Madras High Court
Commissioner Of Centeral Excise vs Customs on 18 September, 2018
Author: Subramonium Prasad
Bench: S.Manikumar, Subramonium Prasad
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 20.07.2018
Pronounced on : 18.09.2018
CORAM :
THE HONOURABLE MR.JUSTICE S.MANIKUMAR
AND
THE HONOURABLE MR.JUSTICE SUBRAMONIUM PRASAD
C.M.A.No. 1356 of 2016
Commissioner of Centeral Excise,
Puducherry Commissionerate,
Goubert Avenue, Beach Road,
Puducherry – 605 001. ... Appellant
Vs.
1.Customs, Excise and Service
Tax Appellate Tribunal,
South Zonal Bench,
Chennai – 600 006.
2.M/s. Kavi Contractors,
Moopanar Thotam,
Kirumambakkam Post,
Bahour Commune,
Puducherry. ... Respondents
Prayer : This Civil Miscellaneous appeal is filed under section 35 G of
Centeral Excise Act, 1944, against the impugned final order No.41325 of
2015 dated 01.10.2015 passed by the Honourable Tribunal in so far as it
relates to the second respondent.
http://www.judis.nic.in For Appellant : Mr.V.Sundereshwaran
For Respondents : Ms.Swetagirdhar
for M/s.V.Lakshmi kumaran
2
for R2
: R1- Tribunal
JUDGMENT
SUBRAMONIUM PRASAD.J. The instant appeal directed againt the impugned final order No.41325 of 2015 in ST/41837/2014-SM, dated 01.10.2015 passed by the Customs, Excise and Service Tax Appellate Tribunal,South Zonal Bench, Chennai – 600 006.
2.Respondent No.2, Kavi Contractors are engaged in providing “Manpower Recruitment & Supply Agency Services”. It was found that respondent No.2, had not registered itself with the department for rendering their service or paid service tax. The Manpower Recruitment & Supply Agency is a taxable service under Section 65(68) of the Finance Act, 1994. Summons were isssued by respondent No.2 to appear with the requisited documents.
3. On scrutining the documents it was found that the agreement entered into between respondent No.2 and M/s.Emox Device Compamy to whom services were being rendered by respondent No.2 was for supply of manpower came within the ambit of “Manpower Recruitment & Supply Agency” http://www.judis.nic.in defined under Section 65(68) of the Finance Act 1994 on which service was leviable with effect from 16.06.2005. 3
"68. manpower recuritment or supply agency" menas any commercial concern engaged in providing any service, directly or inderectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to a client;".
4.Show cause notice dated 13.08.2010 was issued by the Office of the Commissiner, Centeral Excise,Puducherry Commissionerate, Goubert Avenue, Beach Road, Puducherry – 605 001 as to why:-
"a. An amount of Rs.34,94,061/- (Rupees Thirty four lakhs ninety four thousand sixty one only), being the Service Tax including Edu.Cess & SHE Cess payable the taxable services rendered by them as "Man Power Supply Agnecy" to M/s. Mox Device Co., Kattukuppam, Puducherry for the period from June 2005 November 2009 should not be demanded under provisio to Section 73(1) of the Finance Act 1994;
b.Interest at the appropriate rates should not be demanded under Section 75 of the Finance Act 1994 as amended for delayed payment of SErvice Tax;
c.Penalty under Section 76 of the Finance Act, 1994 as amended should not be imposed on them for the failure to lpay Service Tax at approapriatae rates, in such manner and within the period as prescribed, on providing the taxable service of "Manpower Recruitment and Supply Agnency's ".
d.Penalty under Section 77 of the Finance Act, 1994 as amended should not be imposed on them for non-filing of returns as per the provisions of Section 70 of the Finance Act, 1994 and for non-registration under Section 69 of the Finance act, 1994;
http://www.judis.nic.in e. Penalty under Section 78 of the Finance Act, 1994 as amended should not be imposed on them in as much as they 4 have suppressed the facts with wilful intent to evade payment of Service Tax."
5.Another show cause notice dated 04.04.2011 was issued by the Office of the Commissiner, Centeral Excise,Puducherry Commissionerate, Goubert Avenue, Beach Road, Puducherry – 605 001 for non payment of Service Tax from December 2009 to June 2010. Para 8 of the show cause notice reads as under:-
"8.Now, therefore, M/s. Kavi Contractors are required to show cause to the joint Commissioner / Additional Commissioner of Central Excise, No.1, Goubert Avenue, Puducherry within 30 days from the date of receipt of this notice as to why:-
a.An amount of Rs.6,75,974/- (Service Tax - Rs.6,56,285/- , Edu.Cess-Rs.13,126/- & SHE- Rs.6,563/-) [Rupees Six Lakhs Seventy five Thousand Nine hundred and Seventy four only] on the taxable services rendered by them under the category of "
Manpower Supply Agency Services" to M/s. E-Mox Device Co., Kattukuppam, Puducherry for the period from December 2009 to June 2010 should not be demanded under Section 73(1) of the Finance Act, 1994;
b.Interest at the appropriate rates should not be recovered from them under Section 75 of the Finance Act,1994 as amended for delayed payment of Service Tax;
c.Penalty under Section 76 of the Finance Act, 1994 as amended should not be imposed on them for failing to pay Service Tax at appropriate rates, in such manner and within http://www.judis.nic.in the period as prescribed, for providing the taxable service under "Manpower Recruitment and Supply Agnency's Service".
d.Penalty under Section 77 of the Finance Act,1994 as 5 amended should not be imposed on them for non-finling of returns as per the provisions of Section 70 of the Finance Act, 1994 and failed to obtain registration under Section 69 of the Finance Act, 1994;"
6. Respondent No.2 gave a reply on 09.10.2010 and contended that they have entered into an agreement with M/s. Emox Device Compamy (EMD in short) to supply manpower for packing, gardening, cleaning, materials movements from trucks to stores, stores to production area and finished goods from finished goods area to vehicles and therefore, the activity carried out by them should be considered as one amounting to manufacture which is excluded from levy of service tax. It was stated that under the terms of the agreement they have to provide these men who were technically competent to carry out the various activities and that therefore the activities carried out by them would come within the definition of manufacture.
7.The Additional Commissioner after considering the reply confirmed the demand of service tax and also imposed penalty leviable under the Finance Act, 1994. The relevant portion of the order reads as under:-
“I confirm the demand of Service Tax of Rs.34,94,061/- (Rupess Thirty four lakhs ninety four thousand and sixty one http://www.judis.nic.in only) including Education and Secondary and Higher Education Cess, demanded in the SCN.No.60/2010 dated 13.08.10 and 6 Rs.6,75,974/- demanded in the SCN.No.18/2011 dated 04.04.2011 under Section 73(2) of the Finance Act,1994.
I order the recovery of interest at the appropriate rates under Section 75 of the Finance Act 1994 on the above said amount.
I impose a penalty of Rs.34,94,061/- under Section 78 of the Finance Act 1994 in respect of SCN.No.60/2010 dated 13.08.2010.
Provided that where such Service Tax as determined under sub-section (2) of Section 73, and the interest payable thereon under Section 75, is paid within thirty days from the date of communication of order of the Central Excise Officer determininig such Service Tax, the amount of penalty liable to be paid by such person under this section shall be twenty-five percent of the Service Tax so determined.
Provided further that the benefit of reduced penalty under the first proviso shall be available only if the amount of penalty so determined has also been paid within the period of thrity days referred to in that proviso.
I impose a penalty for the non payment of service tax of Rs.6,75,974/- demanded under SCN.No.18/2011 dated 04.04.2011, at Rs.200 per day or 2% of such tax per month whichever is higher as per the provisions of Section 76 of Finance Act, 1994.
I impose a penalty of Rs.200/- for everyday during which such failure continues, starting with the first day after the due date, till the date of actual compliance under Section 77(1)(a) of Finance Act, 1994.
I impose a penalty of Rs.5000/- (Rupees Five Thousand http://www.judis.nic.in only) under Section 77(2) of the Finance Act, 1994.“ 7
8. The respondent No.2 filed an appeal before the Commissioner (appeals). The appellate authority after examining the agreements held that the respondent No.2 had supplied manpower and are bound to pay service tax on the value of service rendered by them, under the appellant authority found that the amount of Service Tax has to be calculated fresh since the Service Tax had not been specifically shown in the bill. The appellate authority held as under:-
“The next contention of the appellants is that the amount paid by the service receiver should be considered as cum-tax payment and service tax shold be calculated accordingly. Accoring to Section 12A of the Central Excise Act,1944 which has been made applicable to service tax mattters by virtue of Section 83 of the Finance Act,1994, the amount of service tax should be shown separately in all the documents relating to assessment, bills, invoices, etc. In case the amount of service tax is not shown separately in the bill, the gross amount shown in the bill shall be taken as inclusive of service tax. This fact has been further validated after the insertion of Explanation 2 in Section 67 with effect from 10.09.2004. Thus, where in the bill, a service provider indicates only the gross amount charged which includes both value of taxable services and the service tax payable thereon, the value off the taxable service shall be such amount as with addition of tax payable is equal to the gross amount indicated in the bill. In other words, the value of taxable service will be determined with the help of back calculations as is done in the case of cum-tax price. In the present case, the appellants had stated that no service tax had been charged and http://www.judis.nic.in collected by them and this fact has not been refuted in the impugned order. In situations where service tax was not 8 collected separately, the gross amount had to be adopted to quantify the tax liability treating it as value of taxable service plus service tax payable.”
9. The appellate authority therefore held that, “From the foregoing, I conclude that the appellants would be entitled for the cum-tax benefit, but subject to the verification of the factts as to whether the service tax was claimed/collected separately from the service receiver. If so collected separately, such benefit of cum-tax is not warranted. The appellants arre directed to produce all relevant documents to the respondents in order to enable them to conduct proper verification and the amounts may also be re- quantified by the appellants which in turn may be verified by the respondents and the relief is directed to be granted to the balance amount of service tax subject to verification of the facts based on the documents.”
10. The appellate authority however set aside the order imposing penalty by invoking Section 80 of the Finance Act, 1994. The appellate authority held that, there was no mala fide intention on the part of the respondent No.2 herein not to pay Service Tax. The appellate authority held that, since the respondent No.2 herein (appellant in appeal) had paid Service Tax, during the pendency of the proceeding. It would constitute a mitigating circumstances for invoking the provision of Section 80 of Finance Act, 1994. The appellate authority waived the penalty imposed under http://www.judis.nic.in Sections 76,77 and 78 of the Finance Act, 1994. 9
11. The department filed an appeal before the Customs Excise and Service Tax Appellate Tribunal in final order No.41325 – 41327 of 2015. The Tribunal affirmed an order of the appellate authority by observing as under:-
“4. Perusal of the show-cause notice in these cases shows that, it was not mere supply of labour was the activity of the respondent. But was also obbliged to carry out other activity of unloading of material to store/production area and pack the same.
5. None of the authorities have examined the invoices of the respondent. Had there been examination of relevant evidence that could have enabled them to reach to a proper conclusion as to what was the service actually provided by the assessee. Whether mere supply of labour was the activity or that was followed by any further activity of unloading, staking and packing could have been examined which goes to the root of the matter.
6. For no well founded show-cause notice, there shall be waiver of penalty imposed under Section 76 and 78 of the Act.
But penalty imposed under Section 77(1) shall continue. To this extent, adjudication is restored modifying the order of learned Commissioner (Appeals).”
12. It is this order that is challenged in the present appeal on the following substantial questions of law.
" (i) Whether the reasoning of the Tribunal (para 5) to sustain the order of the Commissioner (Appeals) deleting the http://www.judis.nic.in penalty was justified when the Show casue notice was issued only upon the perusal of all records and Annexures-I more so in 10 view of the findings of the Commissioner (Appeals) (paras 8 to
10)
(ii) Whether the Tribunal was empowered to sustain the order of Commissioner (Appeals ) deleting penalty which is automataic in view of the specific finding given by the adjudicating authority in the show cause notice.
(iii) Whether in the facts and circumstances above, is the CESTAT correct delving into the issue of classification of the service provided by the second respondent when it was not the issue before it?
(iv) Whether in the facts and circumstances in the CESAT correct in waiving the penalties imposed under Section 78 & 76 of the Finance Act, 1994 holding that the show cause notice is not well founded?."
13. The short issue that arises for consideration is whether the authorities below could take recourse to Section 80 of the Finance Act 1994 in order to waive the penalty levied under Section 76,77,78 and 80 of the Finance Act 1994. Section 76,77,78 and 80 reads as under:-
"76. Penalty for failure to pay service tax Any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made thereunder, who fails to pay such tax, shall pay, in addition to paying such tax an interest on that tax amount in accordance with the provisions of section 75, a penalty which shall not be less than two hundred rupees [for every day during which such failure http://www.judis.nic.in continues] but which may entend to two hundred rupees for every day during which such failure continujes, so however, 11 that the penalty under this clause shall not exceed the amount of service tax that he failed to pay]
77.Penalty for contravention of any provision for which no penalty is provided Who ever contravenes any of the provisions of this Chapter or any rules made thereunder for which no penalty is separately provided in this Chapter, shall be liable to a penalty which may extend to five thousand rupees.]
78. Penalty for suppressing value of taxable service. – 2[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 thereunder with intent to evade payment of service tax, the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded:] 1[Provided that where such service tax as determined under sub-section (2) of section 73, and the interest payable thereon under section 75, is paid within thirty days from the date of communication of order of the 2[Central Excise Officer] determining such service tax, the amount of http://www.judis.nic.in penalty liable to be paid by such person under this section shall be twenty-five per cent. of the service tax so determined :
Provided further that the benefit of reduced penalty under the 12 first proviso shall be available only if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso : Provided also that where the service tax determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the service tax as reduced or increased, as the case may be, shall be taken into account : Provided also that in case where the service tax determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of service tax so increased, the interest payable thereon and twenty-five per cent. of the consequential increase of penalty have also been paid within thirty days of communication of the order by which such increase in service tax takes effect. Explanation. - For the removal of doubts, it is hereby declared that - (1) the provisions of this section shall also apply to cases in which the order determining the service tax under sub- section (2) of section 73 relates to notices issued prior to the day on which the Finance Bill, 2003 receives the assent of the President; (2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.]
79. Penalty for failure to comply with notice:-
80. Penalty not to be imposed in certain cases. – Notwithstanding anything contained in the provisions of section 76,1 [section 77 or section 78], no penalty shall be http://www.judis.nic.in imposable on the assessee for any failure referred to in said provisions, if the assessee proves that there was reasonable cause for the said failure."13
14. Heard Mr.V.Sundereshwaran, learned counsel appearing for the appellant and Ms.Swetagirdhar, learned counsel appearing for the second respondent.
15. The respondent No.2 has supplied manpower. The personnel gave by respondent No.2 were engaed in the activities of packing, gardening, cleaning, material movements from truck to stores, stores to production area and finished goods area to the vehicles. It is therefore contended by respondent No.2 that, since the nature of work conducted by the personnel supplied by the respondent No.2 would come within the definition of manufacture, the services provided of the respondent No.2 would also come within the said of manufacture.
16. The show-cause notice extracts cerrtain portion of the agreement entered with by respondent No.2. The said portion which has been extracted has not been refuted. They read as under:-
" That the contractor shall
(i) provide adequate men and personal for duty...,
(ii) provide such adequate number of men and personnel...,
(iii) comply with all the statutory requirements concerning the conditions of service and wages..., http://www.judis.nic.in (iv) agrees to provide wherever applicable and needed at his cost, uniforms, coats and shoes to the workers engaged by him.., 14
(v) be wholly responsible for the overall safety of the workmen..,
(vi) indemnify and keep the company indemnified against acts or omission or negligence, dishonesty or misconduct of the men engaged..,
(vii) will at all times indemnify the company against any claim which could arise under Workmen Compensation Act, 1953..,
(viii) in the event of Contract Labour (Regulation and Abolition) Act, 1970 being applicable... forthwith take out necessary licence...,
(ix) discharge all liabilities like salaries, wages and other statutory obligation in respect of the person engaged by the contractor..,
(x) for the purpose of ESI & PF, submit the details of Wages by him to his employees..,
(xi) that this agreement will cease to be in force if the Government issues any notification proposing prohibition of employment of Contract labour under the Contractor Labour (Regulation & Abolition ) Act, 1970 or any other Act prohibiting engagement of Contract Labour...,"
17. Further the assessing authority after perusing the agreement has also extracted the obligations of respondent No.2 of the agreement which reads as under:-
"(i) To provide adeququate men and personnel for duty required for running the unit and also to provide list of such persons employed.
(ii) To comply statutory requirements concerning the http://www.judis.nic.in conditions of service and wages (minimus of Rs.66/-) and shall intimate the Company for the Company's statutory 15 responsiblities and liablitities if any, the details of wages paid by the contractor.
(iii) To provide suitable uniforms, coats and shoes to the workers engaged and claim such expenses from the company.
(iv) To submit details of wages paid by the to their employeees including overtime so as to enable the company to make its own calculation regarding PF and ESI contributions and
(v) Thal all liablities like salaries, wages, and othe statutory obligation in respect of the personsl engaged by the Contractor shall be borne by the Company."
18. A perusal of the show-cause notice and the assessment order shows that the agreement is one of providing manpower by respondent No.2. The personnel who were deputed were technically competent to carry out various activities in connection with manufacture of Mosquito destroyer and they have carried out the activities like loading, unloading, civil work, house keeping, garderning and other manual works. Respondent No.2 has obtained a license under Contract Labour (Regularization of Appeals) Act 1970. The question which arises is just because the personnel supplied by the respondent No.2 for conducting certain activities which come within the ambit of term “Process” then would that services of providing personnel would also come within the definition of “Process” so as to come within the definition of manufacture under Section 2(f) of Central Excise Act and thereby exempted from the levy of Service Tax?. http://www.judis.nic.in
19. The supply of manpower cannot be said to be process which 16 directly related to actual production. There is no inter connection between supply of labour and the manufacture by the service recepient. Manufacture is defined under Section 2(f) of the Central Excise Act,1944 which reads as under:-
" 2(f) "manufacture" includes any process,-
(i) incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the Section or Chapter Notes of the First Schedule to the Central Excise Tariff act, 1985 ( 5 of 1986) as amounting to manufacture; or
(iii) Which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alternation of retail sale price on it or adoption of any other treatement on the goods to render the product marketable to the consumer, and the word " manufacture" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacutre on his own account;"
20. A process is a manufacturing process that it brings out a complete transformation for the whole components so as to produce a commercial diffferent article of commodity. Though it is well settled that the process itself may consist of several processes which may or may not bring http://www.judis.nic.in about any agency at intermediate stage, but the activities or the operation may be so integrally connected with the final result is the 17 production of a commercial diffferent article.
21. A perusal of the records would show the respondent No.2 was obliged to submit the details of the wages paid by them to their employees. They were also required to provide the details of the Provident Fund, ESI contributions, etc. This was for the payment by the service recipient. The respondent No.2 was therefore only to provide manpower for which they were to be paid by the service recepient. It may be that the requirement was for a particular type of personnel and that were to perform particular kind of work. When the definition is clear and unambiguous, ignorance of law cannot be an excuse and the plea of genuine mistake in interpretation cannot hold good. The Tribunal with respect, has erred in coming to the conclusion that “it was not mere supply of labour was activity of the respondent but was also obliged to carryout other activity of unloading material to store/production area and packing the same”. The finding of the Tribunal is contrary to the definition. A manpower recruitment or supply agency is a commercial concern engaged in providing any service directly or indirectly in any manner for recruitment or supply of manpower temporarily or otherwise to a client. What the manpower supplied would do, will not alter the nature of services provided by a service provider and hence the services provided by the respondent No.2 cannot come within the definition of manufacture.
http://www.judis.nic.in
22. To invoke Section 80, the service provider must show reasonable cause for failure to pay Service Tax. Unless and until the reasonable cause 18 is shown, penalty levied under Section 76 and 78 cannnot be exempted. The respondent No.2 has not shown any reasonable cause as to why Section 80 of the Finance Act, 1999 should not be invoked. As discussed, the excuse offered is only a complete afterthought and as stated earlier, a lame excuse. The appellate authority and Tribunal have completely errred in removing the imposition of penalty.
23. Supply of manpower cannot be mean to be a operation or activity in relation to manufacture. The mistake of interpretation cannot be accepted and cannot be termed as “Reasonable Cause” for not paying Service Tax. The order of the Tribunal and the appellate authority are set aside and the order of the assessing authority is restored. The appeal is allowed. No costs.
[S.M.K.J,] [S.P.J.,]
18.09.2018
gsp
Index : Yes
Internet : Yes
Speaking/ Non Speaking Order
To
Customs, Excise and Service
Tax Appellate Tribunal,
http://www.judis.nic.in
South Zonal Bench,
Chennai – 600 006.
19
S.MANIKUMAR, J.
and
SUBRAMONIUM PRASAD, J.
gsp
Pre-Delivery Judgment made in
C.M.A.No.1356 of 2016
18.09.2018
http://www.judis.nic.in