Custom, Excise & Service Tax Tribunal
Vividh Landscape Consultants (P) Ltd vs Ce & Cgst Ghaziabad on 11 December, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.71134 of 2016
(Arising out of Order-in-Appeal No.GZB-EXCUS-000-APP-0271-15-16 dated
14/01/2016 passed by Commissioner (Appeals) Customs & Central Excise,
Noida)
M/s Vividh Landscape Consultants (P) Ltd.,.....Appellant
(Gold Crest, F-8 (1st Floor),
Aditya Mega City, Plot No.C-GH3, Indira Puram, Ghaziabad)
VERSUS
Commissioner of Central Excise &
Service Tax, Ghaziabad ....Respondent
(CGO Complex-II, Kamla Nehru Nagar, Ghaziabad) APPEARANCE:
Shri Atul Gupta, Advocate for the Appellant Shri A.K. Choudhary, Authorised Representative for the Respondent CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) FINAL ORDER NO.70818/2024 DATE OF HEARING : 30 July, 2024 DATE OF PRONOUNCEMENT : 11 December, 2024 SANJIV SRIVASTAVA:
This appeal is filed against Order-in-Appeal No.GZB- EXCUS-000-APP-0271-15-16 dated 14/01/2016 passed by Commissioner (Appeals) Customs & Central Excise, Noida. By the impugned order Commissioner (Appeals) has upheld the Order-in-Original No.20-21/ADC/GZB/ST/2014-15 dated 27.02.2015 of Addition Commissioner of Customs, Central Excise & Service Tax, Ghaziabad, wherein following has been held:-
"ORDER i. I confirm the demand of service tax to the tune of Rs 33,81,978/- (Rs. Thirty Three Lakhs Eighty One Service Tax Appeal No.71134 of 2016 2 Thousand Nine Hundred Seventy Eight only) which was not paid or short paid by the party during 2008-09 to 2011-12 from them under proviso to Section 73 of the Finance Act, 1994 along with interest under Section 75 of the Finance Act, 1994, ii. I also confirm the demand of Service Tax to the tune of Rs.8,76,770/- (Rs. Eight Lakhs Seventy Six Thousand Seven Hundred and Seventy Only) not paid or short paid by the party during 2012-13 from them under proviso to Section 73 of the Finance Act, 1994 along with interest under Section 75 of the Finance Act, 1994;
iii. I also impose penalty of Rs.42,58,748/ (Rs. Forty two Lacs Fifty Eight thousand Seven Hundred Forty Eight only) under Section 78 of the Finance Act, 1994 upon them for contravention of the provisions under proviso to Section 73 of the Finance Act, 1944."
2.1 Appellant is engaged in providing taxable services under the category of Security Agency, Interior Decorators, Cleaning Service and Outdoor Catering services.
2.2 On re-conciliation of the figures of gross receipts against the services rendered appearing in balance sheet for the period 2008-09 to 2011-12 with the gross receipts of services shown in ST-3 returns for the concern period audit observed discrepancy. Therefore, matter was taken up for further inquiry/investigation. 2.3 Scrutiny of the records of the appellant revealed that appellants were providing Landscaping Services classifiable under the category of Interior Decorator Services under erstwhile Section 65 (59) of the Finance Act, 1994 upto 30 June, 2012. This service qualifies as taxable service. The appellant suppressed the figures of gross receipts of landscape development services and cleaning services during the concerned period by entering into two kind of agreements with their customers, one for developing landscape; and Service Tax Appeal No.71134 of 2016 3 other for the maintenance of the same.
The Landscape development contract was consolidated contract inclusive of material cost, which were mainly gross, plants, manure, pesticides etc. They excluded value of grass, plant and other material for arriving at the taxable value for payment of service tax. These materials are integral part of landscaping activities and are considered as inputs. The contracts for rendering landscape services do not mention sale and purchase of materials. On this account appellant have short paid service tax to the tune of Rs.27,65,633/-.
2.4 They received certain amount under the category of Miscellaneous Income in the balance sheet towards consultancy given in the account of Interior Decoration services. These were also taxable services and appellant had excluded the value of these consultancy services from the gross value indicated in the ST-3 records. Thus, evaded payment of service tax to the tune of Rs.5,91,994/-.
2.5 Appellant sort paid service tax amounting to Rs.24,351/- in respect of cleaning services during this period. 2.6 A Show cause notice dated 24.10.2013 was issued to the appellant, asking to show cause as to why:-
i. "the amount of Service Tas not paid/short paid by them to the tune of Rs. 33,81,978/- (Rs Thirty Three Lakhs Eighty One Thousand Nine Hundred Seventy Eight only) during 2008-09 to 2011-12 should not be demanded and recovered from them under proviso to Section 73 of the Finance Act. 1994 along with interest under Section 75 of the Finance Act, 1994, ii. penalty under Section 78 of the Finance Act. 1994 should not be imposed upon them for contravention of the provisions under proviso to Section 73 of the Finance Act, 1944."
2.7 Similar practice continued during the period 2012-13 and it was found from the records maintained by the appellant that the figures in the balance sheet were higher than those in the ST-3 Service Tax Appeal No.71134 of 2016 4 returns during this period also. On the same lines they have short paid service tax to the tune of Rs.8,66,770/-. 2.8 Another show cause notice dated 13.05.2014 was issued to the appellant asking them to show cause as to why:-
i. "the amount of Service Tax not paid /short paid by them to the tune of Rs.8,76,770/- (Rs. Eight Lakhs Seventy Six Thousand Seven Hundred and Seventy Only) should not be demanded and recovered from them under proviso to Section 73 of the Finance Act. 1994 along with interest under Section 75 of the Finance Act, 1994, ii. penalty under Section 78 of the Finance Act. 1994 should not be imposed upon them for contravention of the provisions under proviso to Section 73 of the Finance Act, 1944."
2.9 Both the show cause notices were adjudicated as per the Order-in-Original referred in para-1 above. 2.10 Aggrieved appellant have filed appeal before the Commissioner (Appeals), which has been dismissed by the impugned order.
2.11 Aggrieved appellant have filed this appeal. 3.1 We have heard Shri Atul Gupta learned Counsel appearing for the appellant and Shri A.K. Choudhary learned Authorized Representative appearing for the revenue.
3.2 Arguing for the appellant learned Counsel submits that-
The appellant activities are in the nature of works contract which was not subjected to service tax. Reliance is placed on the following decisions:-
o M/s Larsen & Toubro Ltd. And Others, 2015 (8) TMI 749-SUPREME COURT, o State of Karnataka v. Pro Lab, 2015 (321) E.L.T. 366 (S.C.), o SEW Construction Ltd. v. CCE, Raipur, 2023 (5) TMI 764, CESTAT Delhi, o Gainwell Commonsales Pvt. Ltd. v. CCE & ST, Ranchi, 2023 (6) TMI 1308, CESTAT Kolkata Service Tax Appeal No.71134 of 2016 5 o Commissioner of Sales Tax, Bombay vs. Matushree Textile Limited, (2003) 132 STC 539 o Commissioner of Sales Tax, Maharashtra State vs. Ramdas Sobhraj, 2012 SCC OnLine Born 1608 o Commissioner, Trade Tax, UP., Lucknow vs. Aristo Printers Pvt. Ltd., 2010 SCC OnLine All 2364 o Commissioner of Sales Tax, Mumbai vs. Hari and Company, (2006) 148 STC 92 o State of Maharashtra vs. Sarvodya Printing Press Fine Art Printer, (1999) 9 SCC 65 o M/sXeroz India Ltd. v. CCE & ST, Delhi, CESTAT Chandigarh, 2018 (5) TMI 402, The demand raised in the SCN dated 13.05.2014 is unsustainable as the same has been raised upon obsolete provisions.
Reliance is placed on the following decisions:-
o FICCI Vs. CST, Delhi, 2014 TIOL 701 (Tri-Del), o Commissioner of Service Tax Vs. The People's Choice, 2014 -TIOL-431-HC-KAR-ST, Without prejudice to the above, the entire demand has been upheld under Rule 5(1) which has been struck down as ultra-vires, o Reliance is also placed on the decision of Hon'ble High Court in the case of M/s Intercontinental Consultants and Technocrats Pvt. Ltd. v. UOI & Anr., 2012-TIOL-966-HC-Del-ST.
Without prejudice to the above, mere difference between ST-3 return and balance sheets is not a sufficient cause to issue SCN.
Findings in the recorded in the Order-in-Original are beyond the scope of the SCN.
The service tax is only upon the consideration in respect of the service and the value of the material is not subjected to service tax.
The appellant is not liable to pay service tax under 'interior decorator service' for the entire relevant period Service Tax Appeal No.71134 of 2016 6 The appellant is eligible to avail the benefits of Notification No. 12/2003- st That the extended period is not invocable, thus demand up to September 2011 (in SCN dated 24.10.2013) is time barred.
No penalty and interest is imposable.
3.3 Learned Authorized Representative reiterates the findings recorded in the orders of the lower authorities.
4.1 We have considered the impugned orders along with the submissions made in appeal and during the course of argument.
4.2 For holding against the appellant, impugned order records as follows:-
"3. I have considered the records of the case and submissions made by the appellant. The dispute involved has three limbs, (i) whether service tax was payable on consideration claimed to be received for supply of grass, plants, pesticides, other materials, etc., (ii) whether receipts shown as 'miscellaneous income' were liable to be included in taxable value for levy of service tax and (iii) whether certain receipts were for taxable cleaning service. I proceed to deal with the three limbs of the dispute in the same sequential order.
(a) A major portion of the demand determined is under interior decorator's service. The terms "interior decorator"
has been defined under the erstwhile section 65(59) of the Act as "interior decorator means any person engaged whether directly or indirectly, in the business of providing by way of advice, consultancy technical assistance or in any other manner, services related to planning design or beautification of spaces, whether man-made or otherwise and includes a landscape designer". The definition specifically includes a "landscape designer" providing "in any other manner, services related to planning, design or beautification of spaces". The, "taxable service" of an interior decorator, as defined under erstwhile section Service Tax Appeal No.71134 of 2016 7 65(105) q of the Act, "means any service provided or to be provided, to any person, by an interior decorator in relation to planning, design or beautification of spaces, whether man-made or otherwise, in any manner". A perusal of the impugned contracts, executed by the appellant, demonstrates as under,-
(i) work order dated 23.12.2011 for site: Mahagun 'MY WOODS' at GH-4, Sector-16, NOIDA Extn. placed by M/s.
Mahagun India Pvt Ltd., is for "landscaping work in marketing office and sample flat", scope of work lays down that work "including of any material & accessories required to make the work complete in all respects", payment terms indicate "50% of amount shall be paid as advance 50% after completion of work", provides for "Liquidated Damages at the rate of 1.23% of Contract Value per week of delay", stipulates that "the entire onus of safety lies with you (the appellant)", stipulates that "all materials shall be provided by the contractor (the appellant)", all "statutory liabilities" rests on the appellant, that the "contractor (the appellant)shall not sublet or assign this contract or any part thereof";
(ii) work order dated 08.07.2011 for site: "Mahagun Maple at F-26, Sector-50, NOIDA placed by Mis. Mahagun India Pvt Ltd., is for "landscaping work at Mahagun Maple", scope of work lays down that work "including of any material & accessories required to make the work complete in all respects", payment terms indicate "upto 20% of contract value may be paid as mobilization advance........ 5% of contract value shall be deducted from each running bill as Security Deposit which shall be released at the end, provides for "Liquidated Damages at the rate of 1.25% of Contract Value per week of delay", stipulates that "the entire onus of safety lies with you (the appellant)", stipulates that "all materials shall be provided by the contractor (the appellant)", all statutory liabilities" rests on Service Tax Appeal No.71134 of 2016 8 the appellant, that the "contractor (the appellant) shall not sublet or assign this contract or any part thereof";
(iii) work order dated 06.08.2011 for site: 'Mahagun PARK INN HOTEL' at CBD Sahadra, Delhi, placed by Ms. Mahagun Hotel Pvt Ltd.,- is for "Landscape work on pathways", scope of work lays down that work "including of any material & accessories required to make the work complete in all respects payment terms indicate "upto 25% of contract value may be paid as mobilization advance 5% of contract value shall be deducted from each running bill as Security Deposit which shall be released at the end", provides for "Liquidated Damages at the rate of 1,25% of Contract Value per week of delay", stipulates that "the entire onus of safety lies with you (the appellant)", stipulates that "all materials shall be supplied by the contractor (the appellant)", all statutory liabilities" rests on the appellant, that the "contractor (the appellant) shall not sublet or assign this contract or any part thereof";
(iv) work order dated 13.12.2007 for site: 'paint manufacturing factory at Ranjangao, Pune placed by M/s, Jotun India Pvt Ltd., is for "execution of landscaping", scope of work includes "uploading storage and movement of items for landscaping at the site, payment terms indicate "25% of the basic order value shall be paid as advance against mobilization at sife", penalty clause provides for "penalty at the rate of % % of the basic order value per week of delay", stipulates that the appellant shall "comply with all labour and industrial laws. including PF & ESIC regulations", stipulates that the appellant "shall not engage subcontractors"
I note that there are several other contracts for similar type of work invariably described as 'landscaping work'. The facts revealed in the contracts unequivocally describe the activity as one of landscaping service and not of sale of plants or grass, etc and neither in the nature of "horticulture' activity. The details of rates of plants, etc. Service Tax Appeal No.71134 of 2016 9 are for the purpose of billing only and the same do not alter the nature and scope of contracts executed. The contracts are to be perused as a whole and not in parts. The material available demonstrates that the 'whole' is something definitely more than the sum of its parts. The appellant has attempted to read the parts in a manner separate from the sum and substance of the contract as a whole which is for landscaping activity. On consideration of the material available on record, I find that the impugned activity is very much in the nature of landscaping activity which got covered under interior decorator's service as per statutory definition. The rule 5(1)of the ST Value Rules provides that all the costs and expenses incurred for providing taxable service shall be part of the value of such service. The appellant has placed reliance on several decisions to canvass that as the material was sold on payment of VAT/sales tax, the same would not form part of taxable value. It is trite that decisions/judgements are to be applied to a set of facts. The facts and circumstances of the case in hand overwhelmingly demonstrate that the appellant provided 'landscaping' service that attracted service tax levy under the category of interior decorator's services. The acts of showing sale of plants, grass, etc. under separate invoices would not alter the character of services rendered by the appellant. The activity of supply of material is intrinsic part of the activity of landscaping as revealed in the texts of the contracts. In the given facts, the acts of issuing sales invoices is in the nature of creating a subterfuge or camouflage to obfuscate true character of services rendered to escape service tax liability on whole of consideration. The application of extended period of limitation and penal provisions gets sufficient support in the facts of the case. On consideration of the material available on record, appellants submissions and relevant statutory provisions, I uphold the original order as far as it relates to determination of service tax Service Tax Appeal No.71134 of 2016 10 demand of Rs.27,65,633/- + Rs.8,76,770/- for interior decoratores service (landscaping) and imposition of equal penalty for the act of non-payment of such tax amount.
(b) The original authority has determined service tax liability of Rs.5,91,994/- on account of difference in the value of service shown in the balance sheet and in the ST-
3 returns. The appellant has canvassed that the books of account were maintained on accrual basis and the taxable value declared in the ST-3 returns was on receipt basis. The appellant has made a theoretical submission. I have already held that the appellant created a subterfuge or camouflage of sale of material to obfuscate true declaration of taxable value. It would be incumbent on the appellant to demonstrate with cogent documentary evidence in the given circumstances as what activities did not attract service tax when the material available establishes that the consideration was for taxable services. This does not amount placing of burden on the assessee but the established facts definitely lead to shifting of burden to the appellant. On consideration of material available and submissions made by the appellant, I uphold the original authority's order to the extent of determination of service tax demand of Rs.5,91,994/- and imposition of equal penalty for the act of non-payment of such tax amount.
(c) As regards the third limb of dispute demand of Rs.24,351/- in respect of service', the appellant has again canvassed that the books of account were maintained on accrual basis and the taxable value declared in the ST-3 returns was on receipt basis. As already held in the proceeding portion, the appellant has made a theoretical submission. It was incumbent on the appellant to demonstrate support for its argument with cogent documentary evidence On consideration of material available and submissions made by the appellant, 1 uphold the original authority's order to the extent of determination Service Tax Appeal No.71134 of 2016 11 of service tax demand of Rs.24,351/- in respect of 'cleaning service and imposition of equal penalty for the act of non-payment of such tax amount."
4.3 We find that the first demand which has been made in respect of the value of material such as grass, plants, manure, pesticides etc. supplied for landscaping activities under the category of Interior Decorator Services has to be included the said value. We do not find any merits in the inclusion of the said value in the value of the taxable services for the reason that the issue has been settled by the various decisions in this regard. In the case of Agrawal Color Advance Photo System [2020 (38) GSTL 298 (MP)] Hon'ble Madhya Pradesh High Court has held as follows:
"10. In view of the aforesaid factual background, a moot question before the Learned Authorities below was: as to whether the appellant-assessee was entitled to the benefit of Notification No. 12/2003-S.T., dated 20-6-2003. In order to appreciate the said controversy, it would be expedient to reproduce the relevant portion of the circular, which reads as under :-
"Notification No. 12/2003-S.T., dated 20-6-2003. - In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under Section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.
Provided that the said exemption shall apply only in such cases where -
(a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or Service Tax Appeal No.71134 of 2016 12
(b) where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials."
Perhaps there had been some representation from Punjab Color Lab Association, Jalandhar and thereafter, clarification was sought by certain photographic associations whether the value of materials consumed during the provision of service by the service provider for rendering the service is also excludable from the value of taxable service. Thereupon, a Clarificatory Circular M.F. (D.R.) F. No. 233/2/2003-CX, dated 3-3-2006 was issued, which reads, thus :-
"3. The matter has been examined by the Board. The intention of the Notification No. 12/2003-S.T., dated 20-6- 2003 is to provide exemption only to the value of goods and material sold subject to documentary evidence of such sale being available. Therefore, in case, the goods are consumed during the provision of service and are not available for sale, the provision of the said notification would not be applicable. Therefore, in supersession of clarification to contrary, it is clarified that goods consumed during the provision of service, that are not available for sale, by the service provider would not be entitled to benefit under Notification No. 12/2003-S.T., dated 20-6-2003."
11. The contention of the assessee before the Tribunal was that the term "sale" in Notification dated 20-6-2003 includes "deemed sale" under Article 366(29A) of the Constitution and therefore, if a service contract is a works contract then no service tax can be charged on the goods component. The Tribunal while dealing with the arguments of both the sides and various pronouncements on the subject of valuation of photography services found that its earlier judgments required reconsideration and therefore, referred the matter to the Larger Bench. In respect of the Notification dated 20- 6-2003, the referring Bench was of the view that in a Service Tax Appeal No.71134 of 2016 13 service of photography there is no sale of goods involved and service element is dominant. The word „sale‟ in the Notification has to be interpreted on the basis of its definition as given in Section 2(h) of the Act, which by virtue of Section 65(121) of the Finance Act is applicable to service tax. It was further opined that when there is no primary intention of the parties to sell paper, consumable or chemical in providing photography service there is no room left to plead [fiction of Article 366(29A)(b) of the Constitution] in absence of any such sale of these commodities as goods. It further rejected the contention and held that the word "sale" in Notification would not cover "deemed sale" under Article 366(29A) of the Constitution and it is of no relevance inasmuch as Notification does not override statutory provision. The Larger Bench was in agreement with the said view when it held that expression "sold" in the Notification would not include "deemed sale" of goods and material consumed by the service provider while generating and providing service, unless an assessee has discharged burden of proof adducing evidence showing value of goods and material actually sold and satisfied the conditions of Notification. However, the Larger Bench opined that value of taxable service of photography depends on the facts and circumstances of each case as the Finance Act does not intend taxation of goods and materials sold in the course of providing all the taxable services.
12. There is no dispute to the proposition that the Notification does not override the statutory provision and hence, it is required to be seen as to whether the conclusion drawn by the Tribunal that term „sold‟ appearing in Notification has to be interpreted using the definition of „sale‟ in the Central Excise Act, 1944 and not as per the meaning of "deemed sale" under Article 366(29A)(b) of the Constitution, is correct or not.
13. From the aforesaid discussion, it would emerge that the crux of the substantial question of law No. 1 which has Service Tax Appeal No.71134 of 2016 14 arisen for consideration is : "whether for the purposes of service tax the value of photography service can be determined separately from the value of certain consumables and chemicals which are used on the paper for printing the image and whether such printed photograph can be said to be a sale of goods in terms of Article 366(29A)(b) of the Constitution". In this regard, before considering the first limb of the contention of Learned Counsel for the appellants that in view of amended Article 366(29A) of the Constitution, the material and consumables used in photography will qualify as sale, it would be apt to refer to relevant clauses of the definition clause as contained in Article 366(29A) of the Constitution and other enactments, which read as under :-
"366. (29A) „tax on the sale or purchase of goods‟ includes -
(a) *** *** *** (b) a tax on the transfer of property in goods (whether as
goods or in some other form) involved in the execution of a works contract;
*** *** *** The aforesaid definition of "sale" has been adopted by the M.P. VAT Act, 2002. Sub-clause (ii) of Section 2(u) of the said Act, which is relevant for the purposes of present controversy, is reproduced as under :-
"2(u) "Sale" with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes -
*** *** ***
(ii) a transfer of property in goods whether as goods or in some other form, involved in the execution of works contract;
Section 2(h) of the Central Excise Act, 1944 defines "sale" and "purchase" as any transfer of possession for consideration by one person to another. Section 2(h) of the Act is reproduced as under :-
Service Tax Appeal No.71134 of 2016 15 "2(h) "sale" and "purchase", with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration;"
14. According to the Learned Counsel for the appellants, the material and consumables are embedded in the photograph when it is transferred to the customers. The Larger Bench of the Tribunal erroneously held that the consumables and chemicals used for providing such service disappear when the photograph emerges and concluded that value of photography service includes all elements which bring that to the deliverable stage. As noticed earlier, the stand of the appellants is that under sub-clause (b) of Clause (29A) of Article 366 of the Constitution, in execution of works contract, the tax which is paid on the sale or purchase of goods should be on the transfer of property in goods only. The photograph is completed through developing and printing process by using the consumables and chemicals, which are the essential ingredients without which the photography cannot be completed. Therefore, when value of photography paper upon which an image is printed and certain consumables and material with which the photography is done, can be separated from the photography service then both the elements cannot be remixed for the purposes of service tax particularly when the VAT is levied on the material, consumables and chemicals which are used in the photography service.
15. However, it needs to be examined whether Article 366(29A)(b) of the Constitution is attracted in the present case, for which, it is to be necessarily seen whether the photography service is a works contract.
16. This aspect of the matter has been considered by a three-Judge Bench of the Apex Court in Civil Appeal No. 1145/2006 (State of Karnataka, etc. v. M/s. Pro. Lab & Others) decided on 30th January, 2015 [2015 (321) E.L.T. Service Tax Appeal No.71134 of 2016 16 366 (S.C.)] wherein challenge put forth was to the constitutional validity of Entry 25 of Schedule-VI to the Karnataka Sales Tax Act, 1957. The Apex Court took note of six sub-clauses of Clause (29A) of Article 366 of the Constitution of India and elaborately discussing its earlier decisions and the case law on the subject, rejected the contention of the State that processing of photography was a contract for service simplicitor with no element of goods at all and, therefore, Entry 25 could not be saved by taking shelter under clause (29A) of Article 366 of the Constitution. It was further observed that Entry 54 of List II of Schedule VII of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject matter into the State List, the State Legislature has the competency to legislate over the subject. The relevant extract contained in paras 18 to 23 of the said judgment reads as under :-
"18. It is amply clear from the above and hardly needs clarification that the Court was of the firm view that two Judges Bench judgment in Rainbow Colour Lab and Another v. State of Madhya Pradesh and Others (2000) 2 SCC 385 did not lay down the correct law as it referred to pre 46th Amendment judgments in arriving at its conclusions which had lost their validity. The Court also specifically commented that after 46th Amendment, State is empowered to levy sales tax on the material used even in those contracts where "the dominant intention of the contract is the rendering of a service, which will amount to a Works Contract".
19. In view of the above, the argument of the respondent assessees that Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593, (ACC Ltd. case) did not over-rule Rainbow Colour Lab‟s case (supra) is, therefore, clearly misconceived. In fact, we are not saying so for the first time as a three-member Bench of this Court in M/s. Larsen and Toubro and Another v. State of Service Tax Appeal No.71134 of 2016 17 Karnataka and another (2014) 1 SCC 708 has already stated that ACC Ltd. had expressly over-ruled Rainbow Colour Lab while holding that dominant intention test was no longer good test after 46th Constitutional Amendment. We may point out that Learned Counsel for the respondent assessees took courage to advance such an argument emboldened by certain observations made by two-member Bench in the case of C.K. Jidheesh v. Union of India, wherein the Court has remarked that the observations in ACC Ltd. were merely obiter. In Jidheesh, however, the Court did not notice that this very argument had been rejected earlier in Bharat Sanchar Nigam Ltd. v. Union of India (2006) 3 SCC 1. Following discussion in Bharat Sanchar is amply demonstrative of the same :
"46. This conclusion was doubted in Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593 saying :
"The conclusion arrived at in Rainbow Colour Lab case (2000) 2 SCC 385, in our opinion, runs counter to the express provision contained in Article 366(29A) as also of the Constitution Bench decision of this Court in Builders Assn., of India v. Union of India - (1989) 2 SCC 645.
47. We agree. After the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of Clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore, in 2005, C.K. Jidheesh v. Union of India - (2005) 8 SCALE 784 held that the aforesaid observations in Associated Cement (supra) were merely obiter and that Rainbow Colour Lab (supra) was still good law, it was not correct. It is necessary to note that Associated Cement did not say that in all cases of composite transactions the 46th Amendment would apply"
20. In M/s. Larsen and Toubro, the Court, after extensive and elaborate discussion, once again specifically negated Service Tax Appeal No.71134 of 2016 18 the argument predicated on dominant intention test having regard to the statement of law delineated in ACC Ltd. and Bharat Sanchar Nigam Ltd. cases. The reading of following passages from the said judgment is indicative of providing complete answer to the arguments of the respondent assessees herein :
"64. Whether contract involved a dominant intention to transfer the property in goods, in our view, is not at all material. It is not necessary to ascertain what is the dominant intention of the contract. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if it otherwise has elements of works contract. The view taken by a two-Judge Bench of this Court in Rainbow Colour Lab (supra) that the division of the contract after Forty-sixth Amendment can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer of property takes place as an incident of contract of service is no longer good law, Rainbow Colour Lab (supra) has been expressly overruled by a three-Judge Bench in Associated Cement.
65. Although, in Bharat Sanchar, the Court was concerned with sub-clause (d) of Clause (29A) of Article 366 but while dealing with the question as to whether the nature of transaction by which mobile phone connections are enjoyed is a sale or service or both, the three-Judge Bench did consider the scope of definition in Clause (29A) of Article
366. With reference to sub-clause (b) it said : "Sub-clause
(b) covers cases relating to works contract. This was the particular fact situation which the Court was faced with in Gannon Dunkerley-I (State of Madras v. Gannon Dunkerley & Co., AIR 1958 SC 560) and which the Court had held was not a sale. The effect in law of a transfer of property in Service Tax Appeal No.71134 of 2016 19 goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley-I was directly overcome". It then went on to say that all the sub-clauses of Article 366(29A) serve to bring transactions where essential ingredients of a „sale‟ as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase or sale for the purposes of levy of sales tax.
66. It then clarified that Gannon Dunkerley-I survived the Forty-sixth Constitutional Amendment in two respects. First, with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29A) operate and second, the dominant nature test would be confined to a composite transaction not covered by Article 366(29A). In other words, in Bharat Sanchar, this Court reiterated what was stated by this Court in Associated Cement that dominant nature test has no application to a composite transaction covered by the clauses of Article 366(29A). Leaving no ambiguity, it said that after the Forty-sixth Amendment, the sale element of those contracts which are covered by six sub-clauses of Clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying.
67. In view of the statement of law in Associated Cement and Bharat Sanchar, the argument advanced on behalf of the Appellants that dominant nature test must be applied to find out the true nature of transaction as to whether there is a contract for sale of goods or the contract of service in a composite transaction covered by the clauses of Article 366(29A) has no merit and the same is rejected.
68. In Gannon Dunkerley-II (Gannon Dunkerley and Co. and others v. State of Rajasthan and others (1993) 1 SCC
364), this Court, inter alia, established the five following Service Tax Appeal No.71134 of 2016 20 propositions : (i) as a result of Forty-sixth Amendment the contract which was single and indivisible has been altered by a legal fiction into a contract which is divisible into one for sale of goods and the other for supply of labour and service and as a result of such contract which was single and indivisible has been brought on par with a contract containing two separate agreements; (ii) if the legal fiction introduced by Article 366(29A)(b) is carried to its logical end, it follows that even in a single and indivisible works contract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for sale of goods and the other for supply of labour and services; (iii) in view of sub-clause
(b) of Clause (29A) of Article 366, the State legislatures are competent to impose tax on the transfer of property in goods involved in the execution of works contract. Under Article 286(3)(b), Parliament has been empowered to make a law specifying restrictions and conditions in regard to the system of levy, rates or incidents of such tax. This does not mean that the legislative power of the State cannot be exercised till the enactment of the law under Article 286(3)(b) by the Parliament. It only means that in the event of law having been made by Parliament under Article 286(3)(b), the exercise of the legislative power of the State under Entry 54 in List II to impose tax of the nature referred to in sub-clauses (b), (c) and (d) of Clause (29A) of Article 366 would be subject to restrictions and conditions in regard to the system of levy, rates and other incidents of tax contained in the said law; (iv) while enacting law imposing a tax on sale or purchase of goods under Entry 54 of the State List read with Article 366(29A)(b), it is permissible for the State legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of the inter-State trade or commerce under Section Service Tax Appeal No.71134 of 2016 21 3 of the Central Sales Tax Act or outside under Section 4 of the Central Sales Tax Act or sale in the course of import or export under Section 5 of the Central Sales Tax Act; and (v) measure for the levy of tax contemplated by Article 366(29A)(b) is the value of the goods involved in the execution of a works contract. Though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. Since, the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in works and not the cost of acquisition of the goods by the contractor.
69. In Gannon Dunkerley-II, sub-section (3) of Section 5 of the Rajasthan Sales Tax Act and Rule 29(2)(1) of the Rajasthan Sales Tax Rules were declared as unconstitutional and void. It was so declared because the Court found that Section 5(3) transgressed the limits of the legislative power conferred on the State legislature under Entry 54 of the State List. However, insofar as legal position after Forty- sixth Amendment is concerned, Gannon Dunkerley-II holds unambiguously that the States have now legislative power to impose tax on transfer of property in goods as goods or in some other form in the execution of works contract.
70. The Forty-sixth Amendment leaves no manner of doubt that the States have power to bifurcate the contract and levy sales tax on the value of the material involved in the execution of the works contract. The States are now empowered to levy sales tax on the material used in such contract. In other words, Clause (29A) of Article 366 empowers the States to levy tax on the deemed sale."
Service Tax Appeal No.71134 of 2016 22
21. To sum up, it follows from the reading of the aforesaid judgment that after insertion of clause (29A) in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for "sale of goods" and other for "services", thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immaterial. It follows, as a sequitur, that by virtue of clause (29A) of Article 366, the State Legislature is now empowered to segregate the goods part of the Works Contract and impose sales tax thereupon. It may be noted that Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to legislate over the subject.
22. Keeping in mind the aforesaid principle of law, the obvious conclusion would be that Entry 25 of Schedule VI to the Act which makes that part of processing and supplying of photographs, photo prints and photo negatives, which have "goods" component exigible to sales tax is constitutionally valid. Mr. Patil and Mr. Salman Khurshid, Learned Senior Counsel who argued for these assessees/respondents, made vehement plea to the effect that the processing of photographs etc. was essentially a service, wherein the cost of paper, chemical or other material used in processing and developing photographs, photo prints etc. was negligible. This argument, however, is founded on dominant intention theory which has been repeatedly rejected by this Court as no more valid in view of 46th Amendment to the Constitution.
23. It was also argued that photograph service can be exigible to sales tax only when the same is classifiable as Works Contract. For being classified as Works Contract the Service Tax Appeal No.71134 of 2016 23 transaction under consideration has to be a composite transaction involving both goods and services. If a transaction involves only service i.e. work and labour then the same cannot be treated as Works Contract. It was contended that processing of photography was a contract for service simplicitor with no elements of goods at all and, therefore, Entry 25 could not be saved by taking shelter under clause (29A) of Article 366 of the Constitution. For this proposition, umbrage under the judgment in B.C. Kame‟s case (Assistant Sales Tax Officer and others v. B.C. Kame, Proprietor Kame Photo, AIR 1977 SC 1642) was sought to be taken wherein this Court held that the work involving taking a photograph, developing the negative or doing other photographic work could not be treated as contract for sale of goods. Our attention was drawn to that portion of the judgment where the Court held that such a contract is for use of skill and labour by the photographer to bring about desired results inasmuch as a good photograph reveals not only the asthetic sense and artistic faculty of the photographer, it also reflects his skill and labour. Such an argument also has to be rejected for more than one reasons. In the first instance, it needs to be pointed out that the judgment in Kame‟s case was rendered before the 46th Constitutional Amendment. Keeping this in mind, the second aspect which needs to be noted is that the dispute therein was whether there is a contract of sale of goods or a contract for service. This matter was examined in the light of law prevailing at that time, as declared in Dunkerley‟s case as per which dominant intention of the contract was to be seen and further that such a contract was treated as not divisible. It is for this reason in BSNL and M/s. Larsen and Toubro cases, this Court specifically pointed out that Kame‟s case would not provide an answer to the issue at hand. On the contrary, legal position stands settled by the Constitution Bench of this Court in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu and Ors. (2014) 7 SCC 1.
Service Tax Appeal No.71134 of 2016 24 Following observations in that case are apt for this purpose :
"On the basis of the aforesaid elucidation, it has been deduced that a transfer of property in goods under Clause (29A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a Works Contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. One thing is significant to note that in Larsen and Toubro (supra), it has been stated that after the constitutional amendment, the narrow meaning given to the term "works contract" in Gannon Dunkerley-I (supra) no longer survives at present.
It has been observed in the said case that even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. It has been further held that once the characteristics or elements of works contract are satisfied in a contract, then irrespective of additional obligations, such contract would be covered by the term "works contract" because nothing in Article 366(29A)(b) limits the term "works contract" to contract for labour and service only."
17. The view expressed by the Apex Court in Bharat Sanchar Nigam Limited‟s case (supra) that after the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying, was reiterated by the Apex Court in M/s. Pro. Lab‟s case (supra). Thus, the finding of the Tribunal that in Bharat Sanchar Nigam Limited‟s case (supra) the Apex Court has only given the passing remarks Service Tax Appeal No.71134 of 2016 25 and did not overrule either C.K. Jidheesh (supra) or Rainbow Colour Lab and Another v. State of Madhya Pradesh and Others, (2000) 2 SCC 385 = 2001 (134) E.L.T. 332 (S.C.), is unsustainable, as it had been categorically held in Bharat Sanchar Nigam Limited‟s case (supra) that these judgments do not lay down correct law.
18. The next contention of the Learned Counsel for the appellants was that appellants having once paid the VAT under the State Act as works contractor on the material and chemicals consumed in photography service, cannot be charged service tax on the same value. To bolster his submission, he placed reliance upon the judgment in Safety Retreading Company Private Ltd. (supra). In the facts of the said case, the assessee was engaged in business of tyres on job work basis and had been paying 30% service tax only on the labour component shown in invoices after deducting 70% towards material cost on the gross re-treading charges billed in terms of Notification No. 12/2003-S.T., dated 20-6- 2003. A show cause notice dated 24-1-2008 was issued to the assessee alleging suppression of value of taxable services with intention to evade payment of service tax and proposing recovery of service tax together with interest and penal action under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994. The said deduction of 70% was denied by the Commissioner and demand of service tax was confirmed on the assessee along with interest and penalty. The appeal preferred by the assessee was considered and decided by a three-member Special Bench of the Tribunal reported as Safety Retreading Company (P) Ltd. v. Commissioner of Central Excise, Salem, (2012) 34 STT 64 (Chennai) = 2012 (26) S.T.R. 225 (Tribunal), wherein coupled with the Notification No. 12/2003-S.T., dated 20-6- 2003 a similar issue was considered by the Larger Bench of the Tribunal: "whether in a contract for retreading of tyres, service tax is leviable on the total amount charged for retreading including the value of the materials/goods that Service Tax Appeal No.71134 of 2016 26 have been used and sold in the execution of the contract or exemption to material component therein can be granted". The question was whether maintenance and repair service can be treated as service under "works contract" for service tax purposes. The Appellate Tribunal by majority view, upheld the demand, inter alia, on the ground that „maintenance and repair service‟ being a specific service is to be treated as service under "works contract" for service tax purposes. On appeal, the Apex Court set aside the said majority view of the Special Bench of the Tribunal and held that Section 67 of the Finance Act clarifies that costs of parts or other material, if any, sold (deemed sale) to customer while providing maintenance or repair service is excluded from service tax subject to furnishing adequate and satisfactory proof by the assessee and this position has been further clarified in Notification dated 20-6-2003 and C.B.E. & C. Circular dated 7-4-2004. It was held that component of gross turnover in respect of which assessee had paid taxes under local Act with which it has registered as works contractor is excluded from service tax.
19. In view of the law laid down by the Apex Court in M/s. Pro. Lab‟s case (supra), it can be safely held that photography service, which has both the elements of goods and services is covered under works contract. Thus, in a works contract which involves transfer of property, the provisions as contained in Article 366(29A) of the Constitution are attracted. Therefore, in the light of sub- clause (b) of Clause (29A) of Article 366 of the Constitution, in execution of a works contract when there is transfer of property even in some other form than in goods, the tax on such sale or purchase of goods is leviable. In this view of the matter, after the 46th Amendment, there is no question of dominant nature test applying in photography service and the works contract, which is covered by Clause (29A) of Article 366 of the Constitution where the element of goods can be separated, such contracts can be subjected to sales Service Tax Appeal No.71134 of 2016 27 tax by the States under Entry 54 of List II of Schedule II. Once that is so, value of photographic paper and consumables cannot be included in the value of photography service for the purposes of imposition of service tax. Thus, in the light of the judgment of the Apex Court in M/s. Pro Lab (supra), wherein it is held that part of processing and supplying of photographs, photo prints and negatives, which have "goods" component exigible to sales tax is constitutionally valid, it is held that value of photography service has to be determined in isolation of cost of goods such as photography paper, consumables and chemicals with which image is printed, negatives and other material which has "goods" component liable to sales tax. Accordingly, the substantial question of law No. 1 is answered in favour of the assessee and against the Revenue.
20. Having answered the substantial question of law No. 1 in favour of the assessee, the substantial question of law No. 2, which already stands concluded while dealing with the question of law No. 1, is also answered in favour of the assessee and it is held that the term „sale‟ appearing in exemption Notification No. 12/2003-S.T., dated 20-6-2003 would also include "deemed sale" as defined by Article 366(29A)(b) of the Constitution."
The crux of the above decision is that value of the material supplied while providing the taxable services cannot be included in the value of taxable services, even if the material is consumed for providing the taxable service. Hence we do not find any merits in the demand made on this account.
4.4 In respect of other two demands the only difference which is observed between the value of taxable services as per ST-3 returns and the figures in the Financial Accounts has been explained by the appellant to be for the reason that the books of account was maintained on accrual basis whereas service tax was paid on receipt basis. Commissioner (Appeals) have in absence of any evidence to substantiate the same held that in Service Tax Appeal No.71134 of 2016 28 favour of the demands, in any case if service tax has been paid on the entire value then their cannot be demand for service tax second time. Appellant can establish the same by way of production of the said documents before the Original Authority. 4.5 From 2011 the introduction of Point of Taxation Rules,2011 service tax was required to be paid on accrual basis only and not on the basis of receipt. If appellant have followed such practice in the present case even if entire tax was paid and the same would have been paid after the due date with certain delay. For the period of delay in making payment of tax, they would be liable to the interest; the same should be worked out and recovered from them. In case of Steel Authority of India Limited [2019 (366) E.L.T. 769 (S.C.)] Hon'ble Supreme Court while affirming the decision in case of International Auto Ltd. [2010 (250) E.L.T. 3 (S.C.)] observed as follows:
47. Coming to Section 11AB, it came to be inserted by Act 33 of 1996. Thereafter, it was amended by Act 10 of 2000, Act 14 of 2001, Act 20 of 2002 and Act 49 of 2005. We have already extracted the relevant provisions of the said section.
Section 11A must necessarily be read with Section 11AB. This is for the reason that interest under Section 11AB is premised upon the duty of excise not being levied or paid or short levied, short paid or erroneously refunded. Such duty is either determined under sub-section (2) of Section 11A or without such determination it being paid under Section 2B of Section 11A. In any of the circumstances, namely, non- levy, non-payment, short-levy and short-paid, any duty has been determined or paid as has been provided under Section 11A, necessarily the assessee becomes liable to pay interest from the first date of the month succeeding the month in which duty ought to have been paid.
48. The question which we are necessarily called upon to decide is when price is revised upward with retrospective effect and the excise duty on the same is paid immediately on a future date whether interest is payable under Section Service Tax Appeal No.71134 of 2016 29 11AB from the first day of the month succeeding the month in which the duty ought to have been paid under the Act. To keep the matter in focus, the exact question is which is the month in which the duty ought to have been paid.
In case of International Auto, Hon'ble Supreme Court has observed as follows:
6. The case of the assessee, before us, was that such interest was not leviable under Section 11AB of the Act, particularly in view of the fact that prices indicated in the purchase orders were final during the period of supply of goods. According to the assessee, in the present case, the Department has accepted the position that the prices in the purchase orders were final. Further, according to the assessee herein, there was no price variation clause in the purchase orders, therefore, there was no scope for increase in prices subsequently and that too, retrospectively. In short, according to the assessee, prices indicated in the purchase orders were final and not liable to change at the time of removal of goods. It was submitted that, in the circumstances, the present case was not a case of short-
levy or non-levy of the goods removed by the assessee calling for recovery under Section 11A of the Act, hence, this was not a case for charging of interest under Section 11AB of the Act. Learned counsel appearing on behalf of the assessee submitted that this case is squarely covered by the judgement of three learned Judges of this Court in the case of M.R.F. Limited v. Collector of Central Excise, Madras, reported in 1997 (92) E.L.T. 309.
7. We find no merit in the submissions advanced on behalf of the assessee. The controversy arising in this civil appeal is squarely covered by the judgement of this Court in the case of Commissioner of Central Excise, Pune v. SKF India Limited, reported in 2009 (239) E.L.T. 385. We quote hereinbelow relevant observations made in the case of SKF India Limited [supra], which reads as follows :
Service Tax Appeal No.71134 of 2016 30 "9. Section 11A puts the cases of non-levy or short levy, non-payment or short payment or erroneous refund of duty in two categories. One in which the non-payment or short payment etc. of duty is for a reason other than deceit; the default is due to oversight or some mistake and it is not intentional. The second in which the non-
payment or short payment etc. of duty is "by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or of Rules made thereunder with intent to evade payment of duty"; that is to say, it is intentional, deliberate and/or by deceitful means. Naturally, the cases falling in the two groups lead to different consequences and are dealt with differently. Section 11A, however allow the assessees in default in both kinds of cases to make amends, subject of course to certain terms and conditions. The cases where the non-payment or short payment etc. of duty is by reason of fraud collusion etc. are dealt with under sub-section (1A) of section 11A and the cases where the non-payment or short payment of duty is not intentional under sub-section (2B).
10. Sub-section (2B) of section 11A provides that the assessee in default may, before the notice issued under sub-section (1) is served on him, make payment of the unpaid duty on the basis of his own ascertainment or as ascertained by a Central Excise Officer and inform the Central Excise Officer in writing about the payment made by him and in that event he would not be given the demand notice under sub-section (1). But Explanation 2 to the sub-section makes it expressly clear that such payment would not be exempt from interest chargeable under Section 11AB, that is, for the period from the first date of the month succeeding the month in which the duty ought to have been paid till the date of payment of the duty. What is stated in Explanation 2 to sub-section (2B) is reiterated in section 11AB that states where any Service Tax Appeal No.71134 of 2016 31 duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person who has paid the duty under sub-section (2B) of section 11A, shall, in addition to the duty, be liable to pay interest...... It is thus to be seen that unlike penalty that is attracted to the category of cases in which the non- payment or short payment etc. of duty is "by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or of Rules made thereunder with intent to evade payment of duty", under the scheme of the four sections (11A, 11AA, 11AB & 11AC) interest is leviable on delayed or deferred payment of duty for whatever reasons.
11. The payment of differential duty by the assessee at the time of issuance of supplementary invoices to the customers demanding the balance of the revised prices clearly falls under the provision of sub-section (2B) of section 11A of the Act.
12. The Bombay High Court, Aurangabad Bench, in its decision in The Commissioner of Central Excise, Aurangabad v. M/s Rucha Engineering Pvt. Ltd., (First Appeal No. 42 of 2007) that was relied upon by the Tribunal for dismissing the Revenue‟s appeal took the view that there would be no application of Section 11A(2B) or section 11AB where differential duty was paid by the assessee as soon as it came to learn about the upward revision of prices of goods sold earlier. In M/s. Rucha Engineering the High Court observed as follows :
„It is evident that the Section (11AB) comes into play if the duty paid/levied is short. Both, the Commissioner (Appeals) and the CESTAT have observed that the Assessee paid the duty on its own accord immediately when the revised rates became known to them from their customers. The differential duty was due at that time i.e. Service Tax Appeal No.71134 of 2016 32 when the revised rates applicable with retrospective effect were learnt by the Assessee, which was much after the clearance of the goods and therefore, question of payment of interest does not arise as the duty was paid as soon as it was learnt that it was payable. Finding that provisions of Section 11A(2) and 11A(2B) were not applicable as the situation occurred in the instant case was quite different, section 11AB (1) was not at all applicable, and therefore, the Assessee was not required to pay interest.‟
13. It further held that a case of this nature would not fall in the category where duty of excise was not paid or short-paid.
14. We are unable to subscribe to the view taken by the High Court. It is to be noted that the assessee was able to demand from its customers the balance of the higher prices by virtue of retrospective revision of the prices. It, therefore, follows that at the time of sale the goods carried a higher value and those were cleared , on short payment of duty. The differential duty was paid only later when the assessee issued supplementary invoices to its customers demanding the balance amounts. Seen thus it was clearly a case of short payment of duty though indeed completely unintended and without any element of deceit etc. The payment of differential duty thus clearly came under sub-section (2B) of Section 11A and attracted levy of interest under Section 11AB of the Act."
8. Section 11A of the Act deals with recovery of duty not levied or not paid or short-levied or short-paid. The said section, which stood inserted by Act 25 of 1978, underwent a sea-change when Parliament inserted major changes in that section vide Act 14 of 2001 [with effect from 11th May, 2001] and Act 32 of 2003 [with effect from 14th May, 2003]. It needs to be mentioned that simultaneously Act 14 of 2001 also made changes to Section 11AB of the Act. In Service Tax Appeal No.71134 of 2016 33 the case of S.K.F. India Limited [supra], it has been, inter alia, held, as can be seen from the above-quoted paragraphs, that sub-section 2(B) of Section 11A provides that the assessee in default may make payment of the unpaid duty on the basis of his own ascertainment or as ascertained by a Central Excise Officer and, in that event, such assessee in default would not be served with the Demand Notice under Section 11A(1) of the Act. However, Explanation (2) to the sub-section makes it clear that such payment would not be exempt from interest chargeable under Section 11AB of the Act. What is stated in Explanation (2) to sub-section 2(B) is reiterated in Section 11AB of the Act, which deals with interest on delayed payment of duty. From the Scheme of Section 11A(2B) and Section 11AB of the Act, it becomes clear that interest is levied for loss of revenue on any count. In the present case, one fact remains undisputed, namely, accrual of price differential. What does differential price signify? It signifies that value, which is the function of the price, on the date of removal/clearance of the goods was not correct. That, it was understated. Therefore, the price indicated by the supplementary invoice is directly relatable to the value of the goods on the date of clearance, hence, enhanced duty. This enhanced duty is on the corrected value of the goods on the date of removal. When the differential duty is paid after the date of clearance, it indicates short-payment/short-levy on the date of removal, hence, interest which is for loss of revenue, becomes leviable under Section 11AB of the Act. In our view, with the entire change in the Scheme of recovery of duty under the Act, particularly after insertion of Act 14 of 2001 and Act 32 of 2003, the judgement of this Court in the case of M.R.F. Limited [supra] would not apply. That judgement was on interpretation of Section 11B of the Act, which concerns claim for refund of duty by the assessee. That judgement was in the context of the price list approved on 14th May, 1983. In that case, assessee had made a Service Tax Appeal No.71134 of 2016 34 claim for refund of excise duty on the differential between the price on the date of removal and the reduced price at which tyres were sold. The price was approved by the Government. In that case, the assessee submitted that its price list was approved, by the Government on 14th May, 1983, but subsequent thereto, on account of consumer resistance, the Government of India directed the assessee to roll back the prices to pre-14th May, 1983 level and on that account, price differential arose on the basis of which the assessee claimed refund of excise duty which stood rejected by this Court on the ground that once the assessee had cleared the goods on classification, the assessee became liable to payment of duty on the date of removal and subsequent reduction in the prices for whatever reason cannot be made a matter of concern to the Department insofar as the liability to pay excise duty was concerned. In the present case, we are concerned with the imposition of interest which, as stated above, is charged to compensate the Department for loss of revenue. Be that as it may, as stated above, the Scheme of Section 11A of the Act has since undergone substantial change and, in the circumstances, in our view, the judgment of this Court in the case of M.R.F. Limited [supra] has no application to the facts of this case. In our view, the judgment of this Court in the case of SKF India Limited [supra] is squarely applicable to the facts of this case."
4.5 As we set aside the demand of service tax made by this order, the penalties are also set aside in respect of first demand. In respect f the other demands for which we are remanding the matter the quantum of penalty can be determining only after ascertainment of the tax payable after proper reconciliation. 4.6 Summarizing, we set aside the demand made in respect of the cost of material supplied for providing landscaping services under the category of Interior Decorator Services.
Service Tax Appeal No.71134 of 2016 35 Matter is remanded for ascertaining the factum of payment of service tax on account of the difference in the manner of the figures in the balance sheet which were higher than those in the ST-3 returns during the same period. Penalties are set aside.
5.1 Appeal is partly allowed as indicated in above.
(Pronounced in open court on-11 December, 2024) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp