Custom, Excise & Service Tax Tribunal
Commissioner, Service Tax-Delhi vs Itc Ltd on 15 April, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH- COURT NO. I
SERVICE TAX APPEAL NO. 706 OF 2011
(Arising out of Order-in-Original No. 05-09/SJS/CST(Adj)/2011 dated 31.01.2011 passed
by Commissioner, Service Tax (Adjudication), Delhi)
Commissioner of Service Tax, Delhi .....Appellant
IAEA House, 17-B, I.P. Estate,
New Delhi
versus
M/s. ITC Ltd, Gurgaon .....Respondent
ITC Green Centre, Plot No. 10,
Sector 32, Gurgaon
APPEARANCE:
Ms. Jaya Kumari, Authorized Representative of the Department
Shri Tarun Gulati, Senior Advocate and Ms. Mallika Joshi, Advocate for ITC Ltd.
AND
SERVICE TAX APPEAL NO. 1086 OF 2011
(Arising out of Order-in-Original No. 05-09/SJS/CST(Adj)/2011 dated 31.01.2011 passed
by Commissioner, Service Tax (Adjudication), Delhi)
M/s. ITC Ltd, Gurgaon .....Appellant
ITC Green Centre, Plot No. 10,
Sector 32, Gurgaon
versus
Commissioner of Service Tax, Delhi ..... Respondent
IAEA House, 17-B, I.P. Estate,
New Delhi
APPEARANCE:
Shri Tarun Gulati, Senior Advocate and Ms. Mallika Joshi, Advocate for ITC Ltd.
Ms. Jaya Kumari, Authorized Representative of the Department
CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
DATE OF HEARING: 15.10.2024
DATE OF DECISION: 15.04.2025
FINAL ORDER NO's. 50480-50481/2025
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JUSTICE DILIP GUPTA:
The order dated 31.01.2011 passed by the Commissioner, Service
Tax (Adjudication), Delhi 1 has led to the filing of Service Tax Appeal No.
706 of 2011 by the department and Service Tax Appeal No. 1086 of 2011
by M/s. ITC Ltd., Gurgaon 2.
2. The following five issues were framed by the Commissioner for
decision in the order dated 31.01.2011:
(i) Taxability of the services provided outside India before
18.04.2006.
(ii) Taxability of services provided by the service provider
situated outside India and received by the service
recipient in India prior to 01.01.2005.
(iii) Classification of services in relation to Starwood
Preferred Guests Program 3 and Frequent Flyer
Program 4.
(iv) Payment of service tax on "manpower recruitment or
supply agency services"; and
(v) Service tax computed on higher of the two values of
the expenditure made in foreign currency.
3. The first issue was answered by the Commissioner in favour of ITC.
The Commissioner held that it is only w.e.f. 18.04.2006, when section 66A
of the Finance Act, 1994 5 was inserted, that services provided by a person
who has established a business or has a fixed establishment from which
the service is provided in a country other than India, and received by a
person who has his place of business or fixed establishment in India
became taxable and such taxable service shall be treated as if the
1. the Commissioner
2. ITC
3. SPGP
4. FFP
5. the Finance Act
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recipient had himself provided service in India. Thus, no service tax could
have been levied on the service provided prior to 18.04.2006.
4. In respect to the second issue, the Commissioner noticed that
though rule 2(1)(d)(iv) of the Service Tax Rules, 1994 6 was notified
w.e.f. 16.08.2002 but the Notification issued under section 68(2) of the
Finance Act was made applicable w.e.f. 01.01.2005 for services provided
by non-residents not having an office/establishment in India, provided
such services were received in India. The Commissioner, therefore, held
that ITC was liable to pay service tax only from 01.01.2005. The relevant
findings on this issue are:
"3.3 ***** There were services that were received
by the Noticees from the service providers who
were situated outside India and had no office or
establishment in India. In those cases the service
tax has been demanded under Rule 2 (1) (d) (iv).
In such situations also the Noticees have maintained
that the liability to pay the service tax for the service
provided by the service provider situated outside India
was from 18th April, 2006, when the charging provision
in Section 66A was enacted. However, the correct legal
position is different.
3.3.1 Rule 2 (1) (d) (iv) was notified with effect
from 16.08.2002 and when a person received a
service from a service provider not situated in India or
not having an establishment or office in India, then the
service recipient was made liable to pay service tax.
