Custom, Excise & Service Tax Tribunal
S L Oberia Minerals Pvt Ltd vs Ce & Cgst Meerut-I on 29 August, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT No. I
E-HEARING
Service Tax Appeal No.55917 of 2014
(Arising out of Order-in-Original No.29-Commr/MRT-I/2014 dated 29.08.2014
of the Commissioner of Central Excise, Meerut-I)
M/s S L Oberia Minerals Pvt. Ltd., .....Appellant
(Saharanpur Road, Dehradun, Uttarakhand)
VERSUS
Commissioner of Central Excise &
CGST, Meerut-I ....Respondent
(Mangal Pandey Nagar, Meerut-250005)
APPEARANCE:
Shri Rajesh Gupta, Chartered Accountant 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.70545/2024
DATE OF HEARING : 02 May, 2024
DATE OF PRONOUNCEMENT : 29 August, 2024
SANJIV SRIVASTAVA:
This appeal is directed against ORDER-IN-ORIGINAL N0.
29-Commr/MRT-I /2014 dated 29.08.2014 of the Commissioner,
Central Excise, Meerut-I. By the impugned order following has
been held:
"ORDER
(i) I hereby confirm the demand of service tax amounting to
Rs. 4,28,50,337/-
Rs.1,09,44,417+2,03,940+3,17,01,980) (Rs. Four Crore
Twenty Eight Lac Fifty Thousand Three Hundred Thirty
Seven only (inclusive Ed. Cess & SHE Cess) under proviso
Service Tax Appeal No.55917 of 2014
2
to Section-73(1) of the Finance Act, 1994 against M/s
S.L.Oberai Minerals (P) Ltd, Dehradun.
(ii) hereby vacate the demand of Rs. 15,22,340/- (Rs. Fifteen
Lac Twenty Two Thousand Three Hundred Forty only) in
respect of Renting of immovable property as per
discussion above.
(iii) The above said noticee is also liable to pay interest at
applicable rates on above said confirmed demand of
service tax amount under Section 75 of the Finance Act,
1994.
(iv) I hereby impose a penalty on the said party in terms of
Section 76 of the Act, for their failure to pay service tax
liabilities of mentioned above by due dates. The penalty is
imposed @ Rs. 200/- (Rs. Two hundred only) for every day
(up to 09.05.2008) during which such failure continues or
at the rate of 2% of such tax, per month, whichever is
higher starting with the first day after the due date till the
date of actual payment of the outstanding amount of
service tax. However, the total amount of the penalty
payable in terms of this Section shall not exceed the
amount of service tax payable upto 09.05.2008
(v) I further, impose a penalty of Rs. 4,28,50,337/- (Rs. Four
Crore Twenty Eight Lac Fifty Thousand Three Hundred
Thirty Seven only under Section 78 of the Finance
Act,1994 for their failure to pay Service Tax by
suppressing the value of taxable services & also various
acts of omission and ommission as discussed above.
2.1 Appellant is a dealer of Cars manufactured by Tata
Motors. They are registered as service provider providing taxable
service under the category of "Business Auxiliary Service".
2.2 During the course of audit of their records for the period
October, 2009 to March, 2013, it was observed that appellant
has short paid service tax as detailed in the table below:
S.N Period S. Tax Not Paid Category
1 2008-09 10944417.00 Incentive for Target
Service Tax Appeal No.55917 of 2014
3
to 2012- Achievement (Bus. Auxiliary
13 Service)
2 2008-09 1726280.00 Renting of immovable
to 2012- property
13
3 2008-09 31701980.00 Spare Parts used &
to 2012- consumed during the course
13 of providing services
Total Rs 4,43,72,677.00
2.3 After making necessary enquiries and investigations a
Show Cause dated 14.10.2013 was issued appellant asking them
to show cause as to why:
(i) The service tax to the tune of Rs. 4,43,72,677.00 Rupees
Four Crore Forty Three Lakh Seventy Two Thousand Six
Hundred Seventy Seven only) (including Ed.Cess & SHE
Ces), not paid during the period from 2008-09 to 2012-13,
towards the taxable services rendered as detailed above,
should not be demanded and recovered from them under
proviso to Section 73(1) of the Finance Act, 1994
(ii) Interest should not be demanded from them under Section
75 of the Finance Act,1994, and,
(iii) Penalty should not be imposed upon them under Section
76 and Section 78 of the Finance Act, 1994 for their
failure to pay Service Tax by suppressing the value of
taxable services & various acts of omission and
commission, as mentioned in the preceding paras.
2.4 The show cause notice has been adjudicated as per the
impugned order.
2.5 Aggrieved appellant has filed this appeal.
3.1 Miscellaneous application filed by the appellant for early
hearing was allowed as per Miscellaneous Order No 70063/2024
dated 12.02.2024. The matter was heard virtually on
02.05.2024.
3.2 We herad Shri Rajesh Gupta Chartered Accountant for the
appellant and Shri A K Choudhary, Authorized Representative for
the revenue.
Service Tax Appeal No.55917 of 2014
4
4.1 We have considered the impugned order along with the
submissions made in the appeal and during the course of
arguments.
4.2 Following has been recorded in the impugned order for
confirming the demand against the appellant on merits:
"5.2 The issue to be adjudged in this case is as to whether:
i. the amounts received by M/s S. L. Oberai Minerals (P) Ltd
from M/s Tata Motors as incentive for achieving sales target
are against the consideration for providing Business Auxiliary
Service and if the same are taxable for levy of service tax or
not?
ii. the rental value received on account of renting of
immovable property to the office of AG, Uttarakhand is liable
to service tax or not?
iii. the value of spare parts & consumables such as oils,
lubricants used during the servicing of vehicle, is to be
included in the taxable value for the purpose of levy of
service tax in terms of Section 67 of the Act
iv. and if so, the service ax amounting to Rs.
4,43,72,677.00 (Rs.1,09,44,417+ 17,26,280+3,17,01,980)
(Rupees Four Crore Forty Three Lac Seventy Two Thousand
Six Hundred Seventy Seven only) (including Ed.Cess & SHE
Cess), is demandable and recoverable from them in terms of
proviso to Section 73 (1) of the Finance Act, 1994. the
penalty is liable to be imposed on them under Section-76 of
the Act, ibid (up to 111, 10.05.2008) for their failure to pay
service tax on due dates
v. the penalty is liable to be imposed on them under Section-
78 of the Finance Act,1994 for their failure to pay Service
Tax by suppressing the value of taxable services & also
various acts of omission and commission, as mentioned in
the Notice, and
vi. the interest is demandable and recoverable from
them under Section-75 of the Finance V. Act, 1994.
