Custom, Excise & Service Tax Tribunal
Agc Realty Pvt Ltd vs Delhi - I on 6 September, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
New Delhi
~~~~~
PRINCIPAL BENCH - COURT NO. 3
Service Tax Appeal No. 51135 Of 2017
[Arising out of ORDER-IN-ORIGINAL-DLI-SVTAX-001-COM-051-16-17
dated 23.03.2017 passed by the Commissioner of Service Tax, Delhi-I]
M/s AGC REALTY PRIVATE LIMITED : Appellant (s)
403, 4th Floor, Sachdeva Corporate
17 DDA Community Centre
Karkardooma, Delhi-110092
Versus
Commissioner of Service Tax : Revenue (s)
17-B, I.A.E.A House, I.P. Estate,
M.G. Marg, New Delhi-110002
APPEARANCE:
None for the Appellant
Ms. Jayakumari, Authorized Representative for the Department
CORAM :
HON'BLE MS. BINU TAMTA, MEMBER (JUDICIAL)
HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL)
FINAL ORDER No. 58518/2024
Date of Hearing:05.07.2024
Date of Decision:06.09.2024
HEMAMBIKA R. PRIYA
The present appeal has been filed by M/s AGC Realty Private
Limited (hereinafter as the appellant) against the Order-in-Original-
DLI-SVTAX-001-COM-051-16-17 dated 23.03.2017 passed by the
Commissioner of Service Tax, Delhi-I wherein the demand of Service
Tax of Rs. 91,01,452/- was confirmed and penalties of Rs 10,000/
under Section 77(2) & Rs. 45,50,726/- was imposed under Section 78
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Service Tax Appeal No. 51135 of 2017
of the Finance Act, 1994 read with the provision of Rule 15(3) of
Cenvat Credit Rules, 2004.
2. The facts of the case are that the appellant holds Service Tax
Registration for payment of service tax under the category of
"Construction of Complex Services". The appellant was availing the
benefit of Notification No. 26/2012 dated 20.06.2012 in respect of
construction of a complex, building, civil structure or part thereof
intended for sale to a buyer. The Appellant paid the Mobilization
advance of Rs. 15.618 Crore (Including Service tax of Rs. 0.618 Crore)
to M/s Ajnara Infrastructure Pvt. Ltd. & Mobilization advances of Rs.
15.618 Crore (Including Service tax of Rs. 0.618 Crore) to M/s
Straight Edge Contracts Pvt. Ltd. The appellant adjusted the part of
mobilization advances against the invoice issued on or after July 2012
by the above mentioned 2 contractors & availed the credit of service
tax on such mobilization advance.
2.1 Consequent to the audit for the period 2012-13 to 2014-15,
show cause notice dated 19.10.2015 was issued to the appellant
wherein the department raised the following demands:-
a) Availment and utilization of Cenvat credit on Service tax paid
on mobilization advance during the year 2010-11. Similarly in
some cases, Cenvat credit has been availed and utilized for
service tax on those input services which pertained upto June
2012 which resulted into inadmissible availment and utilization of
Cenvat credit of Rs. 91,01,452/-
b) Scrutiny of service tax return for the period from 2012-13 to
2014-15 revealed that the appellant had shown an amount of Rs.
1,33,26,258/- as any other credit taken on account of "Reversal
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Service Tax Appeal No. 51135 of 2017
of service tax amount paid in earlier month in respect of booking
cancelled in this tax period" which resulted in huge accumulation
of Cenvat Credit in their books of accounts which is irregular.
2.2 The appellant filed a reply to the show cause notice dated
25.11.2015and denied all the allegation made therein. Thereafter, the Commissioner vide Order-in-Original dated 23.03.2017 confirmed the demand of Rs. 91,01,452/- along with interest and penalty and dropped the other demand. Aggrieved by the confirmation of demand, the appellant has filed the present appeal.
