Customs, Excise and Gold Tribunal - Bangalore
Scott Wilson Kirkpatrick (I) Pvt. Ltd. vs The Commissioner Of Service Tax on 18 October, 2006
Equivalent citations: 2007(115)ECC156, 2007ECR156(TRI.-BANGALORE), [2007]8STJ358(CESTAT-BANGALORE)
ORDER T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Appeal No. 102/2005 (ST) dated 19.10.2005, passed by the Commissioner of Central Excise (Appeals-II), Bangalore.
2. The appellants entered into a contract "Project Co-ordinating Consultancy Services (PCC) for Karnataka State Highways Authority Improvement Project with the Chief Engineer, National Highways Bangalore. The contract is for rendering various services which are mentioned in Appendix 'A' to the agreement. The appellants received gross amount of Rs. 30,02,26,393/- from the client in local currency and foreign currency for the period from 1.3.99 to 31.3.2004. Its split up is as under:
(a) Rs. 22,15,54,047/- in local currency
(b) Rs. 7,86,72,346/- in foreign currency The appellants, who registered themselves under the category of 'Consulting Engineer Services' paid a Service Tax of Rs. 43,21,264/- for the relevant period. The case of the Revenue is that the appellants were required to pay service tax on the gross receipts of amount to the tune of Rs. 1,57,03,274/- received form the client. Hence proceedings were initiated against the appellants for recovery of the differential service tax along with interest. The Original Authority in his order dated 17.5.2005 confirmed the differential service tax along with interest. Further equal penalties separately under Section 77 and Section 78 of the Finance Act, 1994 were imposed. Aggrieved over the Order of the Original authority, the appellants approached the Commissioner (Appeals). The Commissioner (Appeals) gave a finding that the amount received by the appellants is in the context of rendering of taxable services under the category of 'Consulting Engineers'. Hence he upheld the Order-in-Original. Since no relief was obtained from the Commissioner (Appeals), the appellants have come before the Tribunal.
3. Shri K.S. Ravi Shankar, learned Advocate appeared for the appellants and Shri K. Sambi Reddi, learned JDR appeared for the Revenue.
4. The learned Advocate took us through the relevant portions of the contract entered with the Karnataka State Improvement Project and urged the following:
(i) The scope of the contract extends not only to the 'Engineering Consultancy' but also to various other services which could not come under the purview of Consultancy Engineering Services. Further he said that they had correctly paid service tax on their liability. They had also periodically furnished the ST3 Returns giving their entire information. Further it was urged that there was no suppression of facts and therefore longer period could not be invoked against the appellants. Thus the demand is time barred.
(ii) The demand confirmed in the impugned order represents value of the services which are not taxable and also the expenditure reimbursed by the customer and also the amount received in foreign exchange on which full exemption under Notification No. 6/99-ST was available.
(iii) The learned Advocate relied on the Apex Court decision in the case of Calcutta Discount Company v. ITO wherein it was held that as long as primary facts are within the knowledge of the Department, an assessee is under no obligation to disclose inferential facts or legal inferences which may be drawn from such primary facts.
(v) The ST3 Return were duly checked and assessed by the Department. These assessments were never challenged in an appeal.
(vi) The Commissioner (Appeals) has recorded a categorical finding that the Consultancy was for the Project Improvement of State Highways in the State of Karnataka. The levy of Service Tax on construction of roads came into effect only from 10.9.2004 under the category of 'Construction Services" and that too Road Construction is excluded for levy even now. Hence the services under PCC contract with State Highway Department cannot be taxed under the category of 'Consulting Engineering Services'.
(vii) The following services rendered by the appellants are not liable to service tax under the category of 'Consulting Engineering Services'.
