract services, were input services for immovable property which was neither goods exigible to excise duty nor service leviable to service tax and therefore, CENVAT credit was not available to the appellants. The appellants argued that the Circular clarified the position contrary to law and was required to be ignored as held in the case of Ratan Melting and Wire Industries 2008 (12) STR 416 (SC).

Held:
As observed by this Tribunal in case of Mundra Port and Special Economic Zone Ltd. vs. CCCE, Rajkot 2009 (13) STR 178 (Tri.-Ahmd.), the phrase “used for providing output services” has to be differentiated from the phrase “used in or in relation to the manufacture of the final product”. The Hon’ble Supreme Court’s decision in case of Ratan Melting and Wire Industries (Supra) was misconstrued. In the said case, the Hon’ble Supreme Court had only held that departmental circulars and instructions issued by the board were binding on the authorities of respective statute and not on Hon’ble Supreme Court or High Courts and rejected the appellant’s claim of CENVAT credit.

Facts:
The appellants were engaged in the business of construction of malls and renting out spaces in such constructed malls and providing space for advertisement in malls. The appellants availed CENVAT credit of input services such as tours and travel agent services, security services, etc. during the year 2007-2008 and utilised the same against renting of immovable property services during the year 2008-2009 once the mall was opened commercially.

The contention of the department was that the appellants were not eligible to avail CENVAT credit, since input services were not used by the appellants for providing taxable output service. The appellants in response to the department’s contention argued that input services were used for construction of mall which was owned and leased by the appellants. The appellants further added that without a mall, there could not be any output service and therefore, services were eligible input services vide provisions of CENVAT Credit Rules, 2004. The department contested that vide Circular no. 98/1/2008-ST dated 04-01-2008, commercial or industrial construction services or works contract services, were input services for immovable property which was neither goods exigible to excise duty nor service leviable to service tax and therefore, CENVAT credit was not available to the appellants.

Held:
The definition of input and input services are pari materia as far as service providers are concerned and therefore, following the decision delivered by the Andhra Pradesh High Court in case of Sai Samhita Storages (P) Ltd. 2011 (23) STR 341 (AP), the Tribunal held that without utilising services, the mall would not have been constructed and renting would not have been possible and therefore, the services used for construction of malls were eligible input services for availment of CENVAT credit even when the output service was renting of immovable property services.

Facts:
The department issued a SCN for the period from 01-12-2005 to 31-07-2007 contesting that the appellants wrongly availed benefit of exemption Notification no. 4/2004-ST dated 31-03-2004 in respect of CHA services rendered outside SEZ. The appellants contended that during the period under consideration, services provided to SEZ unit were exempted vide the said Notification. Further, as per section 26 of the Special Economic Zone Act, 2005 and Rule 31 of the Special Economic Zone Rules, 2006, every developer and entrepreneur was entitled for exemption from service tax on the taxable services provided to a developer or a unit to carry out the authorised operations in a SEZ. Accordingly, Notification no. 4/2004-ST dated 31-03-2004 should be read alongwith the said section and Rule and interpreted to provide service tax exemption to the appellants.

The department submitted that the said Notification was a conditional exemption and was available only with respect to services provided within SEZ. Since the services were not provided within SEZ, benefit of the said exemption was not available to the appellants.

Held:
The Tribunal observed that in terms of various decisions of the Hon’ble Supreme Court, an exemption notification has to be interpreted as per the language used therein and the notification should be interpreted strictly to ascertain whether a subject falls in the notification. Accordingly, exemption under Notification no. 4/2004-ST dated 31-03-2004 was available only if the services were consumed within SEZ. The cannon of interpretation “Expresso unius est exclusion alterius” was applicable to the said notification which meant express mention of one thing excluded all others and in the present case, services consumed within SEZ were only covered by the said notification which was a conditional exemption. Further, the notification was issued in 2004 whereas the SEZ Act and Rules were introduced in 2005 and 2006 and therefore, the notification cannot be interpreted on the basis of SEZ Act and SEZ Rules. If the intention of the legislation was to align the exemption with SEZ Act or Rule, then the notification would have been amended to reflect the same. In view of no prima facie case in favour of the appellants and no pleading for financial hardship and taking into consideration the interest of revenue, the appellants were directed to pre-deposit part of the service tax demand.

