Custom, Excise & Service Tax Tribunal
Kakinada Seaports Ltd vs Commissioner Of Central Excise, ... on 1 June, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: ST/22657/2014-DB [Arising out of Order-in-Original No. VIZ-EXCUS-002-COM-015-14-15 dated 30/06/2014 passed by Commissioner Of Central Excise, Customs and Service Tax , VISAKHAPATNAM-II ] For approval and signature: HON'BLE SMT. ARCHANA WADHWA, JUDICIAL MEMBER HON'BLE SHRI B.S.V.MURTHY, 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? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Kakinada Seaports Ltd 2nd Floor, Port Admin Building Beach Road KAKINADA - 533007 AP Appellant(s) Versus Commissioner of Central Excise, Service Tax and Customs Visakhapatnam-II CENTRAL EXCISE BUILDING, PORT AREA, VISAKHAPATNAM, - 530035 ANDHRA PRADESH Respondent(s)
Appearance:
Mr. V. RAVINDRAN, Advocate 3/76, ABIRAMAPURAM 4TH STREET CHENNAI -600018 For the Appellant Mr. Pakshi Rajan, Addl. Commissioner (AR) For the Respondent Date of Hearing: 25/03/2015 & 26/03/2015 Date of Decision:
01/06/2015 CORAM:
HON'BLE SMT. ARCHANA WADHWA, JUDICIAL MEMBER HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER Final Order No. 21114 / 2015 Per : B.S.V.MURTHY The appellant is engaged in providing port services in Kakinada Port which comes within the meaning of other port as per clause 76 of Section 65 of Finance Act, 1964. In fact the appellant-company was established for the purpose of rendering the operations of Kakinada Port only.
2. After the culmination of proceedings initiated against the appellants, on verification of accounts of the assessee, demand for service tax of Rs.5,88,35,509/- with interest; demand of CENVAT credit of Rs.7,54,47,488/- and Rs.15,43,191/- being the ineligible credit with interest has been confirmed. Further penalty was also imposed on the appellant. Period involved is from July 2012 to March 2013.
3. After hearing both sides in detail, we consider it appropriate that we discuss each issue in relation to the different demands and give the conclusion under that particular issue.
4. Service tax demand of Rs.5,88,35,509/-: According to the agreement signed between Government of Andhra Pradesh (GOAP) dated 19.3.1999 with the appellants, appellant became a concessionaire for four shore connected berths at Kakinada Port and the revenue was to be shared between GOAP and the appellants. According to Clause (3) of the agreement, appellants were given permission to build and operate existing berths as well as develop and operate additional berths, to perform related operational, maintenance and management of common facilities. Clause 2.25 of the agreement defines premises given on lease which includes land, all structures and facilities constructed, land reclaimed by the appellant and all facilities and structures constructed or provided by the appellants, etc. The appellants collect the revenue for the port services rendered by them and handover the share of the GOAP. There is no dispute on the fact nor is there any finding to the contrary that GOAP has discharged service tax liability on the amount received by them. However, the demand has arisen because the Revenue has taken a stand that appellant should pay service tax in terms of Notification No.30/2012-ST under reverse charge mechanism. The demand has been made treating the service as Business Support Service under Section 65(104c) of the Finance Act, 1994 and Section 65(105zzzq).
4.1 First submission on behalf of the appellant was that during the period of dispute 1.7.2012 to 31.3.2013, Section 65 ceased to exist/apply vide Notification No.12/2012-ST dated 5.6.2012. Therefore there was no such service as Business Support Service from 1.7.2012. It was submitted that the demand itself cannot be sustained having been made considering the service as classifiable under Business Support Service. However, on going through the impugned order and the show-cause notice, we find that the show-cause notice took note of the fact that the definition of service underwent a change and also took note of the fact that Section 65B(49) defines the service as any activity carried out by a person for consideration and includes a declared service. The grievance of the appellant is that definition of Business Support Service under Section 65B(49) of Finance Act has not been referred to either in the show-cause notice or in the impugned order. On going through the show-cause notice and the order-in-original, it is seen that while both the documents take note of the fact that there was introduction of negative list from July 2012 and Notification providing for reverse charge mechanism in respect of transactions with Government was effective from 1.7.2012, unfortunately in both show-cause notice as well as in Order-in-Original, the fact that the definition of Service under Section 65 was no longer valid was not at all taken note. It is also noticed that in reply to show-cause notice this issue was raised by the appellants and was taken note of in paragraph 6.9 and 6.10 of the order-in-original. Nevertheless, while considering the issue, there is no discussion on this aspect. In para 6.11 of the order, the appellants submission about Section 65B which refers to support service was also not taken note of and their submission that this aspect was not mentioned in the show-cause notice was also not taken note of. Under these circumstances, since the definition of the service was not applicable after 1.7.2012, it is the submission of the appellant that entire demand cannot be sustained.
4.2 Prima facie, we find that this is so. Nevertheless the fact remains that in the show-cause notice the introduction of negative list, Notification No.30/2012-ST dated 20.6.2012 introducing reverse charge mechanism were all mentioned. Moreover, the definition of support service and the definition of Business Support Service prior to 1.7.2012 covered the activity of the appellants. Both the definitions are reproduced for better appreciation.
Support Services of Business or Commerce means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
Explanation For the purposes of this clause, the expression infrastructural support services includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;
Section 105(zzzq) defines taxable service as taxable service provided or to be provided to any person, by any other person, in relation to support services of business or commerce, in any manner;
The definition of support services as per Section 65B(49) reads as under:
(49) Support services means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entitles carryout in ordinary course of operations themselves but obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract renting out immovable property, security, testing and analysis. 4.3 In this case, it is the case of the Revenue that GOAP is providing infrastructural support to the appellant. As per the agreement between GOAP and the appellant, the existing facilities in Kakinada port along with all the constructions, etc., were handed over to the appellant for operation of the port shows that, infrastructural support was provided by GOAP. Therefore under both the definition the service is covered. Under these circumstances, in our opinion, on a technical ground that the specific provision was not quoted, it would not be appropriate to set aside the entire demand especially in view of the fact that reverse charge mechanism and introduction of negative list were mentioned and in service tax matters it is the assessee who is required to undertake the activity of assessment and there is no system of scrutiny of the assessment and confirmation of the correctness by the Revenue or the officers. In such a situation, it cannot be said that assessee was not aware of the classification of the service and the consequences of introduction of negative list and introduction of new definitions, etc. The very fact that the appellant defended the case by stating that Section 65 was not applicable and the definition of support service had undergone a change would show that the appellants were not prejudiced by the omission in the show-cause notice and the confirmation of demand by the Commissioner is on the ground that service is covered by the definition as we have mentioned that GOAP has provided infrastructural support. As regards this demand, it has arisen because of the introduction of reverse charge mechanism w.e.f. 1.7.2012 and but for this, the demand itself would not have arisen since payment of service tax by GOAP would be in accordance with law.
4.4 The second ground taken by the appellant is that on the same service, tax cannot be demanded twice. In this case GOAP has paid the tax and in fact tax has been reimbursed by the appellant. Apparently in the initial period of introduction of negative list and the amendment of Finance Act, both GOAP and the appellant did not take note of the provisions and consequently GOAP continued to pay tax. The question that arises is whether in a situation like this where service provider viz., GOAP has paid the tax even though not liable to pay the same can again be demanded from the appellant. Since taxable event is one and the same, there cannot be levy of service tax twice. Therefore we find ourselves in agreement with the submission that once the service provider has paid the tax under reverse charge mechanism, service tax cannot be demanded from the appellant. Nevertheless it has to be appreciated that this is a mistake on the part of the appellant since they were liable to pay the tax but did not pay. However, remedy would lie in imposition of penalty for contravention of relevant provisions but not recovery of service tax. In this case penalty has been imposed on the ground that service tax was not paid and not for mere contravention of provisions.
4.5 Under the circumstances discussed above, we find that the demand for service tax of more than Rs.5.88 crores cannot be sustained.
5. Demand for CENVAT credit of service tax of Rs.7,54,47,488/-: The amount of CENVAT credit demanded represents the service tax amount paid by GOAP without taking note of the fact that appellant was liable to pay the tax under reverse charge mechanism. If the appellant were to pay the tax, the appellant would have been eligible for the CENVAT credit on the basis of challan since the credit is admissible. It has been denied on the ground that acknowledgement of GOAP for payment of service tax is not a proper document. In this case, there is no dispute that appellants had paid the service tax to GOAP and credit has been taken not merely on the basis of acknowledgement of GOAP for the cheques issued by the appellant but primarily based on the challans. It was submitted that in the counterfoil, in the remarks column it has been specifically mentioned that service tax received from KSPL on revenue share, thereby giving clear cross reference of the input service. The counterfoil has been rejected on the ground that service tax payment was made by the port officer and the port officer is not the input service provider of the appellant.
5.1 The appellant submitted that under Rule 9 of CENVAT Credit Rules, 2004, challan is specified as one of the documents. In this case challan provides complete details of service tax jurisdiction, assessee code, address and all other details as prescribed by the provisions of law. The Commissioner has disallowed only on the ground that the port officer did not issue any invoice or bill in the name of the appellant but had issued only an acknowledgement and acknowledgement is not a proper document. There is no discussion at all about the challan and there are no observations that there were deficiencies in the challans. We take note of the fact that in the reverse charge mechanism was to be implemented by both sides, the credit would have been taken only on the basis of challan and in such a case payment would have been made by the appellant themselves. Therefore if the challan contains all the details which are mentioned by the appellant before us, in our opinion, credit is admissible. Therefore the demand for more than Rs.7.54 crores being the CENVAT credit cannot be sustained.
6. Demand of CENVAT credit of Rs.6,60,545/-: This amount relates to the credit taken on health service, insurance and motor vehicles, rent-a-cab service, works contract service and services in relation to 7th berth.
6.1 It was submitted that health care with ambulance facility would be available within the port area and this being a mandatory requirement, the appellant tied up with Apollo Hospital, Kakinada. We find that provision of health care within the port area where accident can take place cannot be said to be having no nexus to the port service, therefore the credit of Rs.83,430/- is admissible.
6.2 As regards insurance, it is submitted that it is a mandatory obligation to insure all vehicles used within the port area in relation to port services. We agree that credit is admissible and therefore held that amount of Rs.29,558/- demanded on this ground cannot be sustained.
6.3 As regards rent-a-cab service, it was submitted that it was not for personal use but for movement of authorities in providing port service. In the absence of any specific finding to the contrary, credit of Rs.18,688/- has to be held as eligible.
7. It was submitted that an amount of Rs.2,82,038/- as CENVAT credit has been denied on the ground that it was taken on construction service. However, it was submitted that it related to erection and installation service. It was submitted that findings are contrary to the facts. The Commissioner has disallowed the credit on the ground that works contract service is excluded from the input service definition. However, it is noticed that the input service definition excluded service portion in the execution of works contract and construction services including service listed in Clause (b) of Section 66E of Finance Act, (hereinafter referred as specified service) insofar as they are used for (a) construction or execution of works contract of a building or a civil structure or a part thereafter; or (b) laying of foundation or making of structures for support of capital goods. Definition includes works contract in relation to construction activity and not in relation to erection and installation activity. Therefore we find appellant is eligible for the benefit.
8. An amount of Rs.2,46,800/- has been denied on the ground that the geotechnical investigation services were provided in relation to 7th berth and 7th berth was yet to come into existence. We are unable to accept this stand taken by the Revenue. While providing port services, if the port services expand, naturally such services have to be taken and the geotechnical investigations may result in a situation that the proposal for 7th berth may not be found feasible on the ground of technicality. In such a situation, question arises whether it can be related to port service or not. In our opinion, it may not be appropriate to deny. In this case, it is not the case of the Revenue that 7th berth is not going to come into existence. Appellants claim is that in respect of capital goods credit is allowed as soon as the same are received and there is no need for an assessee to wait till they are erected, installed and commissioned. Their claim for credit is similar to the one on capital goods. We find some substance in this regard. If 7th berth does not become operational, naturally the issue as to whether CENVAT credit is admissible when the project is dropped would arise. At this stage, it may be premature to deny the credit.
9. Denial of CENVAT credit of Rs.8,82,646/-. The amount of credit has been denied on the ground that L & T Ramboll Consulting Engineers who rendered the service were not liable to pay service tax in view of the exemption Notification No.38/2010-ST on 28.6.2010.
9.1 It was submitted that the Notification was no longer in existence when the appellants availed the credit; the activities of the service provider were apparently found to be not eligible for exemption and thirdly for the appellant it was an input service.
9.2 We find that it is settled law that whether a service was liable to tax or not or is eligible for exemption cannot be determined by the receiver of service. What is required to be examined at the receivers end is only the question as to whether the receiver of service had received the service; utilized the service for providing output service; had maintained proper records and the documents were in accordance with law and had paid the tax.
9.3 Here the CENVAT credit is proposed to be denied on the ground that the service provider was eligible for exemption. On this ground denial cannot be sustained.
10. The above observations would show that except for imposition of penalty for contravention of provisions by both the sides, no case is made out for Revenue on any other ground. In the absence of any imposition of penalty for contravention of specific provision in not making payment under reverse charge mechanism and having regard to the fact that it was only initial period of introduction of new provisions of law, a lenient view has to be taken under Section 80 of Finance Act. This issue also goes in favour of the appellant.
11. In view of the above discussion, the appeal is allowed with consequential relief, if any, to the appellants.
(Order pronounced in open court on 01/06/2015.) B.S.V.MURTHY TECHNICAL MEMBER ARCHANA WADHWA JUDICIAL MEMBER rv 10 1