Service Tax Appeal No.55917 of 2014
5
5.3 Accordingly, I would like to discuss the above issues
along with Noticee's contention put forth through written
defence reply mentioned above and legal provisions. The
facts of the case in brief are summarized hereunder to have
a quick glance at the case: 5.4 During the course of audit of
heir records for the period October, 2009 to March, 2013,
the following anomalies were noticed:
a. that the noticee has received various amounts known
as incentives' from the car manufacturer for
achieving the sales-target. The said incentive so
received by the party was found taxable under the
category of "Business Auxiliary Services"
b. That the party has rented its property to the office of
the Accountant General, Uttarakhand, which is an
'act that comes under the category of Renting of
Immovable Property Service".
c. The party is paying service tax on servicing labour
charge component of the bill only and not paying
Service Tax on the value of spare parts & lubricants
consumed during the course of servicing of vehicles
The practice adopted by the party was not found in
tune with the amended Section 67 of the Finance
Act read with Rule 5 and 6 of Determination of
Value Rules, 2006.
On above disputes, the instant show cause notice has been
issued which is under adjudication. I take up all the three
issues one-by-one
(A) Non-payment of Service Tax on Incentive amount
received (Rs.1,09,44,417/-):
5.5 First, I take up the plea of the Noticee that the amount
received by them under incentive are in the nature of
additional trade discount related to the sale of products,
They have further submitted that TATA Motors offers trade
discount / target achievement incentive to them on selling of
certain number of vehicles (termed as 'Target
Service Tax Appeal No.55917 of 2014
6
Achievement"). The said incentive is not liable to service tax
as has been alleged in the notice in view of the fact that
they are purchasing vehicles from TATA Motors in its own
name and selling the vehicles to customer by raising invoice
under its own name as seller. In the instant case, the motor
vehicles are invoiced by TATA Motors to the Noticee and thus
the Company becomes the owner of the vehicles so
purchased. The risk and reward of ownership of vehicle
after invoicing by TATA Motors, rests with the Noticee. The
vehicles are thereafter sold to prospective buyers. The sale is
made by issue of a sale invoice as per law and applicable
VAT is also collected from the buyers and paid to the credit of
the State Government. Thus both of them i.e. the noticee &
TATA Motors are acting on principal to principal basis and
said trade discount / target discount is purely in connection
with the purchase & sale of vehicles and not in relation to
promotion or marketing of goods of TATA Motors. Further
the Noticee submits that target incentive received is not
liable to service tax as there exist a principal to principal
relationship between the Company and TATA Motors. They
have alsc relied upon case laws cited by them
5.6 I have considered he above submissions and observe
that the Noticee has not adduced any material evidence in
support of its claim as it did not produce any discount policy
or other documents relating to nature and criterion for
entitlement of such incentives given by Ms TATA Motors
Instead they have produced few sale invoices indicating
certain amount of discount being given to their customer of
vehicles, which does not suffice in absence of any data
regarding total amount of discount passed during the subject
period and out of that how much amount has been
reimbursed to them by the manufacturer, i.e. M/s TATA
Motors.
5.7 I also find that M/s S.L.Oberai has not produced any
evidence regarding computation of incentives on the basis of
sales turnover of different models during the subject period
Service Tax Appeal No.55917 of 2014
7
so as to support it's claim about the nature of such
incentives being in the nature of trade discounts based on
the performance of sales of products with respect target
fixed/ achieved therefore, I find that the aforesaid plea of
notice is not sustainable in absence of any corroboratory
evidence /documents
5.8 Now, consider as to what services shall be deemed to
be categorized under I 'Business Auxiliary Services before
that, It will be appropriate to reproduce the content of
Section 65(19) of the Finance Act 1994,
(19) "business auxiliary service" means any service in
relation to
i. promotion or marketing or sale of goods produced or
provided by or belonging to the client; or
ii. promotion or marketing of service provided by the
client; or
iii. any customer care service provided on behalf of the
client; or
iv. procurement of goods or services, which are inputs for
the client; or
Explanation. - For the removal of doubts, it is nearby
declared hat for the purposes of this sub-clause, "inputs"
means all goods or services intended for use by the
client;
v. production or processing of goods for, or on behalf of,
the client;
vi. provision of service on behalf of the client; or
vii. a service incidental or auxiliary to any activity
specified in sub-clauses (i) to (vi), such as billing,
issue or collection or. recovery of cheques, payments,
maintenance of accounts and remittance, inventory
management, evaluation or development of
prospective customer or vendor, public relation
services, management or supervision, and includes
services as a commission agent, but does not include
Service Tax Appeal No.55917 of 2014
8
any activity that amounts to manufacture of excisable
goods.
[Explanation. -For the removal of doubts, it is hereby
declared that for the purposes of this clause,
"commission agent" means any person who acts on behalf
of another person and causes sale or purchase of goods,
or provision or receipt of services, for a consideration,
and includes any person who, while acting on behalf of
another person.
(i) deals with goods or services or documents of title to
such goods or services; or
(ii) collects payment of sale price of such goods or
services; or
(iii) guarantees for collection or payment for such goods
or services; or
(iv) undertakes any activities relating to such sale or
purchase of such goods or services,
5.9 I observe that in the instant case, M/s S.L.Oberai has
not disputed the fact of receipt of incentives from M/s TATA
Motors but has contested the same on the basis that being a
dealer of M/s TATA Motors their relationship is that of
Principal and Principal and not that of Principal and Agent,
wherein they have indulged in promotion or marketing of
goods of TATA Motors
5.10 I find that the definition of Business Auxiliary Service
as provided in Clause (19) of Section 65 of the Finance Act
1994 covers within its gambit, any service in relation to
promotion or marketing or sale of goods produced or
provided by or belonging to the client or promotion or
marketing of services provided by the client or, any customer
care service provided on behalf of the client or provision of
services on behalf of client or a service incidental or auxiliary
to any activity specified in sub-clauses (i) to (vi), such as
biling, issue or collection or recovery of cheques, payments,
maintenance of accounts and remittances inventory
Service Tax Appeal No.55917 of 2014
9
management, evaluation or development of prospective
customer or vendor, public relation services, management or
supervision. It means that any of the services specified
above will fall under the scope of Business Auxiliary Services
irrespective of provider of services being commission agent
or not.
