Custom, Excise & Service Tax Tribunal
) M/S.National Building Construction ... vs Commissioner Of Central Excise & ... on 4 May, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH: KOLKATA
1-3) Appeal Nos. ST/20, 21, 15/2009
(Arising out of Order-in-Original No.20/ST/COMMISSIONER/2008 dated 31.10.2008 passed by the Commissioner of Central Excise & Service Tax, Patna.)
FOR APPROVAL AND SIGNATURE
HONBLE SHRI S.S. KANG, VICE PRESIDENT
HONBLE SHRI M.VEERAIYAN, MEMBER(TECHNICAL)
1. Whether Press Reporters may be allowed to see
the Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the
CESTAT(Procedure) Rules, 1982 for publication in any
Authorative report or not?
3. Whether Their Lordship wishes to see the fair copy
of the Order?
4. Whether Order is to be circulated to the Departmental
Authorities?
1) M/s.National Building Construction Corporation Ltd.
2) M/s.Sri Avantika Contractors
3) M/s.APR Constructions Ltd.
Applicant (s)/Appellant (s)
Vs.
Commissioner of Central Excise & Service Tax, Patna
Respondent (s)
Appearance:
Shri J.P.Khaitan, Advocate & Smt.Swapna Das, Advocate for Appellant No.2, Shri Rajesh Kr.T.R., Chartered Accountant, for Appellant No.3 AND Shri Shri Akhil Kr., Gupta, Chartered Accountant for Appellant No.1.
Shri D.K.Achariya, Consultant for the Respondent (s) CORAM:
Honble Shri S.S.Kang, Vice President Honble Shri M.Veeraiyan, Member(Technical) Date of Hearing:- 04.05.2011 Date of Pronouncement :- 04.05.2011 ORDER NO.
Per Shri M.Veeraiyan.
1.1 Appeal No.ST/20/2009 is by M/s.National Building Construction Corporation Ltd. (NBCC, in short) challenging the demand of Service Tax of Rs.17,00,97,423/-(Rupees Seventeen Crores Ninety Seven Thousand Four Hundred and Twenty Three only) along with interest and imposition of penalties under various Sections.
1.2 Appeal No.ST/15/2009 is by M/s.APR Constructions Ltd. (APR, in short) against the demand of Service Tax amounting to Rs.6,28,87,427/-(Rupees Six Crores Twenty Eight Lakhs Eighty Seven Thousand Four Hundred and Twenty Seven only) along with interest and imposition of penalties under various Sections.
1.3 Appeal No.ST/21/2009 is by M/s.Sri Avantika Contractors (SAC, in short) challenging demand of Service Tax of Rs.3,24,18,125/-(Rupees Three Crores Twenty Four Lakhs Eighteen Thousand One Hundred and Twenty Five only) along with interest and imposition of penalties under various Sections.
1.4 The three Appeals arise out of common order of the original authority and the facts are inter-linked and therefore they are disposed of by this common order.
1.5 Heard Shri Akhil Gupta, Chartered Accountant on behalf of NBCC, Shri Rajesh Kr. T.R., Chartered Accountant on behalf of APR & Shri J.P.Khaitan, Sr. Advocate on behalf of SAC. Heard learned Consultant Shri D.K.Achariya on behalf of the Department.
2.1 Relevant facts in brief are that NBCC entered into contract with M/s.NTPC in January, 2004 to undertake site preparation, site leveling works in connection with setting up of a super Thermal Projects by M/s.NTPC. The contract was for Rs.118.00 crores and there was provision for price escalation as well. NBCC in turn entered into contracts with APR and SAC for undertaking the actual work of site leveling, site formation etc. and paid a sum of Rs.31.00 crores approx. to SAC and a sum of Rs.61.00 crores approx. to APR during the period 10/9/2004 to 31/03/2007.
2.2 Original authority by the impugned order held that NBCC has rendered service of site formation to M/s.NTPC and rendered Business Auxiliary Services to APR and SAC and demanded service tax amounting to Rs.17.01 crores approx. and imposed Rs.34.00 crores under Section 78 and also imposed penalty under Section 76.
2.3 By the same impugned order, Commissioner has held that APR & SAC have rendered business auxiliary services to NTPC on behalf of NBCC. He confirmed the demand of service tax of Rs.6.28 crores and imposed penalty of Rs.12.57 crores under Section 78 and also imposed penalty under Section 76 of APR. He similarly demanded duty of Rs.3.2 crores on SAC and imposed penalty of Rs.6.48 crores under Section 78 in addition to penalty under Section 76.
