Kerala High Court
Uralungal Labour Contract Co-Op ... vs Union Of India on 27 January, 2020
Author: T.V. Anilkumar
Bench: C.K.Abdul Rehim, T.V.Anilkumar
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM
&
THE HONOURABLE MR.JUSTICE T.V.ANILKUMAR
MONDAY, THE 27TH DAY OF JANUARY 2020 / 7TH MAGHA, 1941
WA.No.2552 OF 2019
AGAINST THE ORDER/JUDGMENT IN WP(C) 3816/2019(B) OF HIGH
COURT OF KERALA
APPELLANT/S:
URALUNGAL LABOUR CONTRACT CO-OP SOCIETY LTD.
REPRESENTED BY ITS CHAIRMAN,
MADAPPILLY COLLEGE P.O., KOZHIKODE-673 103
BY ADVS.
SRI.SANDEEP GOPALAKRISHNAN
SRI.S.SHYAM KUMAR
SMT.JINNU SARA GEORGE
SMT.MITHA SUDHINDRAN
SHRI. ZAFAR ANTONIO
RESPONDENT/S:
1 UNION OF INDIA
REPRESENTED BY ITS SECRETARY, REVENUE
DEPARTMENT, MINISTRY OF FINANCE, NEW DELHI-110
001
2 THE COMMISSIONER OF CENTRAL EXCISE (APPEAL)
C.R.BUILDING, I.S PRESS ROAD, COCHIN -682 018
3 THE ADDITIONAL COMMISSIONER OF CENTRAL TAX AND
CENTRAL EXCISE,
C.R.BUILDING, MANANCHIRA, CALICUT-670 001
4 THE ASSISTANT COMMISSIONER,
CENTRAL TAX AND CENTRAL EXCISE, KOZHIKODE
RURAL DIVISION, GST BHAVAN, MANANCHIRA,
WA.No.2552 OF 2019
..2..
CAILCUT-673 001
5 THE JOINT COMMISSIONER,
CENTRAL EXCISE AND CUSTOMS, C.R.BUILDING,
MANANCHIRA, CALICUT-670 001
OTHER PRESENT:
SC-CENTRAL BOARD OF EXCISE AND CUSTOMS-
SRI.SREELAL.N.WARRIER/ASGI- SRI. P.VIJAYAKUMAR
THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON
27.01.2020, THE COURT ON THE SAME DAY DELIVERED THE
FOLLOWING:
WA.No.2552 OF 2019
..3..
C.K. ABDUL REHIM
&
T.V. ANILKUMAR, JJ.
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WA No. 2552 of 2019
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Dated this the 27th day of January, 2020
JUDGMENT
C.K. Abdul Rehim, J.
The writ petitioner in WP(C) No. 3816 of 2019 is in appeal against judgment of the learned Single Judge, dated 20.03.2019. The respondents herein are the respondents in the writ petition.
2. Ext.P4 order of determination of Service Tax payable by the appellant society along with interest and penalty, under Sections 77(2) & 78(1) of the Finance Act, 1994 (for short, "the Act") as well as Ext.P6 order through which a rectification application filed by the WA.No.2552 OF 2019 ..4..
appellant under Section 74 of the Act was dismissed, were under challenge in the writ petition. The proceedings for determination of Service Tax was initiated based on an audit conducted with respect to the records of the appellant society, for the years 2011-12 to 2015-16. The appellant society is engaged in 'works contract services' and other identical services to the Government and other private clients, as well as to the public sectors. The audit team found that, the appellant/assessee was engaged in managing a project of the Government of Kerala located at 'Iringal' in Kozhikode district, namely, "Sargalaya Craft Village". By virtue of an agreement entered with the State Government, the appellant had undertaken to provide facilities and infrastructure for creation, exhibition and marketing of arts and crafts at the said 'Craft Village' premises. It is evident that the Government of Kerala had paid an amount of Rs.1,96,16,274/- to the appellant in three instalments WA.No.2552 OF 2019 ..5..
during the years of 2011-12, 2012-13 & 2013-14 as "support fee" for running the project. Besides, by virtue of the agreement the appellant was allowed to collect consideration for utilizing the facilities in the 'Craft Village' by the outsiders. But the appellant failed to disclose receipt of the above said considerations and failed to pay Service Tax due on such considerations received. Before passing Ext.P4 order of assessment, the Department had issued Ext.P2 show cause notice to the appellant, which was replied through Ext.P3. After adjudicating the objections raised against the assessment proposed, the 3rd respondent finalized the assessment and issued Ext.P4 proceedings fixing a total Service Tax liability of Rs.1,03,05,809/- and penalty of Rs.60,48,204/- was imposed alleging non-payment of the Service Tax within the due time. The appellant filed Ext.P5 Rectification Application before the same authority, by invoking power vested under Section 74 WA.No.2552 OF 2019 ..6..
of the Act. It was contended that the 'Craft Village' was handed over by the Government for operation and management, in the year 2011. The land and all the infrastructure in the village are owned by the Government, through the Directorate of Tourism. The grant was intended to enable the appellant society to procure necessary materials and to provide necessary training to Artisans and to make the unit ready for functioning. The appellant has to pay licence fee for usage of the land and premises from the 6 th year of the contract onwards, in accordance with schedule of repayment provided in the agreement. It was also contended that the assessing authority had not properly appreciated taxability on the amount of grant paid by the Government, which need to be repaid in accordance with the schedule incorporated in the agreement. It was pointed out that the grant is provided under Article 282 of the Constitution, in order to fulfil the mandatory obligations of the WA.No.2552 OF 2019 ..7..
Government and such payments are excluded under Rule 6(2)(vii) of the Service Tax (Determination of Value) Rules, 2006. The grant is provided in furtherance of discharging constitutional responsibility of the Government under Articles 243G and 243W. Since the functions carried out by the appellant are functions obliged upon the local bodies, the grant paid is not taxable, is the further contention raised. The contentions taken, in short, was that, the payments made by the Government is 'grant-in-aid' coming within the exempted categories provided under the relevant entries of the "Mega Exemption Notifications". Further it is pointed out that, the 'grant-in-aid' is liable to be refunded, which aspect was omitted notice of the assessing authority. By explaining the nature of various activities to be undertaken by the appellant, it was pointed out that, those are activities, which are exempted from the purview of Service Tax. Certain other contentions WA.No.2552 OF 2019 ..8..
relating to the question of limitation was also raised. It was also contended that the imposition of penalty under Section 78 of the Act is not sustainable. Yet another contention raised was that, payments mentioned in Paragraphs 16, 17 & 18 of the assessment order were not given due appropriation against the demand of Service Tax and therefore there occurred a duplication in computing the liability, to the tune of Rs.74,67,737/-.
3. Ext.P6 is the order passed n the Rectification Application. The authority found that, the Rectification Application cannot be entertained, in any manner, as there exists no mistake apparent on the face of record, as contemplated under Section 74 of the Act. It was observed that, an application for rectification of mistake, by no means can be considered as an appeal, wherein an order of assessment is to be reconsidered. It was observed WA.No.2552 OF 2019 ..9..
that the application for rectification of mistake is filed seeking a re-examination of the issues based on the grounds raised, which amounts to a review of the earlier order, which is not permitted under law. Hence the Rectification Application was dismissed.
4. Before the learned Single Judge, the appellant had emphasised the grounds with respect to non-taxability of the amount received from the Government, which was contended to be a 'grant-in-aid'. The writ petition was opposed by the respondents by contending that, the appellant had not chosen to file any statutory appeal from the order of assessment and that the application for rectification of mistake was filed only as an attempt to create a fresh cause of action to challenge the assessment before the appellate authority. It was also pointed out that the grounds raised in the application seeking rectification of mistake, were not seen raised in the objections WA.No.2552 OF 2019 ..10..
submitted to the show cause notice. Further argument advanced by the respondents is that, taxability based on the contract is a pure question of law, which cannot be adjudicated in the rectification application.
5. The learned Single Judge found that, the appellant has got an efficacious and alternative remedy, which he failed to avail. It was observed that, the nature of the amount received from the Government is a question of fact, which is in dispute. Whether such amount attracts Service Tax is a question of law. But it is observed that, it is not proper for this Court to enter into the said controversy, especially when the appellant failed to canvass those grounds in the objections filed. It was also observed that, this Court cannot interfere in the writ petition because there exist an efficacious statutory remedy. Having found that no merit exists in the writ petition, the same was WA.No.2552 OF 2019 ..11..
dismissed. It is aggrieved by the judgment, the above writ appeal is filed.
6. Learned counsel for the appellant advanced arguments based on the contention that the amount received from the Government cannot be considered as consideration exigible to Service Tax. He pointed out that, consistent case of the appellant, right from submission of objections to the show cause notice was based on the above said aspect. Since the same was not considered by the assessing authority while finalizing the assessment, the said authority ought to have rectified the mistake. He further pointed out that, at both stages the authority had omitted to adjudicate upon the question as to whether the 'grant-in-aid' given by the Government is liable to be taxed under the provisions of the Act.
7. As observed by the learned Single Judge, the question WA.No.2552 OF 2019 ..12..
need not be adjudicated by this Court, since the appellant had failed to avail the statutory remedy of appeal. However, since the question was also not adjudicated at the stage of disposal of the Rectification Application, we are persuaded to look into the controversy.
8. Ext.P1 is the agreement based on which the payment was received by the appellant. The work envisaged therein is to engage any professional agency or consortium for management and coordination of the activities in the Craft Village. Scope of the work assigned was to undertake performance and discharge of the following activities by the appellant;
(a) carrying out services for providing professional service for management and co-ordination of activities in the Craft Village at Iringal.
(b) managing the village by conducting art and craft exhibition, production and sale with particular WA.No.2552 OF 2019 ..13..
references to the traditional excellences, heritage, myths, practices, skills, behaviour patterns, life styles, environments etc.
(c) to function as profit generating unit for Government of Kerala by facility promotion of tourism through promotion of Arts and Crafts and Cultural heritage of Kerala State.
9. The services to be performed by the appellant society was elaborately enumerated under Clause 2.1.b. of Ext.P1 agreement. It is stated that, the society shall generate income from the sale proceeds of the products and collect entrance fee from various visitors, as prescribed under the agreement. The agreement is executed as an indivisible project for a period of 10 years. It is specifically provided that the "Schedule fee for Services" include the 'support fee' to be paid by the Department of Tourism, during the first two years of the assignment. The amount of WA.No.2552 OF 2019 ..14..
Rs.1,96,16,274/- is specifically mentioned as the 'support fee' payable by the Department of Tourism to the appellant society for the services rendered. Of course, there is a hold on period stipulated from the third year upto the 5th year. There is a stipulation that, from the 6th year to the 10th year the appellant society shall pay specified amounts to the Department of Tourism. Question to be considered for deciding taxability of the amount received as 'support fee' from the Government is that, whether such amount received is consideration for any services rendered by the appellant society. It is also a question as to whether Service Tax is leviable with respect to amounts collected by the appellant society from the public at large during the operation of Craft Village. The assessing authority had dealt with the matter in detail. It was found that the activity undertaken by the appellant society and the receipts and collections from various sources accepted, would clearly fall WA.No.2552 OF 2019 ..15..
within the ambit of consideration for services rendered, which will fall under different categories, within the purview of Sections 65, 66 and other relevant provisions of the Act.
10. From the nature of the contract and from the nature of 'support fee' received from the Government during the three years, we do not find any reason to accept the contention advanced by the appellant that those amounts are exempted from the purview of Service Tax, because of the constitutional obligations of the Government. The appellant is not in a position to convince us that the receipts are specifically exempted from the purview of Service Tax, through any notification issued. Contention that it is received as 'grant-in-aid', which is repayable, cannot be accepted merely for the reason that from the 6 th year onwards the appellant will be liable to pay some amounts to the Government, when they start WA.No.2552 OF 2019 ..16..
generating considerable income from operation of the village. So also, there is no convincing materials produced or provisions pointed out to accept the contention that the other amounts received by operation of the Craft Village will not fall within the ambit and scope of consideration received on services rendered. Therefore, on the merits of the issues, we do not think that there existed any mistake apparent on the face of record, which is liable to be rectified by invoking Section 74 of the Act.
11. Learned counsel for the appellant had pointed out that, despite repeated contention raised, the authority had failed to take note of the payments made under three counts, which will amount to a total of Rs.74,67,737/-. These are aspects which are dealt with by the assessing authority specifically in paragraphs 16, 17 & 18 of the impugned order of assessment (Ext.P4). With respect to the amount of WA.No.2552 OF 2019 ..17..
Rs.41,43,331/-, the contention raised was that the turn over of the contract was computed without deducting the work contract tax payable with respect to the years of 2011-12, 2012-13 & 2013-14. In other words, contention seems to be that, the service tax was levied wrongly on the gross receipt. This contention was negatived by finding that by excluding the element of work contract tax from the gross contract receipts, a taxable value will only be reduced and there is no merit in the contention. With respect to the payments allegedly made pertaining to the financial years 2014-15 and 2015-16, it was observed that, it is after adjusting such payments the amount was calculated and with respect to those payments there is no corroborating evidence produced by the assessee. As regards the demand of Rs.30,01,025/- under the "survey and map making and relating services" as well as the amount of Rs.3,23,381/- pertaining to "legal services on reverse charge basis", WA.No.2552 OF 2019 ..18..
the authority observed that the assessee had failed to produce any e-payment chalan to the jurisdictional Range Officer and therefore the claim cannot be given credit.
12. It seems that, regarding the above said payments, the assessee had claimed a rectification in Ext.P5 application also. Learned counsel for the appellant had emphasised that those are amounts duplicated in the demand. On the other hand, learned Standing Counsel for the respondents pointed out that, despite specific observation contained in the order of assessment, the assessee had failed to produce any proof regarding the payments and to claim a recomputation on the basis of such proof. Therefore it is contended that there is no merit in the contention that there occurred duplication of the demand.
13. We notice that, if any actual payment had omitted to WA.No.2552 OF 2019 ..19..
be credited while computing the tax liability, the appellant society will be at liberty to point out the same before the Range Officer, with convincing materials, so that a recomputation as permitted in paragraph 18 of the assessment order can be made. Therefore, non consideration of the said aspect in the rectification application need not be considered as one warranting interference.
14. Nutshell of the observations contained herein above is that, the question of taxability on the receipts based on Ext.P1 agreement is found in favour of the respondents, by negativing contentions raised by the appellant. We do not find any illegality, error or impropriety warranting interference with the impugned judgment of the learned Single Judge, in which interference with Exts.P4 & P6 is negatived. However, we make it clear that, with respect to production of proof regarding payment of amounts, in WA.No.2552 OF 2019 ..20..
which the appellant alleges duplication of tax liability, the Range Officer shall issue revised demands on being convinced of any material, which the appellant may produce. Needless to observe that, if any such credit is given for any amount, proportionate reduction in the amount of penalty shall also be given. Production of proof if any available in this regard before the Range Officer concerned, shall be made within a period of two weeks from the date of receipt of certified copy of this judgment.
Sd/-
C.K.ABDUL REHIM JUDGE Sd/-
T.V.ANILKUMAR JUDGE Bka/28.01.2020 WA.No.2552 OF 2019 ..21..
APPENDIX PETITIONER'S/S EXHIBITS:
ANNEXURE A TRUE COPY OF THE RECOVERY NOTICE ISSUED BY THE 3RD RESPONDENT DATED 06/06/2019.