Custom, Excise & Service Tax Tribunal
Satake India Engineering Pvt. Ltd vs Commissioner (Adjudication), C.Ex. & ... on 5 February, 2014
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Block No.2, R.K.Puram, New Delhi
COURT-I
Date of hearing/decision: 5.2.2014
Stay Application No.50457 of 2014 and
Service Tax Appeal No.50337 of 2014
Arising out of the order in original No.13-14/ST/CB/CCE/ADJ/2013 dated 31.7.2013 passed by the Commissioner (Adjudication), Central Excise, New Delhi.
For approval and signature:
Honble Mr. Justice G. Raghuram, President
Honble Mr. Rakesh Kumar, Technical Member
1
Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982?
2
Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3
Whether their Lordships wish to see the fair copy of the Order?
4
Whether Order is to be circulated to the Departmental authorities?
Satake India Engineering Pvt. Ltd. .. Appellant
Vs.
Commissioner (Adjudication), C.Ex. & S.T, Delhi . Respondent
Appearance:
Present Shri J.K. Mittal , Advocate with Shri Nitesh Garg, ACA for appellants Present Shri Amresh Jain, A.R. for the respondent Coram: Honble Mr. Justice G. Raghuram, President Honble Mr. Rakesh Kumar, Technical Member Final Order No. 50409/2014 Per Justice G. Raghuram:
Heard the ld. Counsel Shri J.K. Mittal for the appellant and Shri Amresh Jain, ld. A.R. for Revenue.
2. This is an assessees appeal preferred against the adjudication order dated 31.7.2013 passed by the learned Commissioner, Central Excise (Adjudication), New Delhi I. This order is the culmination of two show cause notices dated 19.4.2010 and 19.10.2010, covering the period October 2008 to March 2009 and April 2009 to March 2010 respectively. The order confirmed service tax liability apart from interest and penalties for having provided Business Auxiliary Service; of Rs.39,13,729/- and Rs.1,00,31,640/-, under the respective show cause notices, in all of Rs.1,39,45,369/-; and Rs.3,41,508/- towards Management, Maintenance or Repair Service during April, 2009 to March 2010 (covered by the 2nd Show cause notice dated 19.10.2010).
3. Several contentions are urged to impeach the validity of the impugned order. Principally however, the challenge is on the ground that the order is perverse since the adjudicating authority failed to advert to, analyse and set out conclusions on specific defences urged by the appellant and those specified in its written submissions, filed in response to the two show cause notices and in the memorandum of written submissions dated 09.07.2013 filed during the adjudication process. This grievance is well founded and this is apparent on scrutiny of the material on record in the appeal. Since non-application of mind to the relevant facts and circumstances; and failure to set out the analysis and reasons the pleadings and contentions has introduced a fatal infirmity in the impugned order, we do not intend to proceed on an independent analyses of the transactions in issue, to consider whether these transactions authorize levy of service tax under the relevant taxable categories qua the relevant provisions of the Finance Act, 1994; despite invitation by Revenue to undertake an independent analysis of the transactions and relevant provisions of the Act, to record findings as to the appellants liability to tax.
4. The appellant company is a registrant under the Act, for providing the taxable Business Auxiliary Service (BAS); Management, Maintenance or Repair Service (MMR)l and Erection Commissioning or Installation Service (ECIS). Pursuant to audit of the assessee during 2009, covering the period 2006 to 2009, Revenue inferred that the appellant was providing BAS to its associated enterprises, namely, M/s Satake Corporation, Japan (SCJ) [the holding company] and M/s Satake International Bangkok Co. Ltd. (SIBCOL), a fellow subsidiary. Audit revealed that the appellant had remitted service tax under the taxable BAS till September 2008 but had discontinued remittance of service tax thereafter though it continued to provide the same service to its associated enterprises A show cause notice dated 19.4.2013 was therefore issued proposing levy of service tax for the period October 2008 to March 2009 for having provided BAS and MMR. 5. Under the second show cause notice dated 19.10.2010, apart from having provided the taxable BAS (during April 2009 to March 2010), the appellant is stated to have provided warranty support service along with components supplied by its associated enterprises, to customers under after-sales obligations of the associated enterprises; to have undertaken annual maintenance contract of these machines after expiry of the warranty period; and to have raised invoices for the AMCs locally; to have disclosed income on the AMCs on pro-rata basis, based on the contract period; to have remitted service tax on the total value of the AMC; on the consideration received for attending to complaints and charging for visits on per- call visit basis to customers not availing AMCs and to have remitted taxes on all considerations received.
6. In response to the two show cause notices, the appellant submitted its replies on 24.4.2010 and 24.1.2010 respectively. The appellant categorically asserted to have provided BAS during the period in issue but claimed that the consideration received therefor is not liable to tax, in view of the provisions of the Export of Services Rules , 2005 (the 2005 Rules). The appellant addressed a letter dated 21.5.2010 (prior to issuance of show cause notice) to Revenue (in response to Revenues etter dated 11.5.2010), classifying BAS provided by it between services provided within Indian territory and those provided outside the Indian territory, clearly setting out the gross consideration received under each of these categories, in a tabular format. Similar classification was claimed and set out for MMR services provided i.e. services provided within India and those provided outside Indian territory. In the second show cause notice dated 19.11.2010, in para 3.2 thereof, despite referring to the appellants letter dated 21.5.2010, in the tabular form set out, the total consideration received by the appellant under BAS is set out (i.e. consideration received for services provided within and outside India). Similarly, with respect to MMR, the show cause notice indicated that tax was remitted in respect of the consideration received on services provided within India but no tax was remitted on consideration received on this service provided outside India (a claim specifically asserted by the appellant. The appellants contention/claim on this (classification) aspect does not find a mention.
7. In reply to the second show cause notice 19.10.2010, the petitioner in its letter dated 25.11.2010 at paragraph B.2 clearly claimed that it was providing MMR both within India and outside India; and that while service tax was paid for services rendered within India, no service tax was payable for MMR services rendered outside the Indian territory and therefore no tax was paid on the latter component. The appellant also stated that Revenue had earlier accepted its contention regarding non-leviability of service tax on MMR service provided outside the India, while issuing an earlier show cause notice dated 19.04.2010 which was issued after audit of the appellants record; and that no reasons are set out now, for the demand of service tax for MMR service provided outside India. The appellant further stated that it received convertible foreign exchange in respect of MMR services rendered outside India and in the circumstances there was no liability to service tax. The appellants claim of immunity to levy of service tax in respect of MMR service provided outside India, based on provisions of the Export of Services Rules, 2005 is reiterated and decisions in support of its contention in this behalf were set out in the response to the show cause notice.
8. After submitting its reply dated 24.11.2010 to the second show cause notice, the appellant filed a memorandum of written submission on 09.07.2013. Paragraph 4 thereof specifically adverted to the decision of the full Bench of this Tribunal in Paul Merchants Ltd. vs. C.C.E., Chandigarh 2013 (29) STR 257, to buttress its claim that BAS and MMR services provided for the benefit of customers of associated enterprises, where the consideration therefor is received in convertible foreign exchange from abroad is not liable to service tax, on the basis of provisions of the 2005 Rules. Several other decisions to support the appellants claim for non-leviability of service tax either under BAS or MMR were also been clearly pleaded, in the written submissions. On 09.07.2013, the Commissioner (Adjudication) [the respondent herein] acknowledged receipt of the written submissions and this receipt also recorded the contention of the appellant that it was not liable to service tax on MMR services provided outside India.
9. While recording the defence submission, the adjudication order however does not advert to the memorandum of written submissions filed on 9.7.2013. It only acknowledges replies to the show cause notices, submitted on 17.6.2010 and 25.11.2010. Para 18 of the impugned order sets out the discussions and findings. Para 19 specifically adverts to the defence of the appellant with regard to non-liability to service tax for BAS provided to its associated enterprises on the basis of provisions of the 2005 Rules and that the appellant had relied on several judgments. There is however no analysis of any of the precedents. The Authority adverted to a Board Circular No.111/5/2009-ST, dated 24.2.2009 relied upon by the appellant for its claim that consideration received on BAS provided to its associated enterprises amounts to export of a taxable service and the consideration received therefor in convertible foreign exchange was not liable to service tax. The Authority records at para 20.1 that the appellant had unilaterally stopped remittance of service tax of BAS; did not inform the Department about the same; there was no legislative change bringing about any immunity; and that the appellant was thus clearly liable to service tax.
10. Para 20.1 of the impugned order records an observation that there was no clarification (by the assessee) to support its claim that the services provided in India were non-taxable.
11. The Authority committed a gross error in omitting to refer to, analyse and apply the decision of the full Bench of the Tribunal in Paul Merchants Ltd. While the counsel for the appellant contends that this omission is by design; the ld. A.R. for Revenue would contend that the omission is a default and unintentional. In any event this omission is fatal; and at least amounts to casual adjudication.
12. In its written reply dated 17.06.2010, filed in response to the show cause notice dated 19.04.2010; the appellant referred to relevant provisions of the 2005 rules as existed during the relevant period; that since services were provided outside India these are covered by the provisions of the 2005 rules; that the show cause notice had relied on the Board Circular dated 19.04.2006; that this circular is not relevant since the disputed period is October 2008 to March 2009, earlier to the circular and provisions of the 2005 rules were also different and were amended w.e.f. 01.03.2007; referred to six decisions of this Tribunal, the Delhi to several others decisions to support its claim that invocation of the extended period of limitation is unjustified in the circumstances. Appellant also relied on several other decisions to contest the proposal for imposition of penalty.
13. The appellant undertook a similar elaborate exercise in its written response dated 25.11.2010, filed in response to the second show cause notice dated 19.10.2010. In this response the appellant specifically contended that it had provided MMR services both within India and outside India and had remitted tax on this service provided in India; and that this service provided outside India was not assessable to tax. The appellant also contended that in so far as BAS, the service was provided to persons located outside India and consideration for the same was received in convertible foreign exchange, therefore the same is not liable to service tax. Several decisions were also set out in support of this contention. Several decisions were also referred to in this reply to support the appellants claim that invocation of the extended period was unjustified and the facts and circumstances do not warrant levy of penalty.
14. Several decisions including of the full Bench of this Tribunal in Paul Merchants Limited were cited (reiterated) in the written submissions dated 09.07.2012, filed with the adjudicating authority.
15. In the adjudication order, the learned Authority has summarised submissions of the appellant and adverted to some of the precedents referred to by the appellant, in paragraph 8 to 17 of the order. The decision of the full Bench in Paul Merchants Limited (specifically mentioned in the written submissions dated 09.07.2013), is however not even adverted to. There is further, no analysis of any of the decisions referred to by the appellant, even of the decisions mentioned in paragraphs 8 to 17 of the order. In paragraph 19.4 the authority concludes that the benefits of Rule 3(1)(iii) read with Rule 3(2) of the 2005 rules would be applicable only if the specified service is provided to a recipient located outside India and used outside India, when provided from India. The full Bench decision of this Tribunal in Paul Merchants Limited, which clearly dealt with identical circumstances and the relevant provisions of the 2005 Rules is neither considered, referred to or analysed in the order. Reliance is however place on Board Circular No. 111/05/2009-ST dated 24.2.2009.
16. The law is well settled that an adjudicating authority is bound by the decisions of the Supreme Court, the High Court and of this Tribunal as well; and if the binding precedents operate on a field such decisions outweight any contrary clarification or exposition of the law, contained in a Board Circular. It is perhaps legitimate to infer that the learned authority was conscious of this principle and had therefore referred only to the Board Circular while conveniently omitting a reference to the decision of the full Bench in Paul Merchants Limited.
17. An adjudicating authority, even where one is a departmental officer but is performing a judicial function, must bring to his function the minimum standards of fairness, neutrality and professionalism, in the discharge of functions. A judicial function requires a neutral appreciation of facts; due and conscious reference to the material on record; carefully and precise statement of the competing contentions and precedents if any relied upon by either party; analysis of facts; of the relevant statutory provisions and of precedents referred, followed by a synthesis of the culled out legal facts and the applicable provisions of law and the principles culled out from the precedents. Only thereupon must an adjudication record conclusions. An adjudicating authority must be conscious of the fact that the process of assessment is essentially an execution of the mandate of law. An assumption that the function of a departmental adjudicator is levy and collection of tax per se and not the levy and collection of tax in accordance with established principles of law, of the statutory provisions as processed in judicial pronouncements; would be a subversion of the role and function and not an honest, professional delivery of the adjudicatory function. An order of assessment while contravenes this essential discipline would lead to subversion and not effectuation of the law.
18. Failure to adhere to the minimal standards of adjudicatory discipline is a compelling inference where an adjudication authority fails to record all relevant contentions, the statutory provisions and the authorities cited; fails to analyse the facts and the law; and fails to record conclusions after following the rigour of the preceding process. The order impugned herein is in this sense a non speaking order bereft of relevant analysis and is therefore perverse.
19. At the stage of consideration of the stay application we have indicated that in the facts and circumstances the substantive appeal itself could be heard. We have heard the ld. Counsel for the appellant and the ld. DR for the respondent/ Revenue. We accordingly waive pre-deposit and dispose of the appeal.
20. On the above analysis, the impugned adjudication order dated 31.07.2013 passed by the ld. Commissioner Central Excise (Adjudication) New Delhi in order-in-original No. 13-14/ST/CB/CCE/ADJ/2013 is quashed. The matter is remitted to the adjudicating authority for fresh determination. The respondent shall now pass a fresh order of adjudication, commencing from the stage after receipt of the written submissions dated 09.07.2013 and shall pass a speaking order, de novo. We clarify that this order does not set out any pronouncement on the substantive merits of the case and the respondent/adjudication authority shall record independent conclusions while disposing of the proceedings afresh.
21. This appeal, in the circumstances pointed out was an avoidable litigation and is the result of a fundamental flawed approach of the learned adjudicating authority in passing an ill- reasoned order without due application of mind to all relevant circumstances. The consequence of this casual adjudicatory approach has not only burdened the assessee with avoidable litigation but had also added to the docket load of this Tribunal. We therefore allow the appeal as above with costs of Rs. 10,000/- payable to the appellant/ assessee within two weeks from the date of receipt of a copy of this order.
(Justice G. Raghuram) President (Rakesh Kumar) Technical Member scd/ 2