5.11 I futher observe that in the instant case, M/s S.L
Oberai has taken the plea that their relationship with M/s
TATA Motors is that of dealer and manufacturer, I agree with
this plea only to the extent that as a dealer. M/s S.L. Oberai
is selling the vehicles manufactured by Ms TATA Motors and
not otherwise, In other words. this understanding does not
preclude M/s S.L. Oberai from promoting or marketing or
sale of goods produced or provided by M/s TATA Motors, and
also does not preclude Ms S.L. Oberai from promoting or
marketing of services provided by Ms TATA Motors,
performing any customer care services or other services on
behalf of M/s TATA Motors or any other service incidental or
auxiliary to any activity specified in the definition. In the
instant case, M's S.L. Oberai being dealer of M/s TATA
Motors procures motor vehicles from Ms TATA Motors at a
pre-decided price and sells it to the ultimate customers at
any price but not exceeding the maximum recommended
retail price notified by M/s TATA Motors in respect of its
various models from time to time. The difference between
the procurement price and the selling price is the margin of
the dealer which is the consideration for sale of vehicle by
the dealer.
5.12 It is further observed that as an authorized dealer of
TATA Motors, the activities of Ms S.L.Oberai is not confined
to the sale of vehicles produced by M/s TATA Motors but also
sale of spare parts/ consumable and accessories. Thus, it
also encompasses a whole gamut of activities such as pre-
sale, sales, service, insurance, registration, finance, fleet
management and pre-owned cars. It also includes the
activities such as Repair, adjustment, reconditioning or
Service Tax Appeal No.55917 of 2014
10
maintenance related to the products. There is no denying the
fact that in respect of warranty claims, such dealers as
authorized service stations entertains the claims under
warranty and replace the part and get reimbursement from
the vehicle manufacturer at a later date.
In view of the above discussion, I find that in respect of the
activities mentioned above, the relationship of Ms TATA
Motors with M/s S.L.Oberai is like a client as it is M/s TATA
Motors which is getting benefitted from the said 'activities
being performed by M/s S.L.Oberai. Such activities not only
enhance the reputation of Tata Motors but also boost their
rating among car purchaser,.
5.13 Now, I consider the plea taken by Ms S.L.Oberai that
in the instant case, no service tax liability arise on them as it
may tantamount to service to self, I find that this plea is not
tenable as in the case of any sale of goods, it can be said
that both the buyer and seller are beneficiaries. Similarly in
relation to any service both the provider and recipient may
be the beneficiary at the same time. In this case, it has been
stressed that the M/s S.L.Oberai is not rendering promoting
sale /services exclusively for MIs TATA Motors as their
objective is to promote their own business. Is it a case,
where M/s S.L.Oberai is rendering services to M/s TATA
Motors? Is it a case, M/s TATA Motors is rendering services to
M/s S.L.Oberai? Or is it a case, M/s S.L.Oberai is rendering
services to the buyer of the vehicles? The fact is that the
customer is interested in buying the TATA Motors vehicles
and the incidental services. The noticee(s) main business is
selling the TATA Motors vehicles to their customers by
positioning themselves between the manufacturer and the
customer and for the same they get a margin. The customer
is also interested in getting the finance/registration/insurance
etc at one go. The dealer arranges these services to their
customers by positioning themselves between the
financiers/insurer/registering authority and the customers.
This sort of tie up with the finance companies definitely
Service Tax Appeal No.55917 of 2014
11
benefits the dealers and at the same it benefits the vehicle
manufacture/ insurer/finance companies more
5.14 Thus, the activity undertaken by M/s S.L. Oberai,
that is, promoting sales of vehicles i.e. Cars manufactured
by M/s TATA Motors, will come under the category of
'Business Auxiliary Services. As per the definition contained
in Section 65(19) of the Finance Act, 1994, Business
Auxiliary Services include "a service in relation to promotion
and marketing or sale of goods produced by the client or
promotion or marketing of services provided by the client."
Hence, the same will be taxed to service tax. Therefore, the
noticee is required to discharge the service tax liabilities on
the amount of incentive received by them. As such the
service tax short paid by the noticee amounting to Rs.
1,09,44,417/- including E.Cess & S.H.E (Rs. One Crore Nine
Lac Forty Four Thousand Four Hundred Seventeen only) for
the period 2008-09 to 2012-13 is demandable and
recoverable from M/s S.L.Oberai Minerals (P) Ltd. under
proviso to Section 73(1) of the Finance Act, 1994.
5.15 As regards to the case laws relied upon by the noticee, I
find that the issue in hand is different from the issues cited
in the case laws as also the facts, therefore I do not find
them relevant to the present case.
(B) Non-payment of service tax on Renting of
immovable property' s.17.26.280/-
5.16 The 2nd issue relates to non-payment of service tax in
respect of rent received by way of renting of immovable
property. The notice has alleged that the noticee has rented
out its property to the office of the Accountant General,
Uttarakhand, which is an 'Act' that comes under the
category of Renting of Immovable Property Service". As such
they are required to pay Service Tax on the rental income
5.17 The Noticee has contended that the demand of service
tax on rent received from the AG Office for the period up to
June 30, 2012 is not sustainable since prior to that date the
Service Tax Appeal No.55917 of 2014
12
service tax was leviable only if the property was let out for
use in the furtherance of business or commerce. The Noticee
has submitted that Renting of Immovable Property prior to
July 1, 2012 comes under the ambit of service tax only when
it is rented out for use in the course or furtherance of
business or commerce, as per definition of taxable service
and renting of immovable property service illustrated as
under
"Section 65(105)(zzz) provides definition of taxable service
to mean ary service provided or to be provided to any
person, by any other person, by renting of immovable
property or any other service in. relation to such renting, for
use in the course of or, for furtherance of, business or
commerce
Section 65(90a) define "renting of immovable property"
includes renting, letting, leasing, licensing or. other similar
arrangements of immovable property for use in the course of
furtherance of business or commerce.