3.1 Learned Chartered Accountant appearing for NBCC submits that they entered into contract with M/s.NTPC in January, 2004 for undertaking site preparation, site leveling works and laying down of roads including formation of rip-rap on slopes. Out of the contracted work, they have not undertaken work relating to construction of roads and the value of work which was not undertaken was approx. Rs.14 crores. The Commissioner has demanded Service Tax treating the services rendered by them to M/s.NTPC as site formation services. He has also accepted the contention that for the period prior to 16.06.2005, no Service Tax was leviable as Service Tax on site formation services was introduced w.e.f. 16.06.2005 only. In pursuance of the contract entered in January 2004 they have received totally a sum of Rs.104 crores approx. from M/s.NTPC. Out of this a sum of Rs.78 crores (approx.) relates to work undertaken by them prior to 16.06.2005 and the Service Tax was around Rs.3.03 crores stands paid. Though they have earlier taken a stand that an amount of Rs.1.65 crores received relating to formation rip-rap on sloves should be treated services as commercial or industrial construction services, on instruction from his client, he is not contesting the finding of the Department that the same relates to site formation services. He however, is contesting the quantum of demand on site formation services as confirmed by the Commissioner. Commissioner has demanded Service Tax on the site formation services on the value of Rs.82,69,35,791/-(Rupees Eighty Two Crores Sixty Nine Lakhs Thirty Five Thousand Seven hundred and Ninety One only) relating to the period from 16.06.2005 to 31.03.2007. Even though they have made a claim before the Commissioner that the value of services rendered prior to 16.06.2005 is around Rs.78 crores he has not recorded a finding on this claim. Therefore the demand of Service Tax on site formation relating to this period is highly inflated. The finding of the Commissioner that NBCC, APRC and SAC have not contested the figure of payments which were incorporated in Annexure BB of the Show Cause Notice is factually incorrect in the light of their submissions made about the actual payments received by them both during period tax when was leviable and for period when tax was not leviable.
3.2 The work in pursuance of the contract entered into by them with M/s.NTPC has been got done by sub-contracting the work to APR and SAC. They have undertaken the overall responsibility to get the work done as per the specifications given by M/s.NTPC and for this purpose they have ensured necessary supervision over the work undertaken by the sub-contractors. The sub-contractors have no direct contact with M/s.NTPC. The conditions imposed by NBCC on the sub-contractors naturally incorporated the conditions imposed by M/s.NTPC on NBCC. No services were rendered by NBCC to the sub-contractors. The sub-contractors only rendered services to NBCC, who accordingly made payments to the sub-contractors. In respect of services rendered from 16.06.2005, on the entire value of services Service Tax stands paid. He also submits that the margin kept by them from the payments received from M/s.NTPC cannot be treated as a notional payment from the sub-contractors for the services allegedly rendered by NBCC to the sub-contractors.
3.3 Since Service Tax on site formation service came into effect from 16.06.2005 and they have rightly paid Service Tax on service charges relating to services rendered from the said date, no further tax was payable by them.
3.4 The payment of Service Tax on work relating to rip-rap on slopes under commercial or industrial construction services were in pursuance of latter dated 15.06.2006 from the Superintendent of Central Excise, and therefore no presumption that they mis-declared the services or claimed abatement wrongly can be held. As they are accepting the Service Tax liability, the question of imposing any penalty in this regard does not arise.
4.1 Ld.Advocates appearing for the sub contractors submitted that they have no contract with M/s.NTPC and their contract is only with NBCC and they have actually undertaken activities relating to site formation, leveling, etc. Their activities fall only under the category of specific service of site formation but the same have wrongly been treated by the Department as falling under business auxiliary service. They also submit that whether the activities undertaken by them fall under business auxiliary service or site formation service is relevant as the service tax on site formation services were introduced only w.e.f. 16/6/2005 whereas the tax on the business auxiliary services was introduced w.e.f. 10/9/2004. They also alternatively submit that prior to issue of Circular No.96/7/2007-ST dated 23rd August, 2007, the prevailing practice as per the Boards earlier circular dated 14/7/1997 was that when the main contractor pays service tax on any service, the sub contractors were not required to pay service tax. Only by the circular dated 23rd August, 2007 by the Board clarified that the sub contractors are also to be taxed separately and the services rendered by the sub contractors should be treated as input services to the main contractor and the main contractor shall be eligible for service tax. Thus, even if service tax demand is to be sustained on the sub contractors, the same amount was available as credit to NBCC. They also submit that the tax demand based on actual receipt of service charges during the period 10/9/2004 to 31/3/2007 has been wrongly made as part of the realization relates to the services undertaken by them for the period prior to 10/9/2004. They also submit that since NBCC has paid Service Tax under the category of site formation services w.e.f. 16/6/2005, the question of demanding on the very same activities from the sub contractors under a different category as business auxiliary service does not arise.
4.2 It was thus submitted that the sub-contractors have not rendered any direct services to M/s.NTPC. They have not received any payments from M/s.NTPC directly. NBCC is only responsible to M/s.NTPC for quality of work and for fulfillment of terms of contract entered into between the two. The finding of the Commissioner that they, the sub-contractors have rendered services to M/s.NTPC on behalf of NBCC is not legally sustainable.
4.3 Merely because M/s.NBCC was undertaking certain activities by way of supervision to ensure that the work entrusted to the sub-contractors were carried out as per the terms of contract, it cannot be said that NBCC is rendering any services to the sub-contractors.
4.4 As per the Boards instruction dt.14/9/77 (prior to amendment by Circular dated 23.08.2007) when Service Tax is paid by the main contractor no Service Tax was payable by the sub contractors. The sub-contractors were merely following the then prevailing instructions of the Board. The question of suppression of any relevant facts with intent to evade Service Tax does not arise. Therefore no Service Tax can be levied invoking extended period of limitation and no penalties are imposable.
4.5 The sub-contractors are undertaking the activities of site formation. To treat them as rendering business auxiliary services is clearly erroneous.
5.1 Learned Consultant appearing on behalf of the Department took us through the relevant portions of the Show Cause Notice and order of the Commissioner. Drawing our attention to definition of business auxiliary services, he submits that in the facts of the present case, the sub-contractors are the service providers and the client is NBCC and the actual recipient of services is M/s.NTPC. Therefore the sub-contractors have been rightly held to have rendered services to M/s.NTPC on behalf of NBCC. He also draws our attention to the clauses in the contract between the sub-contractors and NBCC and submits that the contract entered into between NBCC and M/s.NTPC also forms part and parcel of the contracts between the sub-contractors and NBCC and therefore the services rendered by sub-contractors have been rightly held to be rendered to M/s.NTPC on behalf of NBCC.
5.2 He also submits that Boards earlier instruction in Circular dated 14.07.1997 has been over-ruled by the Circular dated 23.8.2007 and the legal position is that in a case like this, both the main contractor and the sub-contractors are independently liable to Service Tax.
5.3 He also submits that the services rendered by the sub-contractors, even if not treated as strictly falling under the category of business auxiliary services, could be treated as falling under commercial and industrial construction services and the Show Cause Notice having described the nature of activities undertaken by them, the quoting of a wrong service head cannot be held to be fatal to the demand of Service Tax.
5.4 Regarding Service Tax demand on NBCC under the head business auxiliary services, he reiterates the findings and reasoning of the Commissioner.
5.5 Regarding the claims of discrepancies in the quantum of demands made on behalf of the Appellants, he refers our attention to the clear finding of the Commissioner that the Appellants have not contested the figures of payments which were incorporated in Annexure BB of the Show Cause Notice.
6.1 We have carefully considered the submissions made from both the sides and perused the records.
6.2 We find that the actual work relating to which demands of Service Tax have been raised against the three Appellants were done for M/s.NTPC. M/s.NTPC has entered into contract only with NBCC. NBCC has in turn entered with contracts with the other two sub-contractors. The entire contract amount between M/s.NTPC and NBCC was to the tune of Rs.118 crores and out of which it is claimed that work of laying Roads amounting to about Rs.14 crores has not been undertaken by them. It has been claimed by NBCC that they have received only about Rs.104 crores from M/s.NTPC and out of which for the work undertaken by the sub-contractors they have paid about Rs.61 crores to APR and about Rs.31 crores to SAC. We find that Commissioner has held that the services rendered by NBCC for the period prior to 16.06.2005 is not liable to Service Tax under the category of site formation services. It is claimed by NBCC that the value of services for the period prior to 16.06.2005 is about Rs.78 crores. Under these circumstances the demand of over Rs.17 crores of Service Tax from NBCC is clearly highly inflated and the same has been without the finding on the claim on the value of services rendered prior to 16.06.2006.
6.3 However, it is noticed that Commissioner has held that NBCC has rendered site formation services to M/s.NTPC and that services rendered prior to 16.06.2005 is not taxable. The Department is not in Appeal against this finding. The Appellant NBCC is also not disputing the tax liability on site formation services rendered by them to M/s.NTPC from 16.06.2005. The dispute is only in respect quantum of Service Tax demanded which, in our opinion is highly inflated. According to NBCC, the amount of Rs.3.03 crores paid by them is the correct amount and the demand by the Commissioner is on the higher side. As there is no dispute about the Service Tax liability on site formation services w.e.f. 16.06.2005, the dispute only relates to actual quantum of Service Tax demandable, the same requires to be re-considered afresh by the Commissioner after taking into account the submissions and evidence to be produced by NBCC.
7. Coming to the finding of the Commissioner that NBCC have rendered business auxiliary services to the two sub-contractors, we are unable to agree to the same. NBCC have received an order for executing the site formation activity and the same have been distributed by entering into agreements with the sub-contractors. Having taken the contract from M/s.NTPC they have entrusted the actual work to the sub-contractors. The supervision of work undertaken by the sub-contractors by NBCC was to ensure whether the same was in conformity with the terms and conditions of the contract and the same cannot be treated as services rendered by NBCC to the sub-contractors. The margin retained by them as main contractor cannot be treated as consideration notionally received back from the sub-contractors. Therefore demand of Service Tax holding that NBCC has rendered business auxiliary services to the sub-contractors cannot be sustained.
8.1 Commissioner has also held that the sub-contractors have rendered services to M/s.NTPC on behalf of NBCC. Undisputedly, the sub-contractors had no agreements with M/s.NTPC. They had agreements only with NBCC. The definition of business auxiliary services reads as under:-
2[(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 [xxx]
(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 4[Explanation : For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, inputs means all goods or services intended for use by the client;] 1(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, 5[but does not include any activity that amounts to manufacture of excisable goods;] 1[Explanation : For the removal of doubts, it is hereby declared that for the purpose of this clause, -
(a) 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;
1[(b) excisable goods has the meaning assigned to it in clause (d) of section 2 of Central Excise Act, 1944 (1 of 1944);
(c) manufacture has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944);] 8.2 Relying on the above definition issued on behalf of the Department that the sub-contractors have rendered services to M/s.NTPC on behalf of the client namely NBCC. On careful consideration, we are not able to accept this view. If this view is accepted it implies that the sub-contractors are rendering services indirectly to M/s.NTPC and that these sub-contractors are receiving payments indirectly from M/s.NTPC. The activities undertaken by the sub-contractors, in our considered opinion is only site formation services. These services have been rendered to the main contractors NBCC who are answerable to M/s.NTPC. If at all there is any doubt it could be whether the services rendered by NBCC could be treated as business auxiliary services and not the services rendered by the sub-contractors. This issue regarding the classification of service rendered by NBCC is only academic as the Commissioner has clearly held that NBCC is rendering services of site formation to M/s.NTPC and the Department is not in Appeal against the said findings.
9. From the above, the following emerges :-
(a) NBCC has rendered services of site formation to M/s.NTPC which is taxable from 16.06.2005 is not in dispute. The quantum of Service Tax liability requires to be re-determined after granting reasonable opportunity of hearing to the said Appellant.
(b) The demand of Service Tax on the rip-rap on slopes under the category of site formation stands conceded by NBCC and the correctness of the amount payable requires to be confirmed after granting reasonable opportunity of hearing to the said appellant.
(c) No services are rendered by NBCC to the sub-contractors. The margin retained by NBCC cannot be treated as consideration for any services rendered by them to the sub-contractors.
(d) No services are rendered by sub-contractors to M/s.NTPC on behalf of NBCC.
(e) In the facts and circumstances of the case NBCC has paid the Service Tax for services rendered from 16.06.2005 and the dispute relates to the quantum of Service Tax payable, we hold that no penalty is imposable. Further, as the dispute on rip-rap on slopes arose based on communication with the Department no penalty in this regard is sustainable.
(f) NBCC has claimed to have paid service tax on the entire amount received from M/s.NTPC; the tax was not paid by the sub-contractors on the basis of Boards clarification dt.14/9.97; and if the tax was paid by the sub-contractors the same was available as credit to NBCC and therefore, it is a case of revenue neutrality. Therefore, no tax is demandable from the sub contractors.
10. Therefore Appeal Nos.S.T.15/2009 by M/s.APR Constructions Ltd. and S.T.21/2009 by M/s.Sri Avantika Contractors are allowed with consequential relief as per law. Appeal No.S.T.20/2009 by M/s.National Building Construction Corporation Ltd. is disposed of as above.
(Pronounced and dictated in the open court.)
Sd/ sd/
(S.S.KANG) (M.VEERAIYAN)
VICE PRESIDENT MEMBER(TECHNICAL)
sm
2
Appeal Nos.ST/20 ,21 & 15/2009