Facts:
The
respondents availed CENVAT credit of Countervailing Duty (CVD) paid on
imported inputs on the basis of true copy of bill of entry. The
department contested that the CENVAT credit was not available on the
basis of the copy of bill of entry vide Rule 9 of the CENVAT Credit
Rules, 2004 and CENVAT credit was available only on original documents
relying on the decision of the Hon’ble Supreme Court and High Court. The
respondents argued that the original bill of entry was available at the
time of receiving the inputs. However, the same was misplaced after
availment of CENVAT credit and therefore the respondents got the copy of
the ex-bond bill of entry certified by the customs authority, relying
on the High Court and Tribunal precedents. Further, the erstwhile rules
allowed CENVAT credit on the basis of triplicate or duplicate bill of
entry. However, the present rules, used the phrase “bill of entry” and
therefore, in absence of any prefix and nature of bill of entry, the
same can be understood to include copy of the bill of entry and the
CENVAT credit should not be denied.

Held:
The
Tribunal observed and held that CENVAT credit was available based on
various documents mentioned under Rule 9 of the CENVAT Credit Rules,
2004. In the said rules, if the phrase “bill of entry” was interpreted
to include copy of bill of entry, then all other documents such as
invoice, challan, supplementary invoice, etc., should also include
copies thereof. However, at earlier occasions, the said interpretation
was not accepted by High Courts and Supreme Court.

Further, the
bill of entry was dated 10-02-2005 and the CENVAT credit was availed on
14-04-2006 and it was not obvious that the original bill of entry was
misplaced only after April, 2006. It was also observed that the
respondents had only produced a copy of challan and the original challan
also could not be produced.

Therefore, the Tribunal held that
the CENVAT credit was not available to the respondents, relying on the
Hon’ble Supreme Court’s decision and the Punjab and Haryana High Court’s
decisions in Union of India vs. Marmagoa Steel Ltd. 2008 (229) ELT 481
(SC) and S. K. Foils Ltd. vs. CCE, New Delhi 2009 (239) ELT 395
(P&H), affirmed by Hon’ble Supreme Court reported in 2010 (252) ELT
A100 (SC) respectively.

Facts:
A writ petition was filed stating that, inclusion of the expenses and salary paid to the security guards and statutory payments such as ESI, EPF, etc. in the “gross amount charged” was ultra vires to the Constitution of India. The appellant contended that they received a petty amount as commission, while providing security personnel to any service receivers and bulk of the amount received was expended towards salary and statutory dues. Further, sometimes, the service receivers directly paid salaries to security personnel. Therefore, it was not logical to include salary and statutory dues in “gross amount charged” u/s. 67 of the Finance Act, 1994 dealing with valuation of taxable services and that it was violation of Article 14 and 19(1)(g) of the Constitution of India. The appellant stated that the gross amount without segregating the expense towards salary and statutory payment should not form part of taxable service and reliance was also placed on Advertising Club vs. CBEC, 2001 (131) ELT 35 (Mad). The appellant contended that service tax is not a charge on business but on services as held by the Hon’ble Supreme Court in case of All India Federation of Tax Practitioners and others vs. Union of India 2007 (7) STR 625 (SC). The learned counsel of the appellant submitted that the challenge is not in regards to the leviability of service tax on the applicant, but on the gross amount as determined u/s. 67.

The revenue, relying on various Supreme Court and High Court precedents, contended that the provisions were introduced through powers vested with the parliament vide relevant entry under List I of the 7th Schedule. Further, the Hon’ble Apex Court and Madras High Court had held that sustainability of the provision cannot be questioned or established with reference to the “measure of taxation”.

Held:
Following various Supreme Court and High Court precedents, the Honourable High Court observed that there was no case for the petitioner that the Parliament did not have legislative competence to enact the law and there was no violation of any fundamental rights with respect to the business. The measure of tax could not alter the nature of taxation. The legislation had the discretion to decide the class of taxpayers, events, quantum etc. There was no master and servant relationship between the security personnel and the service receivers and the appellants could raise invoices on service receivers for the salaries, expenses and service tax thereon and therefore, the appellants were not aggrieved by the said levy in any manner and therefore, the writ petition failed.

The High Court observed that the assessing authority while adjudicating any issue, functions as a quasi judicial authority and that the powers exercised by the appellate authority or Central Government as revisional authorities, are quasi judicial powers. Reliance was placed on the ruling of the Hon’ble Supreme Court’s decision in case of Orient Paper Mills vs. Union of India 1978 (2) ELT J345 (SC), stating that the powers of the Collector were quasi judicial powers and cannot be controlled by the directions issued by CBEC. The respondents argued on the same lines that unless the quasi judicial authority was allowed to function independently and impartially, the orders passed by it cannot be said to be orders passed in accordance with the law.

