Custom, Excise & Service Tax Tribunal
Principal Commissioner, Service ... vs Delhi Metro Rail Corporation Ltd on 24 February, 2023
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. II
Service Tax Appeal No. 50500 of 2016 (DB)
(Arising out of Order-in-Original No. DLI-SVTAX-001-COM-012-15-16 dated
30.11.2015 passed by the Principal Commissioner of Service Tax, Delhi-I, New
Delhi r.w. corrigendum order dated 18.3.2016)
Principal Commissioner, Service Appellant
Tax, Delhi-I
17-B, I.A.E.A. House,
M.G. Road, I.P. Estate,
New Delhi-110002
VERSUS
Delhi Metro Rail Corporation Ltd Respondent
Metro Bhawan, Fire Brigade Lane Barakhamba Road, New Delhi Delhi-110001 APPEARANCE:
Shri Mihir Ranjan, Special Counsel for the Revenue Shri P.K. Sahu, Advocate for the Respondent AND Service Tax Misc. Application No. 50107 of 2022 in Service Tax Appeal No. 51771 of 2016 (DB) (Arising out of Order-in-Original No. DLI-SVTAX-001-COM-012-15-16 dated 30.11.2015 passed by the Principal Commissioner of Service Tax, Delhi-I, New Delhi read with corrigendum order dated 18.03.2016) Delhi Metro Rail Corporation Ltd. Appellant Metro Bhawan, Fire Brigade Lane Barakhamba Road, New Delhi Delhi-110001 VERSUS Principal Commissioner, Service Tax, Delhi-I 17-B, I.A.E.A. House, Respondent M.G. Road, I.P. Estate, New Delhi-110002
2 ST/50500 & 51771/2016-DB APPEARANCE:
Shri P.K. Sahu, Advocate for the Appellant assessee Shri Mihir Ranjan, Special Counsel for the Respondent/Revenue CORAM:
HON'BLE MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) FINAL ORDER NO. 50225-50226/2023 Date of Hearing: 17.08.2022 Date of Decision: 24.02.2023 ANIL CHOUDHARY:
In these Cross Appeals, for the period 2008-09 to 2011-12 the following issues are involved in the appeal of assessee (51771/2016):-
i. Wrong utilisation of cenvat credit of service tax paid on consulting engineering service, received for Delhi MRTS project, for providing consultancy service to other metro projects. Period 2008-09 to 2011-12, Tax demand: Rs. 30,12,86,790/- ii Short payment of service tax found on reconciliation of commercial accounts with service tax returns Period 2008-09 to 2011-12-Tax demand: 8,17,58,940/- iii Non payment of service tax on amounts received from Delhi Airport Metro Express Private Limited, under the head-Renting of Immovable property service Period: 2010-11 to 2011-12-Tax demand: 5,93,02,321/- iv Non-payment of service tax on L.C. charges paid to foreign banks under reverse charge mechanism
3 ST/50500 & 51771/2016-DB Period: 2008-09 to 2011-12- Tax demand: Rs. 87,26,504/-
V) Penalty Imposed Rs. 24,88,12,120 penalty u/s 78 of the Finance Act, 1994 read with rule 15 of Cenvat Credit Rules, 2004 Rs. 12,25,83,912 penalty u/s 78 of the Finance Act, 1994 Rs. 10,000 u/s 77(2) of the Finance Act, 1994 for not filling correct ST-3 return Rs. 5,000 under rule 15A of the Cenvat Credit Rules, 2004
2. The issue in revenue appeal (50500/2016) is that in the Order- in-Original, r.w. the rectification/corrigendum order dated 18.03.2016, wherein Ld. Commissioner has erroneously omitted, by not confirming the admitted demand of Rs. 32,63,417/- alongwith interest of Rs. 1,35,389/-, which the respondent-assessee have deposited against proposed short payment of service tax of Rs. 1,19,89,921/-, on import of services (under reverse charge mechanism) and consequent appropriation of the said amount. Learned Commissioner also did not impose commensurate penalty under Section 78 on this amount.
3. The appellant/assessee have filed miscellaneous application no. ST/Misc./50107/2022 praying for Amendment of the appeal memo for adding new grounds, under Rule 10 of CEGAT (Procedure) Rules, 1982. The ground raised is as follows:-
"The appellant is a government authority, and its activities are exempt from service tax under Sl.No.39 of the Notification No.25/2012-ST. Accordingly, the amount received from Delhi Airport Metro Express
4 ST/50500 & 51771/2016-DB Pvt. Ltd. was not taxable. For the same reason, the amounts received from other metro service providers were not taxable and, therefore, there cannot be any demand on the ground of unauthorized utilization of input credits for paying output tax on such payments."
