Custom, Excise & Service Tax Tribunal
Shri Ganta Ramanaiah Naidu vs The Commissioner Of Central Excise on 6 May, 2010
IN THE ,CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, FKCCI COMPLEX, K.G. ROAD,
BANGALORE 56009.
DATE OF HEARING : 06/5/2010
DATE OF DECISION : .
Service Tax Appeal No. 79/2009
[Arising out of Order-in-Original No. 09/2008 S. Tax (Commr.) dated 26.11.2008, passed by the Commissioner of Customs, Central Excise & Service Tax, Guntur)
For approval and signature:
Honble Shri M. V. Ravindran, Member (Judicial)
Honble Shri P. Karthikeyan, Member (Technical)
1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not ? No
3. Whether Their Lordships wish to see the fair copy of the Order? Seen
4. Whether Order is to be circulated to the Departmental authorities? Yes
Shri Ganta Ramanaiah Naidu, Appellant
Door No. 16-3-1632, Harnathapuram,
Nellore 524 002.
Vs.
The Commissioner of Central Excise, Respondent
Guntur.
Present for the Appellant : Shri V. Raghuraman, Advocate
Present for the Respondent : Shri M. M. Ravi Rajendran, JDR
CORAM : Honble Shri M. V. Ravindran, Member (Judicial)
Honble Shri P. Karthikeyan, Member (Technical)
ORDER No..Dated ..
PER : M. V. RAVINDRAN
This appeal is directed against the Order-in-Original No. 09/2008S.Tax (Commr.) dated 26.11.2008, passed by the Commissioner of Customs, Excise & Service Tax, Guntur.
2. The relevant facts that arise for consideration are that the appellant herein, is registered under the category of Site Formation and Clearance Service with the authorities. The assesee is engaged in providing the services of blast-hole drilling, blasting, excavation, loading, transport, spreading, dumping, etc., of the overburden by using machines at Open Cast Mines and also undertaking similar activities which, according to the department, were covered under the taxable services. Revenue authorities, on verification conducted, found that the appellant did not pay the service tax. The Revenue authorities recorded statement of the Proprietor, scrutinized Income Tax Returns and copies of the contracts entered into by the appellant with M/s Western Coalfields Ltd. (A Govt. of India Undertaking).
3. The assessee has paid the entire amount of service tax ascertained by the authorities before issue of Show Cause Notice. The appellant was issued the Show Cause Notice dated 11.12.2007 directing them to show cause as to why the demand of service tax under the category of site formation and clearance service and other services recovered and penalty be not imposed on them. The appellant challenged the show cause notice mainly on two counts (1) All the activities done by the assessee as regards the site formation and clearances, excavation and earth moving and demolition services were brought into service tax net with effect from 16.6.2005. The appellant also submits that they had no intention to evade the liability of service tax as M/s Western Coalfields Ltd. (A Government of India Undertaking), had directed not to make any payment till the matter, being taken up by them with the Central Board of Excise & Customs (CBEC) is sorted out. It is the submission that when the matter had attained finality in the hands of M/s Western Coalfields Ltd. which was intimated to the appellant on 15.09.2006, they discharged the entire service tax liability which was received from M/s Western Coalfields Ltd. and second by the activity of the appellant is rightly classifiable under mining services which came into tax from 01.06.2007. The adjudicating authority did not accept the contentions raised by the assesee and confirmed the demand and interest and also imposed penalties under Section 76, 77 & 78 of the Finance Act, 1994. Aggrieved by such an order, the assessee are before us in appeal.
4. Ld. Counsel on behalf of the appellant submits that the appellants activity of providing the services, i.e. blast-hole drilling, blasting, excavation, loading, transport, spreading, dumping, etc. would not fall under the category of site formation and clearance, excavation and earth moving and demolition service. It is the submission that the appellant does not engaging any site along with clearance activity and similarly he also does not undertake excavation along with demolition. It is the submission that the appellants activity is connected with the activity of mining and the activities of removal of overburden and excavation are to be considered as incidental to mining and hence not taxable under the category site formation and clearance service. It is the submission that the hiring of equipment is the subject matter of the contract and the relevant heading would be supply of tangible goods services with effect form 16.5.2008. It is the submission that the appellant has not provided any service or work for construction, geophysical, geological or similar purposes; the entire work is done in respect of existing mines and would come under the purview of mining services. It is the submission that in view of this, reliance placed by the adjudicating authority on CBEC Circular dated 12.11.2007 is inappropriate. As regards the imposition of penalty, it is the submission that though the appellants had taken the registration certificate under the category of site formation and clearance services on 27.3.2006, he could not discharge the service tax liability as the service receiver, i.e. M/s Western Coalfield Ltd., had certain doubts about the levy of service tax on such activities. It is the submission that the service receiver agreed to reimburse the service tax liability after obtaining the letters of undertaking from the assessee. Consequently, the said activity was exempted by the CBEC. Hence the provisions of Section 80 can be invoked in the case and the penalties imposed under Section 76, 77 & 78 of the Finance Act, 1994 be set aside. For the above propositions, he would relied upon the following case laws :-
(i) M. Ramakrishna Reddy Vs. CCE [2009 (13) STR 661 (Tri. Bang.)]
(ii) CCE Vs. SVM Nett Projects Solutions Pvt. Ltd. [2010-TIOL-140-CESTAT-Bang]
(iii) Indian National Ship Owners Association Vs. U.O.I. [2009 (14) S.T.R. 289 (Bom.)]
(iv) CCE. Vs. A.B. International [2007 (8) STR 81]
(v) M/s Majestic Mobikes Pvt. Ltd. Vs. Commissioner of Service Tax [2008 (11) STR 609 (Tri.-Bang.)]
(vi) Maruti Suzuki Ltd. Vs. CCE [2009 (240) ELT 641 (S.C.)]
(vii) M/s C. Ahead Info Technologies India Pvt. Ltd. & Ors. Vs. Commissioner of Service Tax, Bangalore [2009-TIOL-673-CESTAT-BANG]
5. Ld. JDR, on the other hand, submits that the adjudicating authority has correctly concluded the issue that the service provided by the assessee would fall under the category of site formation and clearances, excavation, earthmoving and demolition services. It is the submission that the CBEC Circular dated 12.11.2007 which was issued consequent to the introduction of new service tax levy on mining services, clearly indicates that excavation, drilling and removal of the over burden would fall under the category of site formation and clearance, excavation and earth moving and demolition service. It is the submission that the appellant himself got registered on 27.3.2006 for discharge of service tax liability under the said heading. It is the submission that the Tribunal in the case of the appellant himself vide Final Order No. 1112/2009 dated 10.9.2009 has held that there is no dispute that the appellant is providing service of site formation and clearance, excavation and earthmoving and demolition service and coming to such a conclusion, the Tribunal has denied the Cenvat credit taken on Tippers by the appellant. It is the submission that the appellant has admitted that he is providing these services and discharging duty liability. It is the submission that the appellant cannot take shelter that the matter being discussed with M/s Western Coalfield Ltd. (A Govt. of India Undertaking) for the discharge of service tax liability as the liability arose since service rendered by them. It is the submission that the Commissioner has correctly invoked the provisions of Section 76, 77 & 78 of the Finance Act, 1994 for imposition of penalties. It is the submission that the assessee had not declared the correct amounts in the Service Tax Returns and hence the judgment of the Honble Supreme Court in the case of Assistant Commercial Taxes Officers Vs. M/s Kansai Nerolac Paints Ltd. [2010-TIOL-35-SC-CT] would cover the issue in favaour of the Revenue and is liable to pay the penalties imposed.
6. We have carefully considered the submissions made at length by both the sides and perused the case records.
7. The issue involved is regarding service tax liability on services rendered by the appellant during the period 2005-06 to 1.6.2007 under the category of site formation and clearance, excavation and earthmoving and demolition service.
8. On perusal of the records, we find that the appellant himself got registered under the said services on 27.3.2006. Subsequent to such registration, he had been discharging the service tax liability. This is the contention of the Revenue authority. On perusal of the agreement and work order issued by M/s Western Coalfield Ltd. (A Govt. of India Undertaking) to the assessee, the said agreement and work order were issued prior to introduction of levy of service tax. The service tax liability under the category of site formation and clearance service was brought into service tax net with effect from 16.6.2005. We find that the assessee had a dispute with M/s Western Coalfield Ltd. (A Govt. of India Undertaking) regarding discharge of service tax liability under the category of site formation and clearance service. The assessee was informed by M/s Western Coalfield Ltd. that they are taking up the issue with the CBEC and hence directed him to keep pending all the payment of service tax on the said activities. We reproduce the letter dated 10.7.2006 issued by M/s Western Coalfield Ltd.
WESTERN COALFIELDS LIMITED COAL ESTATE. C!VIL LINES NAGAPUR 440 001.
Coal India WCL/NGP/ACCTS/STC/2006/EST 10.07.2006 The Area Finance Manager Nagpur/Umrer/Chandrapur/Wani/ Ballarpur/Majri/Wani North/ Pench/Kanhan/Pathakher Area, Dear Sir, Re :. Service Tax on Coal/Sand/QBR transportation contracts.
The matter regarding applicability of Service Tax on Coal/OBR/Sand transportation contracts was discussed in the CIL Director (Finance)s Co-ordination Meeting held at CIL, HQ, Kolkata on 17.06.2006.
It has been decided in the said meeting that till a decision is obtained from CBEC, the demand of service Tax be kept pending.
The matter has already been taken up with CBEC and their decision is expected shortly. Till such time, as directed by Coal India Ltd., uou are requested to keep pending all payments of Service Tax on Coal/Sand/OBR transportation contracts.
As soon as a different decision is received from Coal India Lid, the same wilt be communicated to you. Please acknowledge receipt and confirm action taken.
Yours faithfully, Sd/-
Chief Finance Manager (CA&T) Consequently, on 15.9.2006, M/s Western Coalfield Ltd. also directed the assessee as under:
WESTERN COALFIELDS LIMITED Coal India (A Govt. of India Enterprise) Ref No. WCL/GM/CMC/2006/710 Date : 15.09.2006 To, The CGN/GMs WCL, All Areas.
Sub :- Re: Reimbursement of Service Tax on HOE(OBR) contracts.
Dear Sir, It has been decided by the competent authority to reimburse the Service Tax applicable on the HOE contracts of OB removal against production of proof of payment of the Service Tax Under Protest to the C. Excise Department as well as a letter of Undertaking from the Contractor in the format enclosed in a Non Judicial Stamp paper of Rs 100/- duly notarized-by a Notary Public.
You are requested to ensure the following before releasing the payment of the Service Tax:
(a) The Service Tax is payable on the work done on and from 16.06.2005.
(b) The rate of Service Tax is 10.2% upto and including 17.042006 and 12.24% on and from 18.04.2006.
(c) Attested copy of Contract-wise challan for having paid the Service Tax Under protest should be obtained and verified with the Original challan.
(d) Only Service Tax at the rates specified above to be reimbursed. No Interest amount is to be reimbursed.
(e) The Letter of Undertaking should be on a non-Judical stamp paper of Rs.100!- and duly notarized by a Notary Public.
(f) Necessary separate note to be moved by the Areas for additional budget to the extent of Service Tax being reimbursed.
Please ensure that all the above are complied with before release of funds to the Contractors.
Yours faithfully, Sd/-
General Manager (CMC) Encl : Draft of Letter of Undertaking Copy to :
(i) All A.F.M. all Areas for necessary action.
Copy for information to :-
D (T) /P&P, WCL D(F), WCL From the plain reading of the above reproduced two letters issued to the assessee, we note that there was a dispute which has been referred to CBEC, the highest authority in indirect taxes, as regards the discharge of service tax liability on the clearance of over cost burden and removal of overburden, etc. It is seen from the records that the said dispute was finally sorted out and presumably CBEC informed M/s Western Coalfield Ltd. that the liability that arisen on such activities are taxable under the category of site formation and clearance services. Consequently the appellant discharged the entire liability by 29.11.2006. It is seen from the records that the Show Cause Notice was issued to the appellant on 11.12.2007.
9. It can be seen from the above reproduced factual matrix, the assessee had known about the liability of service tax liability on the activities under site formation and clearance services and had every intention to discharge the service tax liability which is forthcoming from the facts that they had taken service tax registration on 27.3.2006. If M/s Western Coalfield Ltd. (A Govt. of India Enterprises) had directed the appellant not to discharge service tax liability, initially verbally and subsequently in writing, it can be conceived that the appellant had no intention to evade tax liability which arose on them as the said M/s Western Coalfields Ltd. is a Govt. of India Undertaking. Appellant could have entertained a bonafide belief that they need not discharge service tax liability, as a Govt. of India Undertaking is taking up the issue with CBEC. They also have had a reasonable cause to believe that CBEC may hold that services will not fall under site formation and clearance services. In our considered opinion, the provisions of Section 80 can be invoked in the case, as reasonable cause has been shown by the assessee. We are fortified in our view by the decision of this Bench in the case of Majestic Mobikes Pvt. Ltd. (supra). We may reproduce the said ratio herein below :
16. The appellant did not pay the service tax on account of ignorance of law. There is no intention to evade payment of duty. When such facts are on record, no further action on the part of the appellant to prove reasonable cause is warranted. What is reasonable cause? The Supreme Court in Motilal Padampat Sugar Mills Co. Ltd. v State of Uttar Pradesh - 1978 (118) ITR 326 (SC) held that it is well settled law that reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence acting under normal circumstances without negligence or inaction or want of bona fide. In all the cases decided under revisionary powers by the Commissioner of Service Tax, Bangalore a penalty under Section 78 has been enhanced to savage proportions. In the case of M/s. Sri Rama Enterprises, the service tax involved is Rs. 39,334/- , the Commissioner has enhanced the penalty under Section 78 from Rs. 2000/- to Rs. 59,000/-. This is not at all justified. The logic of the Commissioner is that the Original Authority confirmed the demand because of suppression of facts. Therefore, severe penalty in terms of Section 78 is warranted. He has recorded that the maximum penalty, which can be levied is twice the tax amount short paid which is Rs. 78,668/-. Holding such a view, he was merciful enough to impose only a penalty of Rs. 59,000/-. He has totally ignored the fact that the tax amount along with the interest was paid before the issue of Show Cause Notice. The Revisionary Authority should keep in mind that the penalty imposed should be commensurate with the offence. Majority of the cases from Serial Nos. 1 to 14 relate to the commission received by the Automobile dealers from financial institutions. There was doubt in the trade circles whether the commission received should be taxable under the category of Business Auxiliary Service. When there is genuine doubt and the Board issued a clarification, no mala fide can be attributed. In such cases, waiver of penalty under Section 80 is justified. It can be seen from the case in hand that there was genuine doubts as regards the service tax liability in the mind of the service receiver and the service provider. In view of this, by invoking the provisions of Section 80 of the Finance Act, 1994, we set aside the penalties imposed by the adjudicating authority under Section 76, 77 & 78 of the Finance Act, 1994.
10. As regards the other submissions made by the learned Counsel that the services provided by the appellant would not fall under the category of site formation and clearance service, we find that since the issue involved in the case would be of an academic interest, we are not recording any findings as for period post 1.6.2007, appellant himself has registered as provider of mining services. It is also to be noted that the appellant herein had himself got registered under the category of site formation and clearance services on 27.3.2006. In view of these, arguments taken by the learned Counsel urging that the services will not fall under the category would be no consequence. Accordingly, the impugned order to the extent it is confirming demand of the service tax and the interest thereon is upheld; and the impugned order to the extent it imposes penalty under Section 76, 77 & 78 of the Finance Act, 1994 is set aside by invoking provisions of Section 80 of the Finance Act, 1994, for the reason herein stated above. The appeal is disposed of accordingly.
(Pronounced in the court on .)
(P. Karthikeyan) (M. V. Ravindran)
Member (Technical) Member (Judicial)
/vc/