(a) Review of past history of the capital (plan) and recurrent (non-plan) expenditure in the road sector,
(b) Preparation of project report/program for capital and recurrent expenditure in road project,
(c) Conducting surveys/investigations,
(d) Carrying out economic, environmental and social feasibility studies of the roads identified by SOS,
(e) Environment assessments and social assessments of project affected people,
(f) Preparation of social, environmental and implementation action plans, preparing and holding workshops to present and discuss the State's road sector expenditure programme, social and environmental screening,
(g) Baseline socio-economic study,
(h) Assisting in procurement of consulting services for construction supervision,
(i) Other host of related services,
(j) Road Maintenance Management study The above services were brought under the service tax net only with effect from 16.6.2005 under the new service category of "survey and map making" and/or "site formation and clearance, excavation earth moving and demolition services."
(viii) As per DGST Circular, service tax cannot be levied on the expenses reimbursed by the claimant. Reliance is placed on the Tribunal decision in the case of Glaxo Smithklinebeecham Pvt Ltd. v. CCE
(ix) The value received in foreign exchange is not liable to service tax in view of the exemption under Notification Nos. 6/1999-ST and 21/2003-ST.
(x) The Original authority should not have imposed a penalty of Rs. 1,13,82,010/- under Section 76 of the Act and equal sum under Section 78 without prior permission of the Commissioner. Assuming that maximum penalty of Rs. 2000/- per day is impossable and that would worked out to Rs. 365,000/-. The penalty imposed and sustained is more than 30 times. This shows the callousness approach on the part of the lower authorities.
5. The learned JDR reiterated the findings of the Commissioner (Appeals) in the impugned order.
6. We have gone through the records of the case carefully. The period involved is from March 1999 to March 2004. The Show Cause Notice date is 08.11.2004. Thus a major portion of the period is beyond one year from the date of issue of Show Cause Notice. Thus the lower authorities have invoked longer period. In order to invoke longer period, there should be evidence of non-filing of ST3 Returns and suppression of facts. During the hearing, the learned Advocate took us through all the ST3 Returns filed by the appellants wherein they had given the entire particulars of the amounts received by them from their clients. There is also mention of reimbursable amount received from the clients in the Annexure to the Return. The Chartered Accountant's certificate also has been produced. The lower authorities have passed their orders without proper scrutiny of the information contained in the ST3 Returns. Therefore it is very clear that the longer period could not be invoked. If this point alone is taken a major portion of the demand would be hit by time bar.
7. We are convinced that the appellants had not only rendered 'Consultancy Engineering Services' but also various other services which have already been enumerated. For Example, by no stretch of imagination, socio economic study would be termed as Consulting Engineering Service. Therefore demanding tax on the gross receipts is not correct. The Chartered Accountant has certified that the appellants have received a sum of Rs. 17,42,05,551/- in local currency for the various services rendered. Further, the amount received in foreign exchange amounts to $16,15,662/-. The DGST vide their clarification of October 2003 has stated that the reimbursable / out of pocket expenses charged is not subject to service tax and based on documents, the same can be excluded by the assessing officer. From the documentary evidence produced, it is seen that the entire amount receipts cannot be subject to service tax as part of the amount is on account of reimbursable expenses. The lower authorities have not followed the DGST Circular. According to the Notification Nos. 21/2003-ST dated 20.11.2003 and 6/99-ST dated 9.4.99, the taxable services for which payment is received in India is convertible foreign exchange is exempted from the whole of service tax under Section 66 of the Act. We find that the Commissioner (Appeals) has not properly examined the implication of the above notifications. In our view the demand of differential tax is sustainable both on merits and limitation. We also find that the lower authority has blindly imposed savage penalties as pointed out by the appellants. The appellate authority has also closed his eyes to this aspect of the order. No doubt, imposition of the penalty on delinquent assessees serves a purpose. However, while imposing penalty one should exercise proper judgment. Otherwise such careless exercise of statutory powers would amount to mockery of judicial delivery system. In view of our above findings, we set aside the impugned order and allow the appeal with consequential relief.
(Operative portion of the order has been pronounced in the open court on completion of hearing)