Explanation 1. - For the purposes of this clause, "for use in
the course or furtherance of business or commerce" includes
use of immovable property as factories, office buildings,
warehouses, theatres, exhibition halls and multiple- use
buildings
5.18 The noticee has cited the circular F. No.-
137/280/2007-CX-4 dated 17.12.2007 issued by the Central
Board of Excise & Customs clarifying that since the Central
Excise office does not fall under furtherance of business and
commerce as it is an activity of performing statutory
functions by a public authority and not an activity with
respect to furtherance of business or commerce, it is not
liable to pay service tax under taxable service category of
"renting of immovable property". The noticee has drawn
attention that the same analogy as cited in the above
Circular would apply to rent received from the office of
Accountant General of Uttarakhand, since that office is also
Service Tax Appeal No.55917 of 2014
13
a Public Office performing statutory functions and not
engaged in any business activity 5.19 I have seen the
noticee's reply vis-a-vis allegation leveled in the notice. I
have gone through the definition of taxable service' as
provided under Section 65(105) (zzz2) along with definition
of renting of immovable property' as provided under Section
65(90a) of the Finance Act, 1994. I have also seen the cited
Circular F.No.137/280/2007-CX-4 dated December 17,
2007, which is as under:
F.No. 137/280/2007-CX-4
Government of India
Ministry of Finance,
Department of Revenue
Central Board of Excise & Customs
Dated: December 17, 2007
To The Commissioner of Central Excise, Thane-1
4th Floor, Navabharat Chambers, Ranade Road,
Dadar (West), Mumbai-400028
Subject - Applicability of service tax on leasing /renting of
buildings t Government - regarding
Please refer to your letter F. No. CEX/Adm (22) 2007/Th-
1/07 dated 6.09.2007, on the above subject. The matter has
been examined. "Renting of immovable property" has been
brought under tax net w.e.f. 1/06/2007. This service
includes renting, letting, leasing, licensing or other similar
arrangements of immovable property for use in the course or
furtherance of business or commerce. If the rented
immovable property is being used for furtherance of
business, it is liable to services tax. It does not matter
whether the Government or private parties rent it. Having
Central Excise office does not fall under furtherance of
business and commerce as it is an activity of performing
statutory functions by a public authority and not an activity
of business or commerce. Therefore, it is not liable to pay
service tax under taxable service category of "renting of
immovable property"
Yours faithfully,
(Gautam Bhattacharya)
Commissioner (ST)
Service Tax Appeal No.55917 of 2014
14
Central Board of Excise & Customs
5.20 An analysis of the above definitions have revealed that
in order to levy service tax on the amount of rent received,
the immovable property ought to have been given on rent for
use either in the course of business or commerce or
furtherance of business or commerce. This means that
unless the property is rented out for use in the course or
furtherance of business or commerce, the liability to service
tax cannot be fastened. In the case of the Noticee, property
has been given on rent to the AG Office. The office of the
Accountant General in a State is analogous to the Office of
the Comptroller General of India at the Centre and is
a Constitutional Office. I further observe that the Offices of
the Accountants General are part of the Indian Audit &
Accounts Department under the Comptroller and Auditor
General of India (C&AG). The C&AG is a constitutional
authority appointed by the warrant of President of India. The
functions of the C&AG are derived mainly from the provisions
of Articles 149 to 151 of the Constitution of India. Thus, the
office of Accountants General does not fall under furtherance
of business and commerce as it is an activity of performing
statutory functions by a public authority as laid under the
Constitution and not an activity of business or commerce.
Moreover, the AG office is a Public Authority discharging a
Statutory and Public function. The Accountant General of the
State handles the Accounts of the State and assists the
Comptroller and Auditor General of India in discharging its
statutory functions. Therefore to let out the immovable
property to the AG office cannot be regarded as having been
rented out for use in the course of furtherance of business or
commerce. The above view is also supported by the Circular
dated 17.12.2007 cited above, which has clearly laid down
that i if the rented immovable property is being used for
furtherance of business, it is liable to services tax. It does
not matter whether the Government or private parties rent
it. Therefore, I am of the view that the renting of immovable
Service Tax Appeal No.55917 of 2014
15
property to the AG Office Uttarakhand does not fall under the
definition i.e. for use in the course of or, for furtherance of,
business or commerce, as the AG office is discharging its
statutory functions as derived under the Constitution.
Accordingly, the demand raised for payment of service tax on
the amount of rent received during the period 2008-09 to
30.06.2012 needs to be vacated However, with the
introduction of Negative list regime with effect from
01.07.2012, the activity of renting of immovable property is
neither covered under Negative list nor under Mega
exemption notification, therefore, the noticee shall be liable
to pay service tax on the rent received during period
01.07.2012 to March 2013.
5.21 The noticee has submitted that with effect from 1 st July
2012 under the negative list regime, they are duly
discharging their service tax liability arising out of rent
received from the AG Office, under the category of Renting
of Immovable Property Service. They have contended that in
view of their submission, no liability of service tax can be
imposed on rent received prior to July 1, 2012 from the AG
Office. However, in respect of rent received for the period
subsequent to June 2012, the Notice is duly discharging its
service tax liability. Therefore, aforesaid demand under the
category Renting of Immovable property for the period
starting from 2008 to 30th June. 2012 is not tenable and the
service tax already paid for period 01.07.2012 to March 2013
cannot be demanded again.
5.22 I have seen the submission of noticee as above. The
notice has asserted that it is paying service tax on the correct
value of rent received from 01.07.2012 under the negative
list regime. I find that they have not submitted any
document / records so as to substantiate their claim of
having paid the service tax w.e.f. 01.07.2012. I have seen
the ST-3 return for the period April 2012 to June 2012
wherein neither payment of service tax under renting service
has been shown nor receipt of any rent as well. The noticee
Service Tax Appeal No.55917 of 2014
16
has not submitted any documents evidencing payment of
service tax for the period w.e.f. 01.07.2012. However, I find
that trial balance for the year 2012-13 shows receipt of rent
amounting to Rs. 64,35,000/- during the period. Thus, in the
absence of any documentary proof submitted by the noticee,
I am constrained to hold that the noticee is liable to pay
service tax on the above said amount of rent received
considering the same having been received during the period
from 01.07.2012 to March 2013 since ST-3 return for April-
June 2012 did not show any amount received towards the
rent. Thus, the noticee is liable to discharge the service tax
on the amount of rent received by them. As such, the service
tax short paid by the noticee amounting to Rs. 2,03,940/-
(Rs. Two Lac Three Thousand Nine Hundred Forty only) on
the above rent amount for the period 01.07.2012 March
2013 is demandable and recoverable from them under
proviso to Section 73(1) of the Finance Act, 1994.