3. Nobody appeared on behalf of the appellant. However, we take note of the appellant's submission in the grounds of appeal. The appellant has submitted that there is no power to conduct audit under rule 5A of Service Tax Rules, 1994 and Chapter V of Finance Act, 1994 does not grant any power to the officers authorized by Comptroller and Auditor General (hereinafter referred to as "CAG") to conduct audit. The Hon'ble High Court of Delhi in case of M/s Mega Cabs (P.) Ltd v. Union of India [2016] 6 TMI 163 (Delhi) [W.P. (C) 5192 of 2015, C.M. No. 9417/2015) held that stay has been granted on operation of this judgment. The appellant has further submitted that CAG Department is duty bound to give the reference to statutory provision mentioning reason for conducting said scrutiny and verification as a matter of principle of natural justice. To buttress the view taken, reliance was placed on the judgment of Hon'ble Apex Court in the case of Sahara India vs. CIT (2008) 14 SCC 151 in which it was held "that in any event, an audit, since it carries civil consequences, cannot be ordered without a notice issued to the assessee, indicating reasons for the audit." Reason for conducting the said scrutiny and verification is non 4 Service Tax Appeal No. 51135 of 2017 liquet, in the absence of reference to the particular clause of the statutory provision of the Act/Chapter V. said notice is contra legem. 3.1 The appellant contended that he had duly accounted for all transactions in his books of accounts as well as has discharged service tax liability on timely basis. There was no intent to evade payment of service tax. The authority issuing the show cause notice must be able to demonstrate intention to evade payment of Service Tax on the part of the assessee, i.e. a conscious act to evade tax, for instance, deliberate non- disclosure of some bills pertaining to any particular service rendered by the assessee or of the assessee withholds information in spite of requisition to provide the same, with intent of evading service tax. In support of his submission, the appellant has relied on the judgement in the case of Naresh Kumar & Co. (P) Ltd. V. Union of India (2015) 37 STR 451).
3.2 The appellant has further submitted that the impugned service remained subject to litigation from 2010 to 2017. Therefore, the extended period of limitation cannot be invoked due to confusion prevailing in the industry as well as judiciary during impugned period.
Maharashtra Chamber of Housing Industry and
another Versus Union of India and others-
Bombay HC
Suresh Kumar Bansal vs. Union of India (2016)
70-taxmann.com 55 (Delhi)-Delhi High Court
Retrospective amendment w.e.f. 01.07.2010
made in service tax law vide following Act 2017
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Service Tax Appeal No. 51135 of 2017
3.3 The appellant has also submitted that impugned service is eligible input service as per the definition given under Rule 2(l) of CENVAT Credit Rules, 2004. The department in the order-in-original dated 23.03.2017 has held that upto the period 30.06.2012, scope of definition of "Input Services" as enumerated under Rule 2(l) of Cenvat Credit Rules, 2004 did not cover the services specified under commercial or industrial construction services, Construction of complex services and works Contract Services so far as the same are used for construction of a building or Civil structure of a part thereof. For the period post 01.07.2012, the scope of input service definition excludes service portion in execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act in so far as they are used for construction or execution of a building or a civil structure or a part thereof. Perusal of the above provisions reveals that if works contract services or construction services are used for the provisions of one or more specified services, then CENVAT credit shall be available. In the present case, the appellant is in the business of providing 'Construction of Residential Complex' services which clearly falls under the ambit of clause (b) of section 66E of the Finance Act. The appellant has entered into the agreement with Mis Straight Edge Contracts Pvt. Ltd. And M/s Ajnara Infrastructure Pvt. Ltd for the construction of the multi-storeyed housing complex. The appellant has availed the 'works contract services' from M/s Straight Edge Contracts Pvt. Ltd and M/s Ajnara Infrastructure Pvt Ltd from July 2012 onwards for providing output services of 'construction of complex services' to its clients. Thus, in view of above, it is amply clear that services received by appellant 6 Service Tax Appeal No. 51135 of 2017 (works contract services) falls under the purview of input services and the department has grossly erred by taking into consideration that mobilization advances paid by the appellant for the purpose of construction would not be considered as input service. It has also been submitted that the closing balance of CENVAT Credit w.e.f. 01.04.2013 has always been higher than Rs. 91,01,452/-. Therefore, said credit has been availed only but not utilized, hence cannot be subject to interest under rule 14 of Cenvat Credit Rules, 2004.
4. Learned Authorized Representative for the Department reiterated the findings in the impugned order and submitted that the scope of definition of "input service" as enumerated under Rule 2(l) of Cenvat Credit Rules, 2004, does not cover the services specified under Commercial or Industrial Construction services, Construction of Complex services and Works Contract services so far as the same are used for construction of a building or a civil structure or a part thereof for the period upto 30.06.2012.
