Custom, Excise & Service Tax Tribunal
M/S Indfos Industries Ltd vs Cce, Noida on 13 April, 2011
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
Court No.III
ST/Appeal No.650 /2010
(Arising out of order in appeal No.77/CE/Appl/Noida/7/936 dated 13.8.2007 passed by the Commissioner of Central Excise (Appeals), Noida)
Date of Hearing: 13.4.2011
For Approval and signature:
Honble Ms Archana Wadhwa, Judicial Member
Honble Mr.Mathew John, Technical Member
_________________________________________________
1. Whether Press Reporters may be allowed to see
The order for publication as per Rule 27 of the
CESTAT(Procedure) Rules, 1982?
2. Whether it would be released under Rule 27 of
the CESTAT (Procedure) rules, 1982 for
publication in any authoritative report or not?
3. Whether their lordships wish to see the fair
copy of the order?
4. Whether order is to be circulated to the
Departmental Authorities?
________________________________________________________
M/s Indfos Industries Ltd Appellants
Vs
CCE, Noida Respondent
Appeared for the Appellant: Shri J.K.Mittal, Advocate
Appeared for the Respondent: Shri Amrish Jain, DR
Coram: Honble Ms. Archana Wadhwa, Member (Judicial)
Honble Mr Mathew John, Member (Technical)
ORDER
Per Mathew John:
The Appellant is engaged in the business of manufacturing and repairing Hydraulic Service Trolley (HST). The Appellant was registered under service tax laws as a provider of service under the category Maintenance and Repair.
2. M/s HAL Bangalore had entered into a contract for maintenance and repair of HST owned by the Indian Air Force. They had sub-contracted this activity to the Appellant.
3. For the period 29-09-04 to 03-03-2005, the Appellant received Rs. 72,17,994/- from HAL for maintenance and repair done by the Appellant. The Appellant did not pay service tax on the said amount under the belief that sub-contractors do not have to pay service tax as per clarifications given by CBEC in a booklet published as Frequently Asked Questions and Answers. The Appellant had intimated this stand to the department vide their letter dated 04-11-2004 along with the bill numbers under which the said amount was received. The Appellant did not include the amount in the ST-3 return filed by them.
4. The Appellant was issued with a Show Cause Notice dated 10-03-2006, demanding service tax amounting to Rs. 7,36,236/- on the said amount of Rs. 72,17,994/-. In adjudication proceedings this demand was confirmed along with interest. Further a penalty equal to the said amount was imposed under section 76 of Finance Act 1994. The Appellant filed an appeal with the Commissioner of Central Excise who confirmed the duty demand but set aside the penalty. Aggrieved by the order of the Commissioner (Appeal) the Appellant is before this Tribunal.
5. The main grounds stated in the appeal are the following:
(i) The work executed by them was in their capacity as a sub-contractor and hence the Appellant is not liable to pay service tax. The Appellant relies on the following circular of CBEC and case laws in this regard:
a) CBEC Circular F. No.B-11/3/98-TRU dated 07-10-98
b) BBR (India) Ltd. Vs. CCE -2006 (4) STR 269 Tri (Bang)
c) Semac Pvt. Ltd Vs CST- 2006 (4) STR 475 Tri (Bang)
d) Oikos V CCE-2007 (5) STR 229 Tri(Bang)
(ii) The work executed by the Appellant involved supply of materials and hence they were eligible for exemption under Notification 12/2003 ST for the value of material supplied. Though this claim was not made in the adjudication proceedings they had made this claim in the first appeal along with necessary supporting documents to prove the value of materials sold. However the Commissioner (Appeal) did not consider this plea.
(iii) The demand is time barred because SCN is not issued within one year from the date on which they issued the invoices. The position that they had issued the invoices and they were not including it in ST-3 return was informed to the department under separate letter dated 04-11-2004.
6. During the hearing before the Tribunal the main point argued was the issue that the notice was time barred.
7. The argument of the Appellant is that the invoices were dated 31-03-2004. If these amounts were taxable the same should have been included in the ST-3 return for March 2004, in the fourth row in item 4(A) for Amount billed-gross. The Appellant did not include it and the position that it was not included was intimated to the department along with the reasons. The contention of the Appellant is that as per provisions in section 73 of Finance Act 1994, SCN should have been issued within one year from 25-04-2004, that is the date on which ST-3 return for March 2004 was to be filed.
8. The argument of the department is that the earliest payment under the impugned bills was received on 25-01-2005. The Appellant should have paid service tax on this amount before 05-02-2005 and should have included in row 1 of item 4A of ST-3 return for Amount received for taxable service(s) provided in their ST-3 return for March 2005 to be filed before 25-04-2005. Since SCN was issued on 24-04-2006 it is contested that the notice is issued within one year from the relevant date.
9. Provisions made under section 73 of the Finance Act 1994 are relevant for deciding this dispute. The provisions are reproduced below:
73. Recovery of Service tax not levied or paid or short levied or short paid or erroneously refunded (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :
Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words one year, the words five years had been substituted.
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(6) For the purposes of this section, relevant date means,
(i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid-
(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;
(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;
(ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of adjustment of the service tax after the final assessment thereof;
(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund.
10. Revenue is not contesting the issue that in this case extended period of five years prior to relevant date cannot be invoked. The contentious issue is what is the relevant date. There is no dispute that provisions of section 73 (6) (i) (b) will apply in this case.
11. The issue in short is that the disputed amount should have been reported in two ST-3 returns for the first time when the amount was billed (ie in fourth row in item 4(A) of ST-3 return) and a second time (i.e in the first row in item 4(A) of ST-3 Return) when the amount was realised. The Appellant argues that the period should be counted with reference to the former event that is billing while revenue contests that it should be with reference to the latter event, that is realization. Section 73 of Finance Act 1994 is not very specific about this issue. So a meaning has to be given by reading all the provisions and giving a harmonious interpretation. Under the scheme of levy of service tax, as provided in Rule 6 of Service Tax Rules 1994, tax is be paid when the value is realized and not when value is billed. Therefore short payment occurs when value is realised but tax not paid. The theme of section 73 of the Act is short payment. So the relevant date has to be interpreted in the context of short payment. So the relevant date has to be counted from the date of ST-3 return in which short payment occurs and not with reference to the date on which information is furnished regarding billing.
12. It may be appropriate to see the consequence of the interpretation canvassed by the Appellant. If an assesse raises bills for Rs. 1,00,000/- in March 2004 and reports the same in the in ST-3 return for March in row 3 of item 4(A) of ST-3 and does not receive the billed amount till March 2005, no notice under section 73 can be issued because no short payment has occurred. In May 2005, if payment is received and the assesse does not pay tax, then SCN under section 73 cannot be issued because more than one year has passed after filing of return for March 2004 and consequently no tax can be demanded. Suppression also cannot be alleged since he has already reported the amount in ST-3 return of March 2004. The provisions of section 73 of Finance Act and the particulars called for in ST-3 return cannot interpreted to provide such loop holes for not paying taxes.
13. For the arguments stated above, we are not in agreement with the interpretation given by the counsel for the Appellant in the matter of time bar. So the contention that demand is time barred is rejected.
14. Now the argument that they were not the main contractors but were only sub-contractors needs to be examined. This issue whether sub-contractor needs to pay service tax has arisen because of certain clarifications issued by the Board in the early stage of evolution of service tax levy and connected laws. These instructions were issued in view of different factors like,
(i) Even prior to the introduction of Cenvat Scheme for service tax, the policy of the government was to tax the same service only once, that is in the hands of the main person providing the service. There was no intention to tax the same value twice in the hands of two different parties rendering different part of the same service. This situation is most aptly demonstrated by the service rendered by a stock broker and that rendered by a sub-broker to a broker. Sub-broker receives payment from the brokerage charged by the broker who was already paying tax on the full brokerage. Similar was the situation in the case of advertising agency. Many persons do different parts of the job of advertising like conceptualisation, the making of the advertisement, display of the advertisement etc. The policy was to tax the amount involved only once that is when the main advertising agency raises bill on the client who benefits from the advertisement. Though many circualrs were quoted the text of only one could be seen that is the circular F. No.B-11/3/98-TRU dated 7-10-98 para 5.6. This is with reference to the specific service of Interior decorators and is subject to the condition that the main contractor pays tax on the value inclusive of the value of work done by the sub-contractor. No circular laying down a principle that sub-contractors are not liable to pay tax, with no condition attached, has been produced.
(ii) There was another issue that the definition of the service concerned could not cover the activity carried by some of the sub-contractors and therefore in some cases clarifications were issued to the effect that the person who bills for the complete service which will fall with the service as defined will only be taxable.
(iii) There was also the issue that in initial stages services were not defined as a specified service provided to any person by any other person as is the case for most of the entries in section 65(105) of the Finance Act,1994 as it stands today. Earlier the nature of the person providing service as well as the nature of the person availing service was specified in many of the taxable entries. For example if service provided to a customer by a telegraphic authority was taxed, the service provided by one telegraphic authority to another telegraphic authority for the former to render service to the customer was not under the tax net. Such issues came up also in the case of service provided to a client by a consulting engineer. The subcontractor who was carrying out part of the activity may not have fitted into the definition of consulting engineer and the consulting engineer sub-contracting the work might not have fitted into the definition of a client. It is in such situations that the impugned clarifications were issued by the Board. The clarifications issued by Board do not expose a legal position that no sub-contractor is liable to pay service tax on any taxable activity.
15. The liability to tax has to be decided with reference to the definition the concerned taxable service at the relevant period of time and the activities carried out and the contract governing such activity. Some of the case laws quoted do not discuss any provision of any statute to come to the conclusion that there shall be no levy of service tax on sub-contractors. In fact the decision in Semac Pvt. Ltd Vs CST- 2006 (4) STR 475 Tri (Bang) is given considering that the main contractor had paid tax for the full value However the policy that if the main contractor has paid service tax, the sub-contractor need not pay tax again on the same service, for periods prior to introduction of Cenvat Scheme is reasonable and acceptable based on the Boards circulars, for maintaining equality before law. In this case no argument is raised that the main contractor namely, HAL has discharged service tax liability. But if evidence is produced to that effect the demand on the sub-contractor is not maintainable.
16. The argument that they can claim an exemption at any stage of the proceedings is now settled because of the decision of Apex Court in Share Medical Care Vs. UOI-2007 (209) ELT 321. The Commissioner (Appeal) has erred in not considering the claim of the Appellant for exemption under Notification No.12/2003-ST when evidence regarding value of goods sold was apparently produced by the Appellant.
17. The finding of the adjudicating authority has not explained the reasons for finding in para 4.7 without contradicting the claims of the Appellant as recorded in 3.9 of the order. If the entire matter could be decided just by resolving this faulty finding we would have gone ahead to do so. Since the matter requires examination of other facts and laws we refrain from giving any finding on this issue at this stage.
18. This case needs to be re-examined in the light of our observations in paras 15 to 17 above. So the impugned order is set aside and the matter is remitted to the adjudicating authority to take into consideration the arguments of the Appellants and to decide whether the impugned activity carried out by the Appellant will fall within the definition of Maintenance and Repair as it stood at the relevant time. The Appellant is given the permission to adduce any fresh evidence that the Appellant wants to produce and to claim any exemption that the Appellant could have legally claimed at the relevant point of time. The adjudicating authority may keep in view the views expressed in this order in paras 15 to 17 above and pass a fresh speaking order after giving an opportunity to the Appellant to produce fresh evidence and for personal hearing.
17. The Appeal is disposed of as per above terms.
(Pronounced in Open Court on-----------------) (Archana Wadhwa) Member(Judicial) (Mathew John) Member(Technical) 10