(C) Non-payment of Service Tax on Spare
parts/consumables used at the time of servicing of
Motors vehicles: (Rs.3,17,01.980/-)
5.23 The 3rd issue before me is whether the cost of spare
parts, accessories and consumables alleged to have been
sold to the customers during the course of service provided
by noticee, is liable to be included in the taxable value for the
purpose of levy of service tax.
5.24 It was observed during the course of audit of records
that the noticee is paying service tax on servicing / labour
charges component of the bill only but not paying service tax
on the value of spare parts & lubricants used & consumed
during the service of vehicles. The said practice adopted by
the party was not found in tune with the amended Section 67
of the Finance Act read with Rule 5 & 6 of Determination of
Value Rules, 2006. Accordingly, the instant show cause
notice was issued. The notice has relied on the Circular No.
87/05/2006- ST dated 06.11.2006, wherein it was clarified
Service Tax Appeal No.55917 of 2014
17
that the exemption would not be available to such
consumables, which have been consumed during the process
of providing service and are not available for sale. CBEC
circular No, 96/07/2007-ST dated 23.08.2007 has further
affirmed that "where spare parts are used by a service
station for servicing of vehicles, service tax should be levied
on the entire bill including the value of spare parts, raised by
the service station. Therefore, where spare parts or
consumables are consumed by an authorized service station
during the servicing of vehicles, the service tax is to be
discharged on the entire amount of invoice/bill raised
against the servicing of vehicle
5.25 he Noticee has submitted that the spare parts sold are
billed separately and VAT is duly paid on the same. Further,
the Company is paying service tax on actual servicing
charges / labour charges component of the bill. They also
enclosed specimen copy of the bill Further, the Noticee
contends that the service tax cannot be imposed on the value
of sale of parts, on which VAT/ Sales tax has been
discharged by the Company. They have submitted that the
department has mis-read the circular. The Noticee further
submitted that in terms of Article 246(3) of the Constitution
of India, Legislature of any State has exclusive power to
make laws for such State or any part thereof with respect to
any of the matters enumerated in List II of the Seventh
Schedule (known as State List) of the Constitution of India.
Sales tax/VAT and service tax are mutually exclusive and
both cannot be levied simultaneously on the same value.
Further, w.e.f. July 1, 2012, service tax is not leviable on the
spare parts sold as definition of service explicitly excludes
supply of any goods as exhibited from the definition of
"service under Section 65B(44) of the Finance Act. In view of
above, it could be argued that sale of spare parts has been
excluded from definition of service' itself in terms of Section
65B (44) of the Finance Act introduced w.e.f. July 1, 2012.
Therefore, the Noticee submits that the levy of service tax
Service Tax Appeal No.55917 of 2014
18
on the spare parts/lubricants sold during the service of
vehicle is not within the Constitutional framework. The
noticee has relied on following case laws:
i. Ketan Motors Ltd. vs CCE, Nagpur Order
S/238/13/CSTBC/C-I dated 18.02.2013
ii. Wipro GE Medical Systems Pvt. Ltd. vs. Commr. Ser.
Tax, Bangalore-2009 (14) STR 43 (Tri.-Bang) and
upheld by the Hon'ble Supreme Court in 2012 (28)
S.T.R. J44 (S.C.).
iii. Imagic Creative Pvt.Ltd.v.Commr. of Commercial Taxes
2008 (9) S.T.R. 337 (S.C.)
iv. Bharat Sanchar Nigam Ltd. vs. UOI - 2006 (2) S.T.R.
161 (S.C.).
5.26 On going through the sample invoices furnished by the
noticee, it is observed that they are paying service tax only
on servicing / labour charges and are paying VAT on the
value of spare parts & lubricants whereas the notice has
charged that they are required to pay service tax on the
gross amount of taxable value received. I find that the
contention of the noticee is not in consonance with the
Section 67 of the Finance Act, 1994. The relevant provisions
of Section 67 of Finance Act, 1994 (Valuation of taxable
services for charging service tax) stipulates as under-
"Subject to the provisions of this Chapter, service tax
chargeable on any taxable service with reference to its
value, then such value shall,-
(i) In a case where the provisions of service is for a
consideration in money, be the gross amount charged
by the service provider for such service provided or to
be provided by him
(ii) The gross amount charged for the taxable service shall
include any amount received towards the taxable
service before, during or after provision of such
service
Service Tax Appeal No.55917 of 2014
19
Further Rule 5 of Service Tax (Determination of Value) Rules,
2006 lays down as under:
Rule 5: Inclusion in or exclusion from value of certain
expenditure or costs.-
(1) Where any expenditure or costs are incurred by the
service provider in the course of providing taxable service,
all such expenditure or costs shall be treated as
consideration for the taxable service provided or to be
provided and shall be included in the value for the purpose
of charging service tax on the said service.
5.27 As per Rule 5(1) of Service Tax (Determination of
Value) Rules, 2006 all the expenditure or costs which are
incurred by the service provider in the course of providing
taxable service shall be treated as consideration for the
taxable service provided or to be provided and shall be
included in the value for the purpose of charging service tax
on the said service. I find that it has been made clear vide
CBEC Circular No. 96/07/2007 ST dated 23.08.2007, that
any goods used in the course of providing service are to be
treated as inputs used for providing the service and
accordingly, cost of such inputs form integral part of the
value of the taxable service, Where spare parts are used by a
service station for servicing of vehicles, service tax should
be levied on the entire bill, including the value of the spare
parts, raised by the service provider. However, the service
provider is entitled to take input credit of excise duty paid on
such parts or any goods used in providing the service
wherein value of such goods has been included in the bill.
The service provider is also entitled to take input credit of
service tax paid on any taxable services used as input
services for servicing of vehicles. Hence, in view of the
clarification of the Board, value of spare parts used by a
service station during the service of vehicles will have to be
included in the taxable value for the purpose of levy of
service tax.
Service Tax Appeal No.55917 of 2014
20
5.28 I further find that the essential character of the
impugned service is that of servicing of vehicles. It is not for
sale of parts. The primary responsibility undertaken by the
noticee is to keep the vehicles in running / working condition.
Therefore, going by the aspect theory laid down by Apex
Court in the case of BSNL Vs. UOI- 2006 (2) S.T.R. 161
(S.C.), contract cannot be considered as anything other than
a service contract. However if there is any sale of goods
independent of service contract, the value of goods sold is
exempt from payment of service tax under Notification
12/2003-ST. I observe that the demand raised is in respect
of those items used & consumed during provisioning of
service and not of parts sold separately and independently of
the service contract. In fact the actual value for such parts
will be much lower considering that the spare parts are
procured in bulk from the manufacturers by the noticee.