4.1 Further, the Learned AR submitted that for the period 01.07.2012 onwards, the scope of input service definition excludes service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act in so far as they are used for construction or execution of works contract of a building or a civil structure or a part thereof. Hence, the Constructions service as well as Work Contract Service has been tested as a declared service but the same has been specifically excluded as 'input service' as per Rule 2(1) of CENVAT credit Rules 2004. Hence the service provided by the contractors to the assessee 7 Service Tax Appeal No. 51135 of 2017 do not qualify as input service and is inadmissible for availment of Cenvat credit and the assessee is liable to deposit of Rs. 91,01,452/-.
5. We have heard the Ld. AR and perused the appeal paperbook. The facts of the case are that the appellant had given mobilisation advance to its contractors and Service Tax was paid on the same during the year 2010-11. They utilized the CENVAT credit of Service Tax paid on mobilization advance w.e.f. July, 2012 and utilized CENVAT credit of Service Tax on those input services which pertained upto June, 2012. The core issue for consideration before us is whether the confirmation of Cenvat credit taken on account of mobilization advance availed and debited w.e.f. July, 2012 of Rs. 91,01,452/-, paid during the year 2010-11, is correct or not.
5.1 We note that the primary submission of the appellant is that there is no power to conduct audit under rule 5A of Service Tax Rules, 1994 and Chapter V of Finance Act, 1994 does not grant any power to the officers authorized by Comptroller and Auditor General (hereinafter referred to as "CAG") to conduct audit. In this context, we observe that the Central Government Circular No. 181/7/2014-ST dated December 10, 2014 had clarified that Rule 5A(2) of the Service Tax Rules, inter alia, provides for scrutiny of records by an officer authorised by the Commissioner or the Audit Party deputed by the Commissioner or CAG and such scrutiny essentially constitutes Audit by the Audit Party consisting of the Departmental officers. It was further clarified that Rule 5A(2) of the Service Tax Rules has appropriate statutory backing for conducting Service Tax Audit by the Departmental officers by virtue of Section 94(2)(k) of the Finance 8 Service Tax Appeal No. 51135 of 2017 Act as amended by Section 114(J) of the Finance Act, 2014 w.e.f. August 6, 2014 which reads as under:
"(k) Imposition, on persons liable to pay service tax, for the proper levy and collection of tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified."
Furthermore, it was clarified that the expression "verified" used in Section 94(2)(k) of the Finance Act is of wide import and would include within its scope, Audit by the Departmental officers & C&AG, as the procedure prescribed for Audit is essentially a procedure for verification mandated in the Statute. It may also be noted here that on December 18, 2014, the Hon'ble Apex Court in the case of Union of India And Ors Vs. M/s Travelite (India) [2014 (12) TMI 1099 - SUPREME COURT] granted stay on the operation of the Hon'ble Delhi High Court judgment. In view of the same, we find no merit in the contention of the appellant.
5.2 It has been submitted by the appellant that they had availed the 'works contract services' for the construction of the multi-storeyed housing complex from M/s Straight Edge Contractors Pvt. Ltd. and M/s Ajnara Infrastructure Pvt. Ltd. from July 2012 onwards. This service was used for providing output services of 'Construction of Complex Services'. For the purpose of Construction, the appellant had paid Mobilization Advance of Rs. 15.618 Crores each to both the companies during the year 2010-11. They started claiming Cenvat credit on input services received, with effect from 1.7.2012. The mobilization advance was adjusted against the bills raised by the contractors w.e.f. 1.7.2012 and such services of 'Works Contractor', received by the assessee, fall under the purview of input services defined under Rule 2(I) of CCR, 9 Service Tax Appeal No. 51135 of 2017 2004. We note that the admissibility of Cenvat credit on input services is governed by Rule 2(l) of Cenvat Credit Rules, 2004 to March 15 which read as under:
"Input service" means any service,-
(i) Used by a provider of output service for providing an output service; or
(ii) Used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes,-
(A) Services portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act in so far as they are used for-
(a) Construction or execution of works contract of a building or a civil structure or a part thereof; or
(b) Laying of foundation or making of structures for support of capital goods, 10 Service Tax Appeal No. 51135 of 2017 Except for the provision of one or more of the specified services;
or (B)..............................................................." 5.3 From the above statutory provisions, it is evident that the scope of definition of "input service" as enumerated under Rule 2(l) of Cenvat Credit Rules, 2004, does not cover the services specified under Commercial or Industrial Construction services, construction of Complex services and Works Contract services so far as the same are used for construction of a building or a civil structure or a part thereof for the period upto 30.06.2012. Further, we note that from 01.07.2012 onwards, the scope of input service definition excludes the service portion in the execution of a works contract and construction services, including service listed under clause (b) of section 66E of the Finance Act in so far as they are used for construction or execution of works contract of a building or a civil structure or a part thereof. In view of the aforementioned statutory provisions, we are of the opinion that the Commissioner was correct in holding that any service tax paid by the service providers on such mobilization advance received towards rendition of such construction services, would not qualify to be eligible as Cenvat credit, as the services so received are not eligible 'input services' in terms of the provisions of Rule 2(l) of Cenvat Credit Rules, 2004. In this context, we also note that the question of taxability on mobilization advances has been well settled and in the case of M/s GJF Construction Company Limited vs. CCE, Hyderabad and in the case of Thermax Instrumental Limited vs. CCE, the Tribunal held that mobilization advance received by the assessee is not chargeable to service tax, if it is in the nature of an advance. In view of the same, 11 Service Tax Appeal No. 51135 of 2017 we hold that the appellant was not entitled to take credit of service tax paid on such mobilisation advances. Consequently, we uphold the demand confirmed in the impugned order.
5.4 We now address the submissions of the appellant in respect of the confirmation of interest under Rule 14 of the Cenvat Credit Rules, 2004. In the instant case, we find that there was no service tax liability on such mobilisation advances. Therefore, the credit taken on such tax paid was not admissible. Rule 14 of CENVAT Credit Rules, 2004 provides for recovery of CENVAT Credit, which is reproduced as under:
"Where the CENVAT credit has been taken and utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of Sections 11A and 11AB of the Excise Act or Sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries".
5.5 We note that with effect from 01.07.2012, the rule was amended with the phrase 'taken and utilised wrongly'. In the present case, we note that the period under consideration is 2012-13 & 2013-14, wherein the majority of the period is covered by the amended Rule 14 of Cenvat Credit Rules, 2004. It has been stated in the grounds of appeal that the closing balance of Cenvat Credit as on 01.04.2013 was higher than Rs. 91,01,452/-It has been further stated that the Cenvat credit, if held to be incorrect, had merely been availed and not utilised. In this context, we note that the Hon'ble Karnataka High Court in the case of CCE vs. Bill Forge Private Limited [2012 (26) STR 204 (Kar)] held as under:
12
Service Tax Appeal No. 51135 of 2017 "19. A reading of the aforesaid provisions makes it very clear that the said provision is attracted where the Cenvat Credit has been taken or utilized wrongly or has been erroneously refunded.
In view of the aforesaid judgment of the Apex Court, the question of reading the word 'and' in place of 'or' would not arise. It is also to be noticed that in the aforesaid Rule, the word 'avail' is not used. The words used are 'taken' or 'utilized wrongly'. Further the said provision makes it clear that the interest shall be recovered in terms of Section 11A and 11B of the Act. (para 19) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
22. According to the Revenue, once tax is paid on input or input service or service rendered and a corresponding entry is made in the account books of the assessee, it amounts to taking the benefit of Cenvat credit. Therefore, interest is payable from that date, though, in fact by such entry the Revenue is not put to any loss at all. When once the wrong entry was pointed out, being convinced, the assessee has promptly reversed the entry. In other words, he did not take the advantage of wrong entry. He did not take the Cenvat credit or utilized the Cenvat Credit. It is in those circumstances the Tribunal was justified in holding that when the assessee has not taken the benefit of the Cenvat credit, there is no liability to pay interest. Before it can be taken, it had been reversed. In other words, once the entry was reversed, it is as if that the Cenvat credit was not available. Therefore, the said judgment of the Apex Court has no application to the facts of this case. It is only when the assessee had taken the credit, in other words by taking such credit, if he had not paid the duty which is legally due to the Government, the Government would have sustained loss to that extent. Then the liability to pay interest from the date the amount became due arises under Section 11AB, in order to compensate the Government which was deprived of the duty on the date it became due. Without the liability to pay duty, the liability to pay interest would not arise. The liability to pay interest would arise only when the duty is not paid on the due 13 Service Tax Appeal No. 51135 of 2017 date. If duty is not payable, the liability to pay interest would not arise."
(emphasis supplied) 5.6 We also note that the Hon'ble High Court has held that mere wrong availment of CENVAT Credit is different from CENVAT Credit that was wrongly taken or wrongly utilised. The word 'taken' as used in Rule 14 is considered on a different footing from the word 'availed'. In view of the submissions made that the appellant had balance of Cenvat Credit higher than Rs. 91,01,452/-, we hold that no interest is liable to be paid.
5.7 We now address the submissions with regard to the penalty imposed under Section 77 and 78 of the Finance Act, 1994. We note that the impugned order has imposed penalties under the aforesaid sections holding that the appellant had availed inadmissible credit which would not have come to light, had audit of the records had not been conducted by the Department. In this context, we note that the appellant was registered with the Revenue department and was paying Service Tax on various outputs services. The appellant was filing returns regularly. It is also on record that the appellant had cooperated with the Department and had submitted all information/documents were furnished during audit. We note that the Courts have consistently held that in such a situation, the facts are deemed to be in the knowledge of the Department, and the intent to evade has to be positive act to be established by the department. In this context, the relevant paras of the decision of the Tribunal in the case of Shriram Chits Pvt Ltd vs Commissioner of C.Ex & Cus & ST, Hyderabad [2023(69) GSTL 397(Tri.-Hyd)] is reproduced hereinafter:- 14
Service Tax Appeal No. 51135 of 2017 "16.1. Let us look at the salient features in this regard vis-à-vis the settled position of law. The demand for the extended period can be issued and confirmed only in cases where the non-
payment of tax is by reason of fraud/collusion/wilful mis- statement/suppression of facts/contravention of any statutory provision with an intent to evade tax. In the present case, as noticed by us elsewhere in this Order, the enquiry into the activities of the appellant were carried out vide audit. The materials/documents submitted by the assessee in response were with the Revenue. However, with the same set of facts/background and based on the records maintained by the appellant, the demand alleging suppression of facts was issued in 2011. While we are aware that the relevant date for issue of demand is with reference to the periodical returns to be filed, the Department has to allege and establish with supporting evidence the existence of factors indicating wilful misstatement, suppression of facts, etc., which should be a positive act of the appellant. The particulars which form the basis of demand were all recorded and maintained in the books of the appellant." 5.8 We also take note of the decisions of the Principal Bench, New Delhi in the case of Amway India Enterprises Pvt Ltd., vs Commissioner of C.Ex, New Delhi [2017(3) GSTL 69(Tri.Del)] wherein it was held as follows:-
10. On a collective reading of the decisions cited by both the counsels, it is clear that the consistent position of law with regard to applicability of the proviso to Section 73(1)/Section 11A ibid has been that suppression cannot be established where material facts were within the knowledge of the Revenue. Accordingly, where there is no suppression, the pre-condition for applicability of proviso to Section 73(1) cannot be said to be met and hence, extended period of limitation contemplated therein cannot be invoked. On the contrary, where the ingredients for invoking proviso to Section 73(1) are established or admitted and thus the pre-conditions for applicability of such proviso stands satisfied, 15 Service Tax Appeal No. 51135 of 2017 and only in such cases, the period of 5 years is required to be computed from the date when the evasion came to the knowledge of the Department.
11. In the case in hand, since the modus operandi adopted by the appellant for selling its products were known to the Department and based on the information/documents furnished by the appellant in 2005, the show cause proceedings were initiated by the Department on 12-3-2009, seeking confirmation of service tax demand under 'Franchise Service' for the period October' 2003 to March' 2007, we are of the considered view that the proceedings are barred by limitation of time. Thus, the appeal should succeed on the ground of limitation."
5.9 In view of the above discussions, we find that there is no justification for invoking the extended period to impose penalty under Section 78. There is also no justification for imposing penalty under section 77 of the Finance Act.
6. Accordingly, we modify the impugned order to the extent indicated above. We allow the appeal partially to the extent indicated above.
(Order pronounced in the open Court on 06.09.2024) (BINU TAMTA) MEMBER (JUDICIAL) (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) G.Y.