Custom, Excise & Service Tax Tribunal
J K Associates vs Rajkot on 19 June, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
SERVICE TAX APPEAL NO. 10123 OF 2023 - DB
(Arising out of OIA-RAJ-EXCUS-000-APP-357-2022 dated 28/10/2022 passed by
Commissioner of Central Excise, Customs and Service Tax-RAJKOT)
J k Associates ........Appellant
Advocates 409 Star Plaza 4th Phulchhab Chowk
Rajkot, Gujarat
VERSUS
C.C.E. & S.T.-RAJKOT ......Respondent
Central Excise Bhavan, Race Course Ring Road...Income Tax Office, Rajkot, Gujarat-360001 Appearance:
Shri Hardik Modh, Advocate, Advocate for the Appellant Shri Rajesh Nathan, Assistant Commissioner (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR Final Order No._11385/2024 DATE OF HEARING: 20/02/2024 DATE OF DECISION:19.06.2024 RAMESH NAIR The brief facts of the case are that based on the data received from the Income Tax department for the period 2014-15, 2015-16 and 2016-17, the service tax department initiated inquiry to ascertain whether the Appellant discharged liability of service tax on the alleged services provided to M/s. Echjay Industries Pvt Ltd. Based on the data available, it was alleged that the Appellant neither obtained registration for service tax nor filed periodical returns under the provisions of Finance Act, 1994. Based on the data available from the Income Tax Department a Show Cause Notice was issued to the appellant on 28.09.2020 whereby it was alleged that the appellant provided business auxiliary service for which the appellant was liable to pay service tax of Rs. 1,29,31,628/- for the period from 2014-15 to 2016-17. The show cause notice also proposed for demanding interest and penalties. The appellant filed reply to the show cause notice whereby the appellant submitted all the documents in support of their submissions that the appellant was not liable to pay service tax. Thereafter, the appellant filed detailed reply on 04.08.2021 whereby it was submitted as under :-
(i) The appellant being legal firm, provided legal services;
(ii) Recipient of the services was liable to pay service tax under RCM under Notification No. 30/2012
(iii) EIPL deducted TDS under Section 194J being the Appellant provided services legal service;
(iv) The appellant arranged to pay all the charges to labours. In term of concept of pure agent, the liability to pay service tax on reimbursement of expenses does not arise since the Appellant had no role in managing work force of EIPL. It was only obligation upon the Appellant to verify the compliance of statutory provisions and make payment of salary/wages paid by EIPL to its labours.
(v) It was submitted that the services related to supply of manpower was chargeable to service tax under RCM and therefore, the Appellant was not liable to pay service tax.
1.2 During the Adjudication, the appellant made alternative submission that the Appellant provided manpower supply services, then the Appellant was not liable to pay service tax in terms of Notification No. 30/2012 (supra). Accordingly, the appellant collected a letter from EIPL to show that EIPL paid service tax on the services provided by the appellant under RCM during the disputed period. EIPL specifically mentioned in the letter dated 13.09.2021 issued to the appellant as under:-
" We have checked all records and found that during the said years, we have paid service tax which was due on our part under Reverse Charge Mechanism under the category of "Manpower supply service and not under the legal consultancy services".
1.3 The learned Joint Commissioner of Central Excise and CST passed Order-In-Original No. 22/JC (MAN)/ 2021-22 dated 24.09.2021 whereby he discarded the submissions made by the Appellant and held that the Appellant provided Business Auxiliary Services upon scrutiny of records provided by the Appellant during adjudication process. The Learned Joint Commissioner held that the Appellant had not provided legal consultancy services as the Appellant provided management of work force and paid salaries and wages and other statutory dues on behalf of EIPL. In respect of seeking deduction of reimbursement of expenses from the gross value charged, it was held that the Appellant received monthly payment from EIPL by cheque and withdrew cash from bank account showing disbursement. However, no evidence viz. Vouchers, invoices, bills on record were provided to show that they made reimbursement of the payment to the labours. The Learned Joint Commissioner also held that the Appellant suppressed/ mis-declared the facts and contravene to the provisions of Finance Act, 1994 and therefore, larger period for issuance of the Show Cause Notice was rightly invoked. Being aggrieved by Order-In-Original, the appellant filed an appeal before Commissioner (Appeals) who partly allowed the appeal by setting aside the demand of service tax for the period from April 2014 to September 2014 by considering the said period as barred by limitation over the period of 5 years and upheld the demand of service tax for the period October, 2014 to March, 2017. Therefore, the present appeal.
2. Shri Hardik Modh, Learned Counsel appearing on behalf of the Appellant submits that the demand cannot be made based on the data submitted by Income Tax Department without making independent inquiry. It is undisputed facts that the entire case has been booked based on the data supplied by the Income Tax Department. It is settled law that demand of service tax cannot be made based on the income tax data without making separate independent inquiry. He placed reliance on the following judgments:-
(i) Krishna Construction Vs. CST, Bhavnagar - 200 (8) TMI 644 - CESTAT, Ahmedabad
(ii) Forward Resources Pvt. Ltd. Vs. CCE, Surat-I - 2022 (7) TMI 716.