3.1 It is further urged that the appellant is a Joint Venture between Central Government and the Government of NCT of Delhi, registered under the Companies Act with the main purpose of providing Urban Transportation (Mass Rapid Transit System) to the people of National Capital Region. Subsequent to the registration when the first phase of the Metro line was ready for operation, the Parliament enacted the 'Delhi Metro Railway (Operation & Maintenance) Act, 2002'. The Statement of Objects and Reasons to the said Act provides, that the first stage of Delhi Metro Railway from Shahdara to Tis Hazari is likely to be opened for the public carriage of passengers in December, 2002. Accordingly to provide interim relief to the commutors, it is necessary to make legal provisions for the operation and maintenance of the Metro Railway in Delhi.
3.2. It is further urged that Sl.No.39 of Notification No.25/2012-ST provides - services by the Government, a local authority or a Government Authority by way of activity in relation to any function entrusted to a Municipality under Article 243 W of the Constitution are exempt from the whole of the service tax. The 'Government Authority' have been defined in paragraph 2 (s) of the Notification as follows:-
5 ST/50500 & 51771/2016-DB "2. Definitions. - For the purpose of this notification, unless the context otherwise requires -
(s) "government authority" means an
authority or a board or any other body;
(i) set up by an Act or Parliament or a State
Legislature; or
(ii) established by Government, with 90% or
more participation by way of equity or control, to carry out any function entrusted to a municipality under Article 243 W of the Constitution. "
3.3 Admittedly, appellant is established by Government with 90% or more participation by way of equity and also under the control of the Government.
3.4 Further, Article 243 W of the Constitution read with Schedule 12 empowers Municipalities with respect to the matters, inter alia, planning for economic development and social justice and performance of functions and implementation of schemes, as may be entrusted to them. Further, these functions may include matters listed in 12th Schedule of the Constitution, which inter alia contains the activities - planning for economic and social development, roads and bridges, provision for urban amenities, including street lighting, parking lots, bus stops and public conveniences. Thus, the appellant satisfies the definition as a Government Authority and is also performing the activities under Article 243 W of the Constitution read with 12th Schedule therein. As such, all activities of the appellant are exempt from service tax as per notification no.25/2012-ST.
6 ST/50500 & 51771/2016-DB
4. The next ground raised in the miscellaneous application is - arrangements between the appellant and Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) are in the nature of Joint Venture for setting up Metro Railway service on principal to principal basis. Thus, the amount received by the appellant under the Concession Agreement are not towards any service provided, but are receipts by way of Joint Venture business and hence, not exigible to service tax.
5. Upon hearing the parties, this Tribunal finds that the ground raised are on the basis of the facts on record and accordingly, the same are admitted for adjudication.
Assessee Appeal
6. So far the first issue is concerned, with regard to disallowance of Cenvat credit of Rs. 30,12,86,790/- alleging wrong utilisation of Cenvat credit on receipt of consultancy engineering service, the said issue already stands decided in favour of the appellant in appeal No. 53176/2016. Thus, this ground is allowed in favour of appellant- assessee and demand is set aside.
7. So far the demand of service tax, on the allegation of short payment of tax Rs. 8,17,58,940/-, being alleged discrepancy found on reconciliation of commercial accounts with service tax returns, as reported by the Special auditor appointed by revenue. The learned Counsel urges that the opening balance of debtor account given in the balance sheet as on 01.04.08 cannot be adopted for levy of service tax, as it comprises of taxable as well as non-taxable amounts. The formula used by the special auditor cannot reconcile the amounts mentioned in the commercial accounts with the figures 7 ST/50500 & 51771/2016-DB in the service tax returns. Further, the appellant was liable to pay service tax on service portion of works contract of Rs. 101,67,48,009, and not on the gross value of works contract of Rs. 256,90,35,889, which has been wrongly taken in the reconciliation of account prepared by the special auditor. In the impugned order, the Pr. Commissioner has not given any basis to adopt higher value of taxable service on accrual basis for the years 2008-09 to 2011-12. She has ignored the calculation of taxable services given by the appellant without any justification. Further, till 31.03.2011, service tax liability arose only on 'receipt of payment for service provided'. From 01.04.11, tax (vide Notification No. 3/2011-ST) tax was payable on accrual basis, i.e., immediately on providing of service, or raising of invoice, irrespective of payment received. 7.1 It is the cardinal principle of taxation law that if the revenue authorities want to demand tax, it is for them to establish that the amount shown in the accounts by the assessee falls in the tax net. Without pointing out the nature of service, parties to the transaction, the Revenue cannot assume that the apparent difference on debtors reconciliation amount represents value of service on which the appellant has evaded tax. In Greenwich Meridian Logistics (I) Pvt. Ltd. Vs. CST, Mumbai, 2016 (43) STR 215 (Tri.- Mumbai), this Tribunal has held that the manner or mode of booking the profit in the accounts of a commercial organisation has no bearing on the application of section 65(105) to a taxable activity. Without giving findings on the nature of taxable service, the recipient of service and the amount or consideration payable for the service, there cannot be any tax demand on the basis of entry in the commercial accounts.
8 ST/50500 & 51771/2016-DB
8. The next ground of dispute is regarding levy of service tax of Rs. 5,93,02,321/- on account of amounts received from Delhi Airport Metro Express Pvt Ltd. (DAMEPL) under 'Concession Agreement'. Learned Counsel urges that the appellant have entered into a joint venture with DAMEPL, wherein both appellant and DAMEPL (Consortium of Reliance Energy /Reliance Infrastructure Ltd. and M/s. Construcioners Y.A. de Ferrocarriles, S.A.) are working on principal to principal basis. The appellant proposed development and implementation of Airport Metro Express Line Project in New Delhi from New Delhi Railway Station to Dwarka Sector-21 via IGI Airport, New Delhi. The approximate length of the project was 22.7kms. Appellant decided to develop the project by engaging a Concessionaire for financing, design, procurement, installation of all systems (including but not limited to rolling stock, overhead electrification, track, signalling, and tele-communication, ventilation and air-conditioning, automatic fair collection, baggage check-in and handling, depot and other facilities. Appellant DMRC had to undertake design and also construction of basic civil structure of the project including providing connectivity with existing Metro network and assistance in operation. The project was in the nature of 'public private partnership'. Both appellant and DAMEPL were working on principal to principal basis, there was no relation of service provider and service receiver. On 25.08.2008, a 'Concession Agreement' was entered between appellant and DAMEPL. It was agreed between the parties that all civil work as well as the appointment of consultant, land acquisition and other clearances from the government and the other authorities have to be obtained by DMRC and the design 9 ST/50500 & 51771/2016-DB supply installation, testing and commissioning of various systems like rolling stock, power supply, overhead equipment, signalling, track system, platform screen doors, ventilation, architectural finishing etc. were to be provided by DAMEPL. The commercial operation was achieved on 23.02.2011. After commencement of commercial operation, on 22.03.2012, DAMEPL requested the appellant for a joint inspection of 'Via ducts' and its bearings before expiry of the defect liability period of the civil contractors. Another letter was written by DAMEPL to appellant on 23.05.2012, complaining of issues relating to design and quality in the installation of via duct bearings. It was mentioned in the said letter that there were signs of Girder having sunk at some locations, as a result there is deformation/cracks. Pursuant to inspection, appellant informed DAMEPL that no bearings were found damaged. However, admitted that grouting material filled above/below the bearings was loosened for which action would be taken to repair on priority. Subsequently, the meetings were convened by the Ministry of Urban Development, Government of India in July, 2012, and pursuant to joint inspections by the Joint Inspection Committee, DAMEPL stopped operations of the line on 08.07.2012. Thereafter, DAMEPL issued notice dated 08.10.2012, terminating the Concession agreement as according to them, the defects that were pointed out in the earlier notice dated 09.07.2012 etc., were not cured within the stipulated period of 90 days, resulting in default under the Concession agreement by appellant DMRC. Thereafter, DAMEPL invoked Arbitration under Article 36.2 of Concession Agreement on 23.10.2012. Thereafter, after running the service intermittently, DAMEPL finally 10 ST/50500 & 51771/2016-DB stopped the operations on 30.06.2013 and handed over the line to DMRC the very next day.
8.1 The revenue have misunderstood the provisions of the Concession Agreement and have alleged that the receipts by the appellant under the Concession Agreement from DAMEPL, are in the nature of letting of infrastructure facilities, which is taxable under the category of 'renting of immovable property service'. Further urges, the transaction in totality, as envisaged in the contract does not answer the description of the taxable service -renting of immovable property, as defined under Section 65 (105 zzzz). The learned Counsel further refers to the judgment of Hon'ble Supreme Court in the case of DAMEPL vs. DMRC (Appellant), dated 09.09.2021, reported at (2022) 1 SCC 131. In the said judgment, the aforementioned facts have been taken on record by the Apex Court. Further, this dispute was admittedly between the appellant- DMRC and DAMEPL. Before the Arbitral Tribunal, the main issue which arose for determination was the validity of termination notice dated 08.10.2012. Appellant had claimed that Termination notice issued by DAMEPL is illegal, as DMRC had taken various steps honouring its obligation under the Concession Agreement. Further, direction was sought from the Arbitral Tribunal, that DAMEPL to take over operation of Airport Metro Express Line under the Concession Agreement, and in the alternative to grant compensation of Rs. 3173 crores with interest @ 18% per annum. Further, the other monetary relief were also sought by the appellant. DAMEPL justified the termination as being in conformity with the Concession Agreement and consequently, filed a counter-claim seeking an amount of Rs.
11 ST/50500 & 51771/2016-DB 3470 crores as termination payment alongwith interest and further amounts, on the ground that DMRC did not cure the defects in the civil structure in terms of 'cure notice' dated 09.07.2012 and thus failed to discharge its obligation under the Concession Agreement. 8.2. The Arbitral Tribunal formulated the following primary issues for consideration in relation to the termination notice dated 8-10- 2012:
"(i) Were there any defects in the civil structure of the airport metro line?
(ii) If there were defects, did such defects have a material adverse effect on the performance of the obligation of DAMEPL under CA?
(iii) If there were defects in the civil structure, which had a material adverse effect on the performance of the obligations under the CA by DAMEPL, have such defects been cured by DMRC and/or have any effective steps been taken within a period of 90 days from the date of notice by DAMEPL to cure the defects by DMRC and thus were DMRC in breach of the CA as per Article 29.5.1(i)?"
8.3. The Arbitral Tribunal considered the defects pointed out by DAMEPL and if cured, and/or effective steps to cure them were taken by DMRC within the stipulated time. Finally, the arbitral Tribunal held DMRC guilty of not fulfilling its obligation under the Concession Agreement, as rightly cracks were found spread in large number of Girders. Thus, the Tribunal held DMRC-appellant was in breach of the Concession Agreement resulting in material adverse effect on the concessionaire-DAMEPL. In the 'Award' the Arbitral Tribunal awarded a total amount of Rs. 2782.33/- crores alongwith further interest, as termination payment, in favour of DAMEPL.
8.4 The learned Counsel further relies on the ruling in the case of Marmugao Port Trust vs. Commissioner of Customs and Central Excise 2017-48-STR-69, wherein revenue had alleged 12 ST/50500 & 51771/2016-DB that the amount towards royalty recovered on account of renting/leasing land and water front to Southwest Port Ltd., Marmugao, was liable to service tax. This Tribunal held that both parties had undertaken a co-venture and, therefore, there was no relationship of service provider and service receiver. Both acted in mutual benefit and did not render service to each other.
9. Non-payment of service tax on payment of LC charges etc. To foreign banks (RCM) It has been held in the impugned order that appellant as recipient of service from foreign banks, located outside India, have not paid service tax of Rs. 1,19,89,921/- (including Rs. 87,26,504 for L.C. charges) under Reverse Charge during 2008-09 to 2011-12. It is urged that such payment (L.C. charges) was made to the banks for raising loan, is in the nature of borrowing cost and/or interest under the law. As no service tax is payable on quantum of interest, hence, no service tax is payable. Learned Commissioner have observed that Government of India was acting as the guarantor in the loan arranged for the appellant's project. Since, the foreign banks have conducted their activities outside India, the same would not come under the service tax law. Letter of credit charges is nothing but cost of loan, and therefore, in the nature of interest under Rule 6(2) (iv) of service tax (determination of value) Rules, 2006, loan and interest is exempted from service tax.
9.1 Learned Counsel further placed reliance on the ruling in Dharam Singh v/s Bishan Singh 1937 All LJ 882, where it is held that interest is an amount over and above, the principal amount payable by a debtor for the use of the principal amount. As per Black's Law 13 ST/50500 & 51771/2016-DB Dictionary (5th Edition), interest is the compensation allowed by law or fixed by the parties for the use of forbearance or retention of money. It is a payment by a borrower to the lender for the use of money. If the contract stipulates that, for use of the creditors money, a certain profits shall be payable to the creditor, that profit is interest, by whatever name it is called. Further, reliance is placed on Central Bank of India vs. Ravindra 2002 (1-SCC-367) wherein the constitution bench of the apex court held, interest is the compensation paid by borrower to the lender for deprivation of use of his money. A person deprived of the use of money to which he is legitimately entitled, had the right to be compensated for the deprivation, call it by any name. Further, interest means interest payable in any manner, in respect of any money borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes a service fee or other charges in respect of the moneys borrowed or debt incurred or in respect of any credit facilities which has not been utilised. Thus, interest is the amount paid to the lender over and above the loan amount, and such amount may be paid as service fee or other charges in respect of loan amount. It is understood in the financial world that fees and interest payable by the borrower to the lender are part of the price of loan. Further, loan pricing is defined as the interest rate charged on the loan, plus any associated fee payable as part of the financing package. Most often, loan pricing is negotiated between the 'lead arranger' and the issuer during the initial negotiation of the loan, alongwith the other key structural and pricing issues, including fees etc. These terms are summarised in a term sheet. There are four 14 ST/50500 & 51771/2016-DB main types of fees seen in a credit agreement -commitment fee, facility fee, utilisation fees and letter of credit fees. 9.2. The learned Counsel further refers to Indian Accounting Standard (Ind AS) 23, which gives guidelines for borrowing cost. The core principle is borrowing cost are directly attributable to the acquisition, construction or production of a qualifying asset, form part of the cost of that asset. Other borrowing cost are recognised as an expense. This standard defines borrowing cost-are interest and other cost which an entity incurs in connection with the borrowing of funds. Thus, the borrowing cost which includes whatever is described by the parties as interest as well as agency fees, lead manager fee and legal fee, and the same are in the nature of interest on loan. Further, Accounting Standard (Ind. AS) 18, provides commitment fee received by entity to originate a loan, when the loan commitment is outside the scope of Ind AS 39. The commitment fee charged is compensation for an outgoing involvement with the acquisition of financial investment and, together with the related transaction cost, is recognised as the adjustment to the effective interest rate. If the commitment expires without the entity taking the loan, the fee is recognised as revenue on expiry. Fees are integral part of generating an involvement with the financial liability. When a financial liability is not classified as "at fair value through profit or loss", the origination fee received are included, with the related transaction cost was incurred, in the initial carrying amount of the financial liability and recognised as an adjustment to the effective interest rate. An entity distinguishes fees and cost that are integral part of the effective interest rate for the financial liability from origination fee and 15 ST/50500 & 51771/2016-DB transaction cost relating to the right to provide service, such as investment management services. Thus, the fees and expenses received by the lender in connection with the borrowing transaction are to be recognised as interest in the accounts of the borrower. Limitation:
10. The alleged wrong availing of cenvat credit for tax paid on consulting engineering service received was in the knowledge of the Department since 2010. The audit of the appellant was conducted by Director General of Audit between 08.03.2010 to 15.03.2010 and the audit objected to availing of such credit. On the basis of the said audit, a show cause notice was issued on 19.10.2010 covering the earlier period 2006-2009. Hence, demand is time barred as there is inordinate delay in issuing of the present show cause notice, even after the Department came to know about the activities and compliance pattern of the appellant. In Nizam Sugar Factory v.
Collector, 2006 (197) E.L.T. 465 (S.C.), the Hon'ble Supreme Court has held that while issuing the subsequent show cause notices on similar facts, the Revenue could not allege suppression of facts on the part of the assessee as the facts were already in the knowledge of the authorities while issuing the earlier notice and, therefore, extended period of limitation could not be invoked. In CCE vs. Pals Microsystems Ltd., 2009 (234) ELT 428 (Kar.) the High court has upheld the decision of the Tribunal wherein it was held that the show cause notice was time barred as it was issued on 20.06.2000 whereas suppression of facts had come to its knowledge on 25.10.1996. This order has been affirmed by the Hon'ble Supreme 16 ST/50500 & 51771/2016-DB Court in CCE vs. Pals Microsystems Ltd, 2011(270) E.L.T. 305 (S.C.).
10.1 Further, extended period of limitation cannot be invoked in this case as the appellant was under the bonafide belief that it was not liable to pay the demanded service tax for the reasons discussed above. The Commissioner has noted that there must be a deliberate attempt on the part of the appellant to suppress facts from the Department with an intention to evade payment of tax. Yet, ld. Commissioner has held that there is no requirement that there should be suppression with an intention to evade, for invoking proviso to section 73. In Oriental Insurance Co. Ltd. Vs. Commissioner, LTU, 2021 (55) GSTL 369 (Tri.-Del.), this Tribunal citing several precedents of the Supreme Court and High Courts, has held that the extended period of limitation can be invoked only when "suppression" is shown to be wilful and with an intent to evade service tax. The SCN is dated 23.04.2014. The disputed period is 2008-09 to 2011-12. For the half-year April- September 2008, the five-year limitation period expired on 25.10.2013, before the SCN was issued. Prior to 28.05.2012, the 'normal period of limitation' was one year. Therefore, for the half- years falling within the disputed period October 2008 to March 2012, the normal period expired on 25.04.2013 or earlier. Therefore, the entire demand made in the SCN is time barred.
11. Learned Counsel further urges that in the facts and circumstances, penalty imposed are also fit to be set aside.
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12. Opposing the appeal, learned Special Counsel for the revenue relies on the findings of the learned Commissioner in the impugned order. Further, with regard to the demand under the head 'renting of immovable property service' with respect to receipt of the amounts by the appellant-assessee from DAMEPL, it is urged that appellant is not entitled to exemption under this head on the ground that the appellant is a Government Authority nor entitled to exemption as per Serial No. 39 of Notification No. 25/2012-ST. The impugned order relates to the period 2008-09 to 2011-12, whereas Notification No. 25/2012 is effective from 01.07.2012. He further refers to Circular No. 179/5/2014-ST dated 24.09.2014, regarding the tax liability on the transaction between the members of a joint venture, wherein, referring to Explanation 3(a) of the definition of service, it is provided- an unincorporated association or a body of persons, as the case may be, and the member thereof shall be treated as distinct persons. In accordance with this Explanation, JV and the members of the JV are treated as distinct persons and, therefore, taxable services provided for consideration, by the JV to its members or vice versa and between the members of the JV are taxable. 12.1. So far, the issue of service tax confirmed Rs. 8,17,58,940/- on account of service tax short paid on the allegation of suppression of turnover is concerned, this demand is based on the report submitted by the Special auditor. The opening debtors as on 01.04.2008, was correctly taken. The appellant have not provided any bifurcation of the figure to ascertain the factual position relating to the value of taxable service for the respective financial years. Further, the adjudicating authority after going through the financial 18 ST/50500 & 51771/2016-DB records for the relevant years vis-a-vis, the Special auditor's report, found that the amount of taxable service on accrual basis as per the audited P&L account was correctly considered by the Special auditors in computing the taxable value. Further, the amount offered for taxation during the relevant years have been taken from the return(s) submitted by the assessee. Taking all this into consideration, the suppression in the taxable value have been worked out at Rs. 72,20,10,134/- as follows:
Particulars Amount Amount
Opening Debtors as on 28,67,03,870/-
01.04.2008
Add: Taxable services on 1,14,91,31,024/-
accrual basis as per audited
P &L account
Year 2008-09
Year 2009-10 2,00,58,15,909/-
Year 2010-11 3,83,55,91,026/-
Year 2011-12 3,73,75,15,803/- 10,72,80,53,762
(+)
Sub-total A 11,01,47,57,632
Less: Offered for tax in ST-3
Returns
Year 2008-09 1,07,70,04,965
Year 2009-10 1,31,46,37,782
Year 2010-11 2,42,52,72,527
Year 2011-12 5,47,58,32,224 10,29,27,47,498
(-) B
Balance: Suppressed T.O. A- 72,20,10,134
B
12.2 Accordingly, differential duty have been calculated being tax short paid on this suppressed turnover, at Rs. 8,17,58,940/-, it is further urged that the appellant-assessee never came up with an alternative formula/reconciliation. They were required to demonstrate the monthly figure/taxable value on which they had discharged the service tax liability. In absence of such details, the 19 ST/50500 & 51771/2016-DB submissions of the assessee cannot be accepted. It is further urged that the assessee have only contended that the formula adopted by the Special auditor was erroneous. But, they never requested for cross-examination of the Special auditor.
12.3 As regards the demand of service tax on letter of credit charges paid to Bank of India at Tokyo, under RCM, the contention of the assessee that these are in the nature of interest is baseless and misplaced. Interest charged on a loan refers from the cost of credit. L.C. charges are not interest. The Government of India is the guarantor and has authorised Bank of India, Tokyo. The Bank of India has directly paid to the suppliers of appellant-DMRC on the strength of the LC, which shows, the service was provided to DMRC directly. Further, there was no involvement of any consideration between the Government of India and the Bank of India at Tokyo. Further, LC charges are taxable under the head banking and financial services and accordingly, tax have been rightly demanded under RCM at Rs. 87,26,504/-.
13. As regards the ground of exemption under Notification No.25/2012-ST raised by the appellant, ld. Special Counsel for Revenue urges that the said notification is applicable w.e.f. 1.7.2012. Whereas the period of dispute in the present appeals is prior to 30.06.2012. Accordingly, the said ground is fit to be dismissed. As regards to the other grounds, the same are analogous to the ground already taken by the appellant-assessee.
14. So far the issue of time bar is concerned, learned Special Counsel for revenue urges that the appellant-assessee is working 20 ST/50500 & 51771/2016-DB under self-assessment regime and were required to make a proper assessment of their service tax liability. Further, the appellant- assessee never sought any clarification from the department, and have suo moto utilised inadmissible Cenvat credit on consulting engineering service. Thus, extended period of limitation have been rightly invoked.
15. Having considered the rival contentions and after going through the records, we record our findings as follows:-
15.1 The first issue regarding disallowance of cenvat credit of Rs.30,12,86,790/- alleging wrong utilization of cenvat credit on receipt of consultancy engineering service, the said issue already stands decided in favour of the appellant in appeal no.53176/2016.
Thus, this ground is allowed in favour of appellant - assessee and the demand is set aside.
15.2 So far the next ground with regard to short payment of service tax of Rs.8,17,58,940/- as short paid, we find that in reconciling the account of debtors with the amount offered for service tax in the ST-Returns, the same have been erroneously raised. As admittedly, the appellant maintained their accounts on accrual basis (Mercantile basis). Whereas service tax for the period was payable on cash basis or receipt basis in terms of Section 68 of the Finance Act read with Rule 6 of Service Tax Rules, 1944 upto 31.03.2011. With effect from 01.04.2011, there was change in the basis of charge of service tax, which became payable immediately following the calendar month, in which the service is deemed to be provided as per Rules framed (i.e. on Mercantile basis) or 21 ST/50500 & 51771/2016-DB immediately on raising the invoice or providing of service, as amended vide Notification no. 3/2011-ST dated 01.03.2011. That such change in the basis of taxation has not been considered by the ld. Commissioner. Further, we find the contention of the appellant is correct, that opening balance of debtors on 01.04.2008 includes both amounts towards taxable value and non-taxable value. No bifurcation has been made in the show cause notice. Further, the amount of service tax short paid has not been bifurcated as to head wise, or under which head the service tax has been short paid. Further, we find the contention of the appellant is cogent that opening balance of debtors as on 01.04.08 also includes brought forward amounts of earlier financial years. Further, the reconciliation was prepared by the appellant and filed in the adjudication proceedings and have been reproduced in para 16.5 of the impugned order-in-original. We find that without the same been found erroneous, have been rejected arbitrarily.
15.3 In this view of the matter, we find that this demand for alleged short payment of tax is erroneous and accordingly, we allow the ground and set aside the demand.
16. So far the demand of service tax of Rs.5,93,02,321/- on account of amounts received from DAMEPL, we find that these amounts have been received as the Co-venture by way of receipts under a joint business of establishing and running the service on Airport Metro line. Both the parties under the Concession Agreement have contributed in construction/fabrication of the project by investing their capital as well as expertise. From perusal of the Concession Agreement, we find that the appellant was entitled to 22 ST/50500 & 51771/2016-DB receive certain amounts as concession fee and share a small percentage (1 to 5%) of the fare collection from the passengers. The arrangement between the parties have all the features of Joint Ventures or partnership. We also find that the service on the Airport Metro Line was being jointly run by both the parties in mutual benefit.
16.1 We find that all the features of Joint Venture Agreement are present in the Joint Venture Agreement/Concession Agreement like -
(i) Community of interest; (ii) Joint control of ventures; (iii) Sharing of revenue in agreed manner. 16.2 Both the parties have jointly rendered services to the
passengers or users of the Metro line under the Concession Agreement. Both parties have undertaken their assigned rights and have performed their specified tasks to run the Metro line service on the Airport Metro line. Further, such service could not be run without active involvement of the appellant as the service was aligned with the existing Metro network of the appellant. Accordingly, we hold that no service has been provided by DAMEPL to the appellant. Accordingly, this ground is allowed in favour of the appellant and the demand is set aside.
17. The next ground is service tax levy on the LC charges paid by the appellant to foreign bank (Bank of India-Tokyo), where the service tax is demanded under RCM. We find that under the admitted facts, it is the Government of India, which have entered into loan 23 ST/50500 & 51771/2016-DB agreement with Japan International Corporation Agencies (JICA) (formerly JAPAN Bank of International Corporation ) on 10.03.2008 to borrow money for establishment and implementation of Delhi Mass Rapid Transport System. The proceeds of loan has been used for purchase of eligible goods and service for implementation of the Metro Project. The important features of the loan agreement are as follows:-
17.1 Banking and financial services relate to Letter of Credit (LC) availed of by Government of India from Bank of India, Tokyo, where the LC charges have been paid by the appellant. It will be of help to first understand the arrangement among the parties involved in the transaction. The President of India (Borrower) had signed a loan agreement with Japan International Cooperation Agencies (JICA) formerly Japan Bank for International Corporation (JBIC) on 10th March, 2008, to borrow an amount not exceeding seventy two billion one hundred million Japanese yen for implementation of Delhi Mass Rapid Transport System Project, Phase-2, which was being implemented by the appellant. The proceeds of the loan were to be used for purchase of eligible goods and services for the implementation of the project from suppliers, contractors or consultants (collectively referred to as "the suppliers"). Other important features of the loan agreement are as follows:-
i. The borrower shall repay the loan to JICA (formerly JBIC) as per amortization schedule.
ii. The borrower shall pay interest to JICA (formerly JBIC) at the prescribed rate.
iii. The borrower shall pay commitment charge to JICA (formerly JBIC) at the prescribed rate.
24 ST/50500 & 51771/2016-DB iv. The name and address of successful bidder, concerning the award of contract, the name and address of supplier, the award date and amount of the contract may be made public by JICA (formerly JBIC).
v. The borrower shall authorize DMRC, the executing agency, to implement the project.
vi. The borrower shall cause the executing agency to employ consultants for the implementation of the project. vii. If the funds available from the proceeds of the loan become insufficient for implementation of the project, the borrower shall make arrangements promptly to provide such funds as shall be needed.
viii. The borrower shall cause the executing agency to furnish to JICA(formerly JBIC) progress reports for the project on a quarterly basis until the project is completed in the prescribed form.
ix. After completion of the project, the borrower shall cause the executing agency to furnish the Bank with a project completion report in the prescribed form.
x. Proceeds of the loan are meant for
a) Construction works and procurement of goods and services related to Delhi Mass Rapid Transport Systems, Phase-2,
b) Consulting services.
xi. When JICA (formerly JBIC) finds the request for Disbursement in order and in conformity with the provisions of the Loan Agreement, JICA shall make disbursement in Japanese Yen. Disbursement will be made within fifteen (15) business days from the date of receipt of the Request by paying into the non-resident Yen Account of the borrower in Bank of India, Tokyo, which shall be opened in advance and, in accordance with the relevant laws and regulations of Japan.
25 ST/50500 & 51771/2016-DB xii. The amount of disbursement of Japanese Yen shall be calculated at the T/T selling rate quoted by Bank of India, two (2) business days before the day when the disbursement is actually made.
xiii) After receiving the disbursed amount, Bank of India, shall immediately transfer the exact amount mentioned in the claims for payment to the respective supplier(s)'s Bank in the borrower's country. The credited amount shall in turn be credited into the corresponding account of the suppliers(s) by the supplier(s)' Bank.
xiv) The borrower hereby designates Bank of India, Tokyo, as its agent for the purposes of taking any action or entering into any agreement required or permitted under this transfer procedure.
xv) The borrower shall submit to Bank of India, Tokyo, the Transfer Instruction accompanied by copies of Request for disbursement and claims for payment.
xvi) Immediately after the amount of disbursement made by JICA (formerly JBIC) has been credited to the Account. Bank of India, Tokyo shall transfer the exact amount mentioned in the claims for payment to the supplier(s)'s account with the supplier(s)'s bank.
17.2 Thus, under the loan agreement, it is evident that it is the Government of India, which is availing the yen loan from JICA and providing the same to the appellant -DMRC (Implementing Agency). Though there is no privity of contract between the appellant and the Bank of India, Tokyo. However, appellant as the Implementing Agency, have stepped into the shoes of Govt. of India, and is acting accordingly. Further, Government of India has signed agreement with the Corporate Office, Bank of India located in India for availing 26 ST/50500 & 51771/2016-DB banking service of its branch in Tokyo, in relation to Yen credits and grant-in-aid. It is only at the instance of the Government of India that the Bank of India, Tokyo opens the letters of credit, though as per arrangement, the appellant pays certain charges(L.C. Charges) for the service. Thus, there is defacto privity of contract between the appellant and the Bank of India, Tokyo, accordingly, the LC charges are paid towards ensuring payment to suppliers from the loan amount sanctioned by JICA. Further, we find that loan agreement provides that in case of any dispute between the Government of India and Bank of India, relating to any provisions of the contract, the same shall be resolved by arbitration.
17.3 In the facts of the present case, we hold the LC charges/fee paid to the bank are taxable, under Reverse Charge. However, as the appellant is entitled to cenvat credit, the demand for extended period is set aside.
18. As regards the additional grounds raised regarding eligibility of benefit of exemption Notification No. 25/2012-ST, we hold that the same is not available to the appellant as this notification is effective from 01.07.2012, whereas the period in dispute is prior to this date.
19. Revenue Appeal No.50500/2016 As regards the amount of Rs.32,63,417/- under RCM, which the appellant-assessee have deposited during the adjudication /investigation and not contested, we confirm the tax liability and direct the Adjudicating Authority to appropriate the same with the interest amount of Rs.1,35,389 (also deposited).
27 ST/50500 & 51771/2016-DB 19.1 We reject the ground for imposing penalties under Section 78, as the issue is interpretational in nature.
20. In view of the aforementioned findings, we allow the appeal of revenue in part, and we allow the appeal of the appellant-assessee in part with consequential benefits. All penalties imposed are set aside. The impugned order is modified accordingly. The miscellaneous application also stands disposed off.
(Order pronounced on 24.02.2023).
Anil Choudhary Member(Judicial) P.V. Subba Rao Member(Technical) sb