However, the said Rule was framed by the Central
Government under Section 94 of the Act'94
without notifying the services under Section 68
(2), in respect of which a person other than the
person providing the service could be made liable
to pay service tax. As mentioned above, under
Section 68(2) the Central Government has the power to
make a person, other than the person providing the
service, liable to pay service tax. However, before the
6. the 1994 Rules
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Central Government exercises the said power it has to
notify the services with respect to which a person other
than the person providing the service could be made
liable to pay the service tax. Since, in August 2002, the
notification under Section 68 (2) was not issued hence
Rule 2 (1) (d) (iv) was not effectively enforceable.
Notification No. 36/2004-ST dated 31.12.2004
was issued under Section 68 (2), notifying the
services in respect of which a person other than
the person providing the services was to be made
liable to pay service tax. The Notification was
made applicable w.e.f. 01.01.2005. Accordingly,
with respect to services provided by a non
resident, not having office/establishment in India
and if such services were received in India, the
service tax liability arose with effect from
01.01.2005, on reverse charge basis, on the
recipient of service in India. ***** Accordingly,
the Noticees are liable to pay service tax from
01.01.2005 on such services that were provided
by a service provider who was outside India and had
no office or establishment in India but those services
were received in India by the Noticees.
3.3.2 Under the agreements Sheraton had agreed to
promote, market and sell the services of the Noticees
outside India. Sheraton was to undertake the activities
of promotion, marketing or sales through resources and
means at its command outside India and promote,
market or sell services of the Noticees outside India.
The activities of Sheraton were definitely classifiable
under the 'business auxiliary service'. The Noticees
have not disputed the classification of services of
Sheraton but has contested their liability to pay service
tax under reverse charge mechanism before
18.04.2006. Though the activities of Sheraton were
performed outside India yet the benefit of the services
were received in India. The sale of the services
provided by the Noticees by way of renting of rooms in
their hotels was enhanced in India. The Noticees paid
3% of the room rent received in India to Sheraton for
the services rendered by Sheraton. The business and
commerce of the Noticees established in India
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was benefitted by the services provided by
Sheraton. The services were, therefore, received
in India and the liability to pay service tax with
respect to services arose from 01.01.2005.
Similarly, the services provided by American
Express, Radius and ABCCS for promoting the
services of the Noticees on the websites of the
service providers though provided outside India
yet were received in India. Hence, the liability of
the Noticees to pay service tax with respect to
those services was with effect from 01.01.2005.
The 'interior decorator's service' and 'architect's
service' were with respect to the immovable
properties situated in India. The interior decorator's
service and the architect's service were, therefore,
received in India from non-resident service provider not
having an office or establishment in India. The liability
to pay service tax on these services was also from
01.01.2005.
3.3.3 The service tax on the service rendered by
Sheraton has been demanded in show cause notices at
Sr. No. 1 and 5 in paragraph 1.11. In the show cause
notice at Sr. No. 1 the demand of service tax with
respect to services received from Sheraton is for period
from 01.07.2003 to 16.06.2005. The Noticees are liable
to pay service tax on such services only from
01.01.2005. The demand for period prior to
01.01.2005 is bad in law and is not payable by the
Noticees. The Noticees are, thus, liable to pay
service tax only for the period from 01.01.2005 to
16.06.2005 subject to the demand having been
issued within the limitation prescribed by law.
The question of limitation shall be examined later.
*****"
(emphasis supplied)
5. Regarding the third issue relating to classification of services in
relation to SPGP and FFP, the Commissioner held that the show cause
notice merely alleged that payments made by ITC to the service providers
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were for rendering "business auxiliary service" 7, but the show cause notice
did not specify which particular clause of section 65(19) of the Finance Act
was attracted. The Commissioner, however, examined sub-clause (ii) of
clause (19) of section 65 of the Finance Act and held that this particular
sub-clause will not be attracted for the following reasons:
"3.4.3 For providing of service of business
promotion and marketing there should be an
agreement, express or implied, that one person
shall promote, market or sell the goods or
services of the other person to the third person or
world at large. When such an activity is undertaken
then the intention is to keep the business rivals at bay
so that the profits or the goodwill of the service
recipient is increased. The service provider has to
convince the other persons about the quality of the
services or goods of the services or goods of the service
recipients and create an impression in the minds of the
other persons that they shall be benefitted in terms of
money, quality, feel goods factor or all of them if they
buy the goods or avail the services of the service
recipient. There is no allegation or evidence
showing that for these two programmes,
Sheraton was engaged in the business of
promotion or marketing of services of the
Noticees. The Noticees had not hired the services
of Sheraton for conducting advertisements or a
publicity campaign or selling of any services
provided by them. Sheraton did not advertise or
canvass the hotels of the Noticees to the
exclusion of other hotels nor did they prevail
upon the member-guests to stay in the hotels of
the Noticees. The member-guests had the option to
stay in the hotels of the business rivals of the Noticees.
The member-guests also had the option to avail free
travel on the partner-airlines or purchase merchandise.
In such a situation it is inconceivable that the
participation in the two programmes was equivalent to
receipt of service of business auxiliary. The primary
7. BAS
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object of the aforesaid two programmes was not
to increase the room sales revenue of the
Noticees but to provide additional benefits by way
of accumulation of reward points to the member-
guests who chose to stay on their hotels. Any
increase in occupancy of the hotels of the
Noticees was purely incidental."
(emphasis supplied)
6. The Commissioner ultimately held:
"3.4.6 It is inappropriate to say that the
participation of the Noticees in the aforesaid two
programmes led promotion or marketing or
services provided by the Noticees to the exclusion
of business rivals. It is not possible to conclude that
Sheraton provided service or promotion or marketing
services provided by the Noticees. Accordingly, the
participation of the Noticees in the two programmes
never resulted in their receiving any service in the
category of 'business auxiliary service'. In absence of
any evidence showing that how the activities of
Sheraton were amounting to providing of service
in the category of 'business auxiliary service'
under other sub-clauses of Section 65 (19), it is
not possible to hold that if the service in the
category of 'business auxiliary service' was ever
involved in activities of Sheraton in so far as the
administration of SPGP and FFP was concerned.
Accordingly, the allegations in the show cause notices
at Sl. No. 2, 3, 4 & 5, in so far as they relate to the
recovery of service tax under the category of 'business
auxiliary service' for participation in the aforesaid two
programmes, are without substance. The show cause
notices are bad in law and no recovery can be made
under them."
(emphasis supplied)
7. With regard to the fourth issue, the Commissioner noticed that the
show cause notice proposed to recover service tax on "manpower
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recruitment or supply agency services" on the following two services
provided by ITC to the service recipient:
(i) Manpower supply to four hotels under "Operating
Service Agreements"
(ii) Manpower supply to five units on cost recovery basis.
8. The Commissioner also noticed that in addition, the show cause
notices also proposed to recover service tax on manpower recruitment or
supply agency services in the following two cases:
(a) Services provided by G.J. Hamburger Production
(b) Services provided by Mr. Michael Brian Agars
9. In regard to the first set relating to manpower supply to four hotels
under "operating service agreements", the Commissioner observed:
"3.5.4 The contentions of the Noticees,
however, make a very strong point that they were
not merely concerned with supply of manpower
but had taken over the hotels from the owners to
operate, manage and administer them as
independent business units and the Noticees
were involved in all aspects related to operating
those hotels as successful business ventures. The
agreements entered into between the Noticees and
such hotels clearly show that the agreements were not
for supply of manpower but for operating and managing
the hotels. The agreements also reveal that in addition
to the salary of the staff deployed by the Noticees, the
Noticees were also recovering additional charges for
their services to manage and operate the hotels. The
agreements for management and operations of hotels
cannot be vivisected to recover the service tax only on
the portion of the salaries of the employees recovered
by the Noticees from such hotels, to charge service tax
on 'manpower supply agency's service. The
agreements entered into between the Noticees
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and the owners of such hotels were for complete
management and operations of the hotels. The
dominant aspect of the agreements is required to
be examined and the dominant aspect was not
the supply of manpower. The dominant aspect
was operations of the hotels as business units.
Consequently, the service tax could not have been
charged only on that component of the value of
basket of services which represented the value of
the manpower supply."
(emphasis supplied)
10. Regarding the second set of agreement relating to manpower supply
to five units on cost recovery basis, the Commissioner held:
"3.5.5 Under other set of agreement, the Noticees
have deputed their employees to other hotels to
operate and maintain those hotels in line with the
ITC Welcome group standards and run those
hotels in smooth and efficient manner. The
Noticees recover salaries and other cost of their
employees from those units on actual basis without any
mark up. *****
3.5.6 After 18.4.06 the terms of 'commercial
concern' was replaced by the term 'any person'.
Now 'any person' engaged in providing any
service, directly or indirectly, in any manner for
recruitment or supply of manpower, temporarily
or otherwise