2.1 He further submits that as per the fact that the appellant has provided not the business auxiliary service but Manpower Supply Service therefore as per Notification No. 30/2012 - ST the recipient of service is liable to pay service tax on Manpower Supply Service on RCM if the same is provided to business entity. Prior to April 2015 the liability on the service provider was 25% on the service value which has been made zero with effect from 2015-2016. However, the recipient of service has stated that the service tax on the entire activity provided by the appellant has been paid by Echjay, for this reason also service tax cannot be recovered twice form the appellant.
2.2 He further submits that the Learned Commissioner (Appeals) decided the matter on the ground that even though the service tax was paid by the recipient of service the appellant is still liable to pay the service tax under business auxiliary service. He submits that this finding of Commissioner (Appeals) is contrary to the larger bench judgment. He submits that Learned Commissioner (Appeals) held that none of the Labour was on payroll of the appellant. All the labourers were on the payroll of M/ss. Echjay Industries Pvt Ltd and therefore services provided by the appellant did not fall under the category of Manpower Supply Service. He submits that the said finding is contrary to the facts of the case in as much as employee provident fund was collected and deposited by the appellant with the provident fund department. As regard billing, based on number of labour provided by the appellant raised invoices for supply of labourers and collected the amount towards wages, ESIC, PF Contribution and bonus etc. This clearly shows that the appellant had provided Manpower Supply Service. He also referred to the letter dated 13.09.2021 issued by M/s. Echjay Industries Pvt Ltd whereby the service recipient specified that the Appellant did not provide any legal consultancy services where the company paid requisite amount of service tax under RCM. He submits that Learned Commissioner (Appeals) erred in holding that it is not ascertainable from ST -3 returns of EIPL furnished by the appellant that whether the service tax paid by EIPL towards the services of appellant or not. He submits that the Annexure to the ST-3 return from period October 2014 to March 2017, it can be seen that the amount charged by the appellant through different invoices for reimbursement of expenses and fees charges EIPL paid service tax under RCM. He also referred to a Chartered Accountant Certificate wherein it was certified that M/s. EILP paid service tax under the category of Manpower Recruitment Agency Service. He also submits that the contention of the Learned Commissioner (Appeals) with regard to the deduction of TDS is also self-contradictory. He further submits that the departmental audit of EIPL was conducted by the service tax authority and the service tax paid under the category of Manpower Supply Service was duly accepted by the revenue without any demur. Hence, the dispute regarding classification ought not to have been raised in the hands of provider of service.
2.3 Without prejudice to the aforesaid, he submits that if the appellant accepts the finding in the impugned order, the liability of service tax arises under the legal consultancy services as TDS was deducted under Section 194J under the Income Tax Act. In such situation liability of service tax raised under RCM in view of the recent decision passed by the Hon'ble Bombay High Court in case of Advocate Pooja Patil vs. Deputy Commissioner of CGST & Cx. - Writ Petition No. 1085 of 2022. He referred to the agreement dated 19.09.2010 entered into between the appellant and EIPL and submits that from the agreement it is clear that the service does not fall under Business Auxiliary Service whereas appellant provided legal consultancy service. He submits that the Learned Commissioner (Appeals) has wrongly interpreted the terms of the agreement which is not correct and legal as held in the following judgments.
Union of India vs. Mahindra & Mahindra Ltd -1995 (76) ELT 481 (SC) Mirah Exports vs. Collector of Customs - 1998 (98) ELT 3 (SC) Essar Projects India Ltd vs. Commissioner of Central Excise & Service Tax, Rajkot- 2014 (33) STR 696 2.4 He also submits that the Appellant reflected the amount received from EIPL in two categories (i) consideration received towards providing services (ii)reimbursement of expenses. Therefore, contention of the lower authorities, the Appellant provided business Auxiliary service and not legal service cannot be sustained.
2.5 On the ground of limitation, he submits that the fact regarding provision of service was clearly in the knowledge of department through ST -3 returns filed by EIPL as the service tax was being paid by EIPL on the same service on which the appellant is made liable to service tax therefore, there is no suppression of fact. Accordingly, the extended period of demand is not invokable. He placed reliance on the following judgments :-
Simplex Infrastructures Ltd. Vs. C.S.T 2016-TIOL- 779- HC-KOL- ST;
Delhi International Airport Ltd. Vs. Commissioner of CGST- 2019(24) GSTL 403 (T);
Binjrajka Steel Tubes Ltd. Vs. Commissioner of C. Ex., 2016 (342) EL T 302 (T);
Roma Henny Security Service Pvt. Ltd. Vs. C.S.T 2018 (8) G.S.T.L. 239 (Del.) 2.6 In support of his above submission, he placed reliance on the following judgments:-
Forward Resources Pvt Ltd vs. CCE, Surat - I - 2022 (7) TMI 716 Krishna Construction Vs. CST , Bhavnagar - 2022 (8) TMI 644 - CESTAT Ahmedabad Shree Kankeshwari Enterprise vs. Commissioner of Central Excise & ST, Bhavnagar - 2023 (7) TMI 56 -CESTAT, Ahmedabad Raj Mohan vs. CGST - 2022 (8) TMI 832 - CESTAT Chandigarh M/s. Indian Machine Tools Manufacturers Association vs. CCEx, Panchkula - 2023 (9)TMI 815 - CESTAT Chandigarh M/s. JM Manpower & Security Pvt Ltd vs. Commissioner of CCEx, Lucknow - 2024 (2) TMI 14 - CESTAT ALLAHABAD National Thermal Power Co.Ltd vs. CIT - 1998 (99) ELT 200 (SC) Devangere Cotton Mills Ltd vs. CCEx, Belgaum - 2006 (198) ELT 482 (SC) Utkarsh Corporate Sevrices vs. CCE & ST - 2014 (34) STR 35 (Guj.)
3. Shri Rajesh Nathan, Learned Assistant Commissioner (AR) reiterates the finding of the impugned order.
4. We have carefully considered the submission made by both sides and perused the record. We find that the lower authorities have confirmed the service tax demand considering the appellant's activity as business auxiliary service however, the appellant have vehemently submitted that as per the agreement the activity of the appellant is classified under Legal Services and if not under Manpower Supply Service. In both the services, the service recipient is liable to pay service tax under RCM. To understand the actual nature of the service we reproduce the clauses of the agreement dated 19.09.2010 as under:-
JK Associates will see the statutory compliance of contract labour and also visit the factory once in a week.
Also the J K Associates will witness the salary paid to contract employees. J K Associates will organise the payment schedule and inform the company and accordingly company will transfer money in their account for disbursement. This will not be considered as an income of second party.
As the salary is paid by the company including PF, Bonus, ESI OT etc. The same will not be considered as an income of J K Associates as the same will be distributed to workers for which all statutory record shall be maintained.
JK Associates will provide all notifications related to laboµr laws issued by the Govt from time to time.
Also shall have to advise on all the legal issues including drafting of Memo, Chargesheets, applications etc. under labour laws. It is agreed that as this is a consultancy firm and meant for legal services and for any purpose will not be termed as vendor. Charges paid to second party after deduction of all kind of taxes by the first party for retainership and will be termed as legal charges and will be payable every month as agreed. The said legal charges shall be paid after deduction of taxes at source.The other taxes like service tax and other taxes payable to state and /or Central Govt. Or taxes introduced in future by the Govt. shall be born and payable by the first party.
4.1 From the above clauses of the Agreement it appears that the appellant have provided Legal Consultancy service in relation to labour law therefore, it prima facie appears that the service is correctly classifiable under legal service and the appellant being a service recipient is not prima facie liable for payment of service tax and if at all the service is not classifiable under legal service the appropriate category shall be Manpower Supply Service. However, this is subject to scrutiny of agreement, invoices, other documents. We are of the view that both the lower authorities have not properly appreciated the overall facts and documentary evidence. Moreover, to classify the service as Business Auxiliary service the Revenue has no basis.
4.2 We further find that the appellant have strongly claimed that in respect of service provided by them the service recipient M/s. Echjay industries Pvt Ltd has paid the service tax. In this regard they have submitted a certificate not only from the service recipient M/s EIPL but also from the Chartered Accountant. It is observed that both the lower authorities have discarded this claim of the appellant without properly verifying the fact. The learned Commissioner (Appeals) discarded the claim of payment of service tax by service recipient on the ground that the same is not appearing in the ST -3 returns of EIPL. It is obvious that the detail of the parties for whose transaction the service tax is paid does not reflect in ST- 3 returns. However, this can be ascertained from the back documents such as books of account, parties ledger etc. The lower authorities have not taken any pain to verify the same therefore, rejecting the claim of the appellant that the service tax has been paid by the service recipient is absolutely incorrect. 4.3 As regard the finding of the Learned Commissioner (Appeals) that even though the service recipient has paid the service tax the appellant is still liable to pay the service tax being a service provider is absolutely incorrect for the reason that in respect of any service, service tax has been paid by anyone, then the liability of the same service tax does not exit. Hence, the same cannot be recovered twice. This issue has been considered in various judgments . Some of them are cited by the appellant. Therefore, irrespective of any classification of service if on the same service tax has been paid by the service recipient to that extent the service tax demand will not survive against the appellant. 4.4 In view of the above observation, we are of the opinion that the matter should go back to the Adjudicating Authority to reconsider the entire matter. All the issues are kept open.
5. The impugned order is set aside. Appeal is allowed by way of remand to the Adjudicating Authority.
(Pronounced in the open court on 19.06.2024 ) (RAMESH NAIR) MEMBER (JUDICIAL) (C L MAHAR) MEMBER (TECHNICAL) AD