5.29 The noticee has contended that they have paid VAT on
the spare parts hence, they are not liable for payment of
service tax on the value of the spare parts in view of the
clarification given in the CBEC Circular No. 96/07/2007 ST
dated. 23.08.2007. The clarification given by the Board is as
under:
Question:- Whether spare parts sold by a service station
during the servicing of vehicles is liable to payment of
service tax?
Clarification:- Service tax is not leviable on a transaction
treated as sale of goods and subjected to levy of sales tax /
VAT. Whether a given transaction between the service
station and the customer is a sale or not, is to be
determined taking into account the real nature and material
facts of the transaction. Payment of VAT sales tax: on a
transaction indicates that the said transaction is treated as
sale of goods
5.30 From the above clarification, it is clear that a service
station can also sale spare parts on payment of sales
Service Tax Appeal No.55917 of 2014
21
tax/VAT and these transactions will be out of the purview of
service tax. In case spare parts are used by the service
provider during servicing of vehicle even if sales tax/VAT is
paid, exemption from payment of service tax is not available
in view of the fact that the contract is of service rather than
of sale. The same also stands clarified by the Board as
discussed above. It means in case of independent sale,
service tax is not leviable on this value subject to non-
availment of cenvat credit on these spare parts.
5.31 As regards to the submissions of the noticee that
they have paid VAT on spare parts, therefore service tax is
not leviable, it is observed that I have not seen any ruling of
any Court or Tribunal or any circular of CBEC to the effect
that a service provider can pay service tax or VAT at his
option. In case an option is given, the service provider
obviously will pay the tax which is levied at lower rate. I find
that the two levies are under separate provisions under the
Constitution and the proceeds of such taxes are utilized for
different purposes by different authorities. Thus, it cannot be
said that the liability under service tax can be discharged by
paying VAT i.e. that a tax under a Central enactment can be
discharged by paying tax under a State enactment.
5.32 In this context, as discussed in foregoing paras that in
case the service provider uses consumes spare parts during
the course of service of vehicles even if sales tax/VAT is paid
exemption is not available in view of clarification issued by
the Board as discussed above. It means in case of
independent sale only by such service provider, service tax is
not leviable on this value subject to non-availment of Cenvat
credit on these spare parts. In this regard, I observe that
the Hon'ble Apex Court has ruled in the case of Idea Mobile
Communication Ltd. vs. CCE, Cochin - 201 1(23) STR
433(SC):
"Appellant sold SIM cards to its franchisees and was paying
the sales tax to the State and activating the STM card in
Service Tax Appeal No.55917 of 2014
22
the hands of its subscribers on 2 valuable consideration
and paying service ta only on the activation charges The
Department held that a mere SIM card without activation
was of no use and the appellant was liable to pay service
tax on the value of SIM card also On appeal, Tribunal held
that the levy of service tax in the case was not sustainable
- HC allowed the appeal filed against said order - Hence,
the instant appeal - hether the value of SIM cards sold by
the appellant to their mobile subscribers was to be
included in taxable service w's. 65 (105) zzzx of the
Finance Act, 1994, which provides for levy of service tax
on telecommunication service? - Held, the amount
received by the cellular telephone company from its
subscribers towards SIM Card would form part of the
taxable value Jor levy Of service tax, for the SIM Cards
were never sold as goods independent from services
provided- They were considered part and parcel of the
services provided and the dominant position of the
ransaction was to provide services and not to sell the
material i.e. SIM Cards which on its own but without the
service would hardly have any value at all Thus, it was
established that the value of SIM cards forms part of the
activation charges as no activation was possible without a
valid functioning of SIM card and the value of the taxable
service was calculated on the gross total amount received
by the operator from the subscribers - impugned order
upheld - Appeal dismissed"
5.33 A perusal of above observation, it is clear that the spare
parts & lubricants consumed during the servicing of vehicles
are not only the part and parcel but also the integral part of
repairing services provided by the party to the customers and
such items cannot be treated as sold independently to the
customers from service provided. Further, the scrutiny of
sample invoices has revealed that these items were
consumed during the servicing of vehicles and are never
sold as goods independent from service provided. Hence,
Service Tax Appeal No.55917 of 2014
23
benefit of Notification no. 12/2003-ST dated 20.06.2003
cannot be extended to the noticee. Therefore, the service tax
is required to be discharged on the gross amount including
the value of spare parts and lubricants consumed during the
servicing of vehicles. Accordingly, the noticee is required to
discharge the service tax liabilities on the gross amount
including the value of spare parts and lubricants consumed
during the servicing of vehicles. As such the service tax short
paid by the noticee amounting to Rs. 3,17,01,980/- including
E. Cess & S.H.E (Rs. Three Crore Seventeen Lac One
Thousand Nine Hundred Eighty only) for the period 2008-09
to 2012- 13 is demandable and recoverable from M/s
S.L.Oberai Minerals (P) Ltd. under proviso to Section 73(1)
of the Finance Act, 1994.
5.34 The noticee has relied upon the case law of Wipro GE
Medical Systems Pvt. Ltd. vs. CST, Bangalore-
2009(14)STR43 (Tri. Bang.) and has requested for its
applicability in his case, I have gone through the above said
case law and considered the facts of the instant case find
that case of Wipro Medical Systems is with regard to the
value of goods sold, which was not available. The Tribunal
has just accepted the value on which VAT is paid as the
value of goods sold. Thus, in situations where there was
difficulty in ascertaining the price of goods correctly, the
Tribunal found it practical to accept the value on which VAT
was paid as an evidence of value of goods sold in the
absence of evidence to the contrary. This has been the issue
in the cited case law and therefore the facts are different
from the instant case
Another case law has been relied upon by the noticee relating
to Ketan Moors Ltd. vs CCE, Nagpur-2014(33) STR165-(Tri.
Mum). I have gone through the cited case law and find that
the Hon`ble CESTAT has remanded the issue to the
Adjudicating authority as the case also included the figures
of independent sale of spare parts
Service Tax Appeal No.55917 of 2014
24
5.35 In the above context, I have come across some other
case law such as Agrawal Colour Advance Photo System VS.