Held:
The assessing authorities, appellate and revisional authorities are quasi judicial authorities and orders passed by them are also quasi judicial orders. Therefore, such orders should be passed by exercising independent mind and without being biased. The circulars guiding the authorities should be considered as evidence available before them. Accordingly, based on all the material available on record including these circulars, the assessing authority has to come to an independent finding. Therefore, the appeals were disposed off, directing the assessing authorities to consider the matter afresh in the light of the above observations without examining the merits of the case.

Facts:
The department contended that the activity of constructing residential quarters for Central Government employees/police department/Pondicherry University carried out by the appellants was leviable to service tax under construction of complex services. Further, the activity of construction of tower foundation for BSNL was leviable to service tax under construction of commercial or industrial construction services or works contract services. The appellants contested that they provided construction services to income tax and police departments for their own use and not for sale and therefore, service tax was not leviable.

Held:
It was an undisputed fact that the apartments/ houses were constructed for Pondicherry University and police department, which were used by them and were not sold by them. The Tribunal observed that since the complexes were meant for personal use, according to the exclusion clause, the services were not taxable. Further, since the lower adjudicating authority had accepted the stand of the appellants that the activity of construction of tower for BSNL was leviable to service tax under “works contract services” for the period from 01-06-2007 to 19-12-2009, the said activity cannot be taxed under commercial or industrial construction services for the period from January, 2006 to May, 2007.

Valuation issue – Reimbursement of expenses necessary to provide services are liable to Service tax. However, expenses which are not necessary for provision of services but expended when reimbursed, can be excluded from the value of services.

Facts:
The respondents had entered into agreements with M/s. Skol Beverages Ltd. for promotion and marketing of Indian manufactured Foreign Liquor/Beer products. The respondents were required to take initiatives to maximise brand visibility, to monitor, report competitor’s activities, to provide infrastructure facilities to the staff of M/s. Skol Beverages Ltd., to submit periodic sales report, etc. It had received service charges under the following heads:

• Primary claim/Retailer scheme: It included discounts offered by the liquor manufacturer to the retailer. Further, to increase sales, rebate was paid to the retailers by the respondents on submission of certain proofs. The said amounts were thereafter claimed from the manufacturer by the respondents without adding any margins.

• Commission claim: It included payments for the marketing services provided by the respondents to the manufacturers and also the return on investments made by the respondents such as payment to retailers, excise duty, etc.

• Merchandiser expenses: The salary and other expenses expended by the respondents to carry out sales promotion activity were reimbursed by the manufacturer.

• Fixed office/other expenses: The respondents arranged transportation, loading – unloading etc. for which they got reimbursements from the manufacturer. The respondents paid service tax on commission income and did not pay service tax on reimbursements and the said position was confirmed by the Commissioner (Appeals).

Aggrieved by the same, the department filed an appeal contesting that the respondents were also engaged in business promotion activities along with being a commission agent and therefore, they were not entitled to the benefit of Notification no. 13/2003-ST dated 20-06-2003. Further, it was not proved that the reimbursements were actual expenses and therefore, were included in the value of taxable services and that the respondents had malafide intentions to suppress the value of taxable services and therefore, penalty u/s. 76 and 78 of the Finance Act, 1994 were also leviable.

Held:
The Tribunal observed that the commission was not merely based on volume of sales and there were reimbursements of salary of salaried personnel and therefore, the said arrangement cannot be termed to be covered within the definition of “commission agent” as provided under Notification no. 13/2003-ST dated 20-06-2003. Further, the discounts given to customers i.e. the primary claim/ retailer scheme cannot be included in the “gross amount charged” for the taxable services. However, following the Larger Bench decision in the case of Shri Bhagavathy Traders vs. CCE 2011 (24) STR 290 (Tri.-LB), merchandise, fixed office and other expenses forms integral part of the value of services and therefore, were includible in the value of taxable services, since it was necessary for the respondents to have manpower to provide agreed services. With respect to misc. expenses such as registration fees for label or brand, transportation, etc., since the expenses were not for providing services, the same may be excluded from the value of services, provided the respondents provided proof regarding such expenditure and reimbursements thereof. The respondents gave their own interpretation to the Notification and they arranged to claim reimbursements of staff expenses and therefore, section 80 of the Finance Act, 1994 (the Act) could not be invoked and the adjudicating authority may provide an option to the respondents to pay penalty @25% of the service tax dues within 30 days from the receipt of the order. However, penalty u/s. 76 of the Act need not be imposed, since penalty was imposed u/s. 78 of the Act.

Facts:
Short payment of service tax along with interest and penalty was confirmed against the appellants. The appellants did not dispute the short levy, and hence, utilised the CENVAT credit availed in the service tax return to make good the short levy. This was not considered by the department while computing the said short payment to make part payment of the demand under adjudication order. However, the original adjudicating authority rejected the utilisation of CENVAT credit, since there was no evidence of admissibility of CENVAT credit. The Commissioner (Appeals) observed that due to self-assessment system under service tax laws, the role of adjudicating authority is limited to scrutiny and issuing SCNs and hence, there is no question of obtaining any approval for availment and utilisation of CENVAT credit. Further, the admissibility or inadmissibility of the credit cannot be the subject matter of the proceedings.

Held:
Noting the observations made by the Commissioner (Appeals), the issue was decided in favour of the appellants and the reversal of CENVAT credit was taken to mean payment of service tax payable as a consequence of adjudication proceedings.

Facts:
The SCN was issued on 01-10-2010 for the period 01-04-2005 to 31-03-2010. The appellants pleaded that the extended period of limitation could not be invoked in the present case since the Joint Commissioner did not impose any penalty by invoking section 80 on the ground of reasonable cause. Therefore, it can be conceded that there was no suppression or misstatement with an intent of evasion. Further, there were various Tribunal decisions laying down that in case of nonimposition of penalty with the finding that there was no intention to evade taxes, the analogy must be drawn with respect to extended period of limitation also.

Held:
Following various precedents, the appeal was allowed on the grounds of limitation by observing as under:

Service tax was not deposited due to unawareness and there was also findings of the Joint Commissioner of Service Tax regarding reasonable cause to extend the benefit of section 80.

Harmonised reading of section 73 and section 80 of the Finance Act, 1994, leads to conclusion that the appellants should be bonafide to take the benefit of section 80 of the Finance Act, 1994. Therefore, once such benefit was extended to the appellants, it was not open for the adjudicating authority to invoke extended period of limitation. As such, the matter was remanded back to the original authority to quantify the service tax demand for the normal period of limitation.

Facts:
The appellant, manufacturer of solar water heater system, sold these goods to dealers and customers on site. The appellant did not charge separately for installation of such system, but the dealers were charging installation charges. The department issued SCNs that the appellant was required to pay service tax on the activity of installation @ 33% on the total value, considering the abatement under notification no. 15/2004. The appellant provided the cost sheet of manufacturing solar system and the service component included therein. However, the adjudicating authority did not consider the same and confirmed the demand on the grounds that the appellant failed to provide the service component separately in the invoices. The appellant relied on the decision of Kaushal Solar Equipments Pvt. Ltd. 2012 (26) STR 561 (Tri.-Mumbai) wherein on identical facts, the matter was remanded back for quantification of service component.

Held:
The activity of installation was covered under erection, commissioning or installation services even when the same was not separately shown on invoices. The matter was remanded back to work out the service component from the data provided by the appellant in view of the Hon’ble Tribunal’s decision in case of Kaushal Solar (supra).

Facts:
The appellants availed CENVAT credit in excess on those services which were not covered under Rule 6(5) but once the department indicated the same, the appellants immediately reversed such CENVAT credit wrongly availed, but did not pay the interest under Rule 15 of CCR, 2004 r.w.s. 11AC of Central Excise Act, 1944.

The appellant did not pay interest, in view of the interpretation of law prevailing during the relevant time wherein there were several decisions of the Tribunal and the High Court taking a view that interest was not payable if CENVAT credit was taken but not utilised. It was a fact that the excess CENVAT could not have been so utilised, as the appellant did not utilise credit more than the disputed amount during the said period.

The appellants prayed for waiver of penalty in view of section 80 as the mistake was bonafide.

Held:
Interest was payable on wrong availment of CENVAT credit in view of the Hon’ble Supreme Court’s decision in case of Ind Swift Laboratories Ltd. (supra)

The appellants were a public sector unit and having regard to the size and operations of the appellants and the peculiar situation that there was an accounting error and that there was excess CENVAT credit with the appellants during the relevant period, penalty was set aside.