CCE, Bhopal ⁃ 2011 (23) S.T.R. 608 (Tri. LB), wherein the
larger bench of Hon `ble Tribunal has held as under:
Valuation (Service Tax) ⁃ Photography ⁃ Papers,
consumables and chemicals used to bring photograph into
existence ⁃ Recipient of photograph does not go to buy
these items,does not make separate payments for them -
He only expects photograph - In that view, fact that
Notification No,. 12/2003-S.T. granted exemption of value
of goods/materials used in production of photograph
found to be immaterial, and value of photograph held to
include all elements used to bring it to deliverable state
Service tax found to be leviable on gross value of
photographic service, and more SO as it is not a
composite contract of sale of goods and service - Apex
Court decision in C.K. Jidheesh [2006 (1) S.T.R. 3 (S.C.)]
followed, especially as several High Courts had given
similar opinions ⁃ Section 67 of Finance Act, 1994. [paras
21, 23] Valuation (Service Tax) ⁃ Cost to make services
reach consumer ⁃ All of them are includible in valuation of
services, since Service tax is destination based
consumption tax ⁃ Section 67 of Finance Act, 1994. [para
17]
Exemption (Service Tax) ⁃ Photograph ⁃ Gods/materials
sold by service provider (photographer) to recipient ⁃
HELD : Term 'sold' in Notification No. 12/2003-S.T. has to
be read with 'sale' in Central Excise Act, 1944 ⁃ It does not
include 'deemed sale ⁃ in that view, only value of
goods/materials sold separately by service provider
(photographer) are covered by Notification ibid - Burden to
prove such sale, value of goods/materials with specific
documents,and fulfillment of condition of notification that
credit of duty has not been availed, is on assessee. [paras
17, 18, 19, 22]
Service Tax Appeal No.55917 of 2014
25
In the instant case also, recipient of, service only wants
maintenance & servicing of his vehicle. Moreover, the
contract involves of maintenance & servicing of vehicles and
not sale of goods. Thus, the gross value of service provided
will include all the elements used in to bring vehicles to a
deliverable state. Accordingly, the Service tax is to be levied
on the gross value charged during the course of servicing of
vehicles.
5.36 In yet another case of CCE, Indore vs. Sadhana
Colour Film Processing Lab ⁃ 2013 (31) STR 240 (Tri. ⁃ Del.),
the Hon'ble tribunal has held:
4. We find that the issue on merits is no more res integra
and stands settled in favour of the Revenue by the Larger
Bench decision of the Tribunal in the case of Ms. Aggarwal
Colour Advance Photo System v. Commissioner, vide Misc.
Ordêr No. ST/129/11, dated 11-8-2011 [2011 (23) S.T.R.
608 (Tribunal -LB)]. It stands held in the said decision of
the Larger Bench that the value of services in relation to
photography would be the gross amount charged including
the cost of goods and material used and consumed in the
course of such services.
5.37 I find that similar view as discussed above has been
taken by the CESTAT in the case of TIL Ltd. VS. CCE-II
Jaipur -2012 (28) S.T.R. 635 (Tri.- Del.), wherein the
Hon'ble CESTAT while ordering pre-deposit has observed as
under:
17. We are of the prima facie view hat the impugned
contract is for providing service and not for sale of goods.
We are also of the view that a tax under Central
enactment cannot be discharged by paying tax under a
State enactment. In the facts of the case the appellants
have not paid Service tax on the value received for service
as per the existing provisions of Section 67 of the Finance
Act, 1994 read with provisions of Notification 12/2003-
S.T. There is not much merit in the argument that
Service Tax Appeal No.55917 of 2014
26
Revenue has not proved that the value realized is for
services rendered and not for value of goods sold.
In view of above, the ratio of above decisions is equally
applicable to the present case as the facts of the case are
similar in nature.
5.38 Taking into consideration the decisions cited above, I
find that the contract is for providing services whereas the
noticee had an intention to pay VAT on the consideration
received rather than to pay service tax. The cited decisions
nowhere says that tax liability can be discharged as per of
option of the party. Therefore the matter has to be decided
by law that is applicable. Further, a tax under Central
enactment cannot be discharged by paying tax under a
State enactment. Moreover, I find that the contract between
noticee and its clients is for providing service and not for
sale of goods. In the facts of the case, the noticee have not
paid service tax on the gross value received in terms of the
provisions of Section 67 of the Finance Act, 1994 read with
provisions of Notification 12/2003-ST for providing services.
5.39 The noticee has submitted that it has not withheld any
facts from the department. During audit also, all the
documents and information were duly provided as and when
asked by the authorities. Thus, there is no suppression of
facts by the Noticee. Hence, extended period of 5 years to
issue a Show Cause Notice is not applicable. The noticee has
cited case laws in their favour.
5.40 As regards to the above submission, I observe that in
the instant case the noticee has not shown the amount of
incentive received for achieving sales target, rent received
and the value of spare parts, lubricants consumed during
service of vehicles in their ST-3 returns filed for the relevant
period. They could have informed the department through
intimation or by furnishing the figures in their ST-3 returns,
which they have failed to communicate, Moreover the said
facts came to light during the course of the Audit conducted
Service Tax Appeal No.55917 of 2014
27
by the Department. Therefore, I find that the noticee has
wilfully suppressed the material facts from the knowledge of
the department with intent to evade payment of service tax
leviable on gross amount charged in respect of three
services as detailed above. In such circumstances,
invocation of extended period under proviso to Section 73(1)
of the Finance Act, 1994, for raising the demand-cum-show
cause notice is appropriate and reasonable
5.41 In the light of above discussion, I hold that the noticee
M/s S.L.Oberai Minerals (P) Ltd, has admittedly not paid the
service tax in respect of 'incentive income' received for
achieving sales target, ' rental income on account of renting
of immovable property and on the value of spare parts and
consumables' used & consumed during the course of
servicing of vehicles. Since the income received as explained
above form the gross value for provisioning of service
therefore the noticee liable to pay the service tax amounting
to Rs. 4,28,50,337/-(Rs.1,09,4,417+2,03,940-
+3,17,01,980) (inclusive Ed. Cess & SHE Cess) (Rs. Four
Crore Twenty Eight Lac Fifty Thousand Three Hundred Thirty
Seven only) for the period from 2008-09 to 2012-13, under
proviso to Section 73(1) of the Finance Act, 1994."
4.3 On the issue of the amounts received as incentive for
achieving sales target, relying on the decisions in the case of Sai
Service Station Ltd. [2014 (35) S.T.R 625 (Tribunal)] & Rohan
Motors Ltd. [2021 (45) G.S.T.L 315 (Tribunal)], Delhi Bench has
in the case of Veer Prabhu Marketing Ltd [2023 (73) G.S.T.L.
222 (Tri. - Del.)]
15. The third component of the demand on the
incentives received by the appellant from Tata Motors for
meeting sales targets. It is undisputed that the agreement
is titled dealership agreement and that it also clarifies that
the appellant has to purchase vehicles from Tata Motors
and then sell them. If it meets the targets it gets
additional incentives. This in our considered view, is in the
Service Tax Appeal No.55917 of 2014
28
form of a trade discount. Trade discount can take many
forms, such as, cash discount, quantity discount, year end
discount, etc. These incentives are in the form of year end
discount. This is an incentive given to encourage the
dealer to buy and sell larger number of vehicles. It is not a
payment for any service rendered to the manufacturer. In
market, buyers who purchase larger quantities of any
goods often get a better price. The incentives in this case
are of this nature. It has already been held by this Tribunal
in the case of Sai Service Station Ltd. and Rohan Motors
Ltd., that such incentives are not exigible to service tax.
Paragraphs 2, 3, 14 and 22 of the order of Rohan Motors
Ltd. are reproduced below :-
"2. The appellant is a dealer of Maruti UdhyogLtd. The
appellant buys vehicles from MUL for further sale to the
buyers by virtue of a dealership agreement dated January
1, 2013 entered into between Maruti Suzuki India Ltd. and
the appellant. Under the said agreement, the appellant
receives discount from MUL, which are referred to as
"incentives" under the schemes. The Department has
sought to levy service tax on the incentives received by
the appellant under the category of "business auxiliary
service".
3. The demand has been confirmed on the following :
(i) The incentive amount received by the appellant
under BAS.
(ii) The registration and number plate charges received
by the appellant from the customers for registration of the
vehicles with the Regional Transport Authority under BAS;
(iii) The miscellaneous income in the nature of penalty
on bouncing of cheques and processing charges under
BAS; and
(iv) Transportation charges paid by the appellant under
"goods transport agency" services.
Service Tax Appeal No.55917 of 2014
29
xx xx xx
14. In regard to the period post July, 2012, reliance has
been placed by the Learned Counsel for the appellant on
an order dated March 23, 2017 passed by the Joint
Commissioner, Central Excise in the matter of M/s. Rohan
Motors Ltd. (supra). The period involved was from
October, 2013 to March, 2014 and 2014-15. The Joint
Commissioner, after placing reliance upon the decision of
the Tribunal in Sai Service Station Ltd. (supra), observed
as follows :
"I also find that the ratio of the aforesaid case of CCE,
Mumbai-I v. Sai Service Station is squarely applicable to
the facts of the present case and hold that no service tax
can be demanded on the incentive which was in form of
trade discounts, extended to the party in terms of a
declared policy for achieving sales target. Accordingly, I
find that the demand of service tax raised on this count is
unsustainable. Thus demand of interest under section 75
of the Act is also not sustainable."
xx xx xx
22. Thus, for all the reasons stated above, it is not
possible to sustain the impugned order dated June 18,
2015 passed by Commissioner. It is, accordingly, set aside
and the appeal is allowed."
In view of the decision as above we do not find any merits in
the demand made under this category by the impugned
order.
4.4 On the issue of Renting of Immovable property we
find that Appellant is not disputing that service tax is payable
by them for the period 1st July 2012. It is there claim that
they have paid the service tax in respect of these services
with effect from 1st July 2012. From the perusal o the
impugned order it is evident that after seeing the documents
and ST-3 return filed by the appellant adjudicating authority
Service Tax Appeal No.55917 of 2014
30
has concluded that the appellant has not paid service tax on
the amounts received from the Office Accountant General in
respect of these services provided by the appellant from this
date. Appellant has also not produced any evidence to the
contrary before us thus in our view the demand made in the
adjudication order in respect of these services with interest
and penalty under Section 78 needs to be held. However the
penalty imposed under Section 76 simultaneously in respect
of these services cannot be sustained and is set aside.
4.5 In respect of the demand made by inclusion of value
of spares and consumables in the value of the taxable
services provided by the appellant we find that impugned
order has relied upon the decision of larger bench of tribunal
in case o Agrawal colour Advance Photo System [2011 (23)
STR 608 (t-LB)]. However we find that the said decision has
been set aside by Hon'ble Madhya Pradesh High Court as
reported at [2020 (38) G.S.T.L. 298 (M.P.)] holding as
follows:
"13. From the aforesaid discussion, it would emerge that
the crux of the substantial question of law No. 1 which has
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 :-
Service Tax Appeal No.55917 of 2014
31
"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 :-
"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 Service Tax Appeal No.55917 of 2014 32 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. 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 Service Tax Appeal No.55917 of 2014 33 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 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.
Service Tax Appeal No.55917 of 2014 34 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 the argument predicated on dominant intention test having regard to the statement of law delineated in ACC Ltd. and Service Tax Appeal No.55917 of 2014 35 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 goods involved in the execution of Service Tax Appeal No.55917 of 2014 36 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 Service Tax Appeal No.55917 of 2014 37
364), this Court, inter alia, established the five following 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 Service Tax Appeal No.55917 of 2014 38 constitutes a sale in the course of the inter-State trade or commerce under Section 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 Service Tax Appeal No.55917 of 2014 39 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."
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 Service Tax Appeal No.55917 of 2014 40 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 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 Service Tax Appeal No.55917 of 2014 41 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. 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 Service Tax Appeal No.55917 of 2014 42 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 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 Service Tax Appeal No.55917 of 2014 43 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 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 Service Tax Appeal No.55917 of 2014 44 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 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 Service Tax Appeal No.55917 of 2014 45 would also include "deemed sale" as defined by Article 366(29A)(b) of the Constitution."
In view of the above decision of Hon'ble Madhya Pradesh High Court we do not find any merits in the demand made on this account and set aside the same.
4.6 In result while we uphold the impugned order to the extent it is in relation to the "Renting of Immovable Property Services"
to the office of Accountant General for the period post 01.07.2012, we set aside the same in respect of the demand made on the incentives received by the appellant from the Tata Motors and by inclusion of the value of spares and consumables in the value of taxable services provided by the appellant.
5.1 Appeal is partly allowed as indicated in para 4.6 above.
(Pronounced in open court on-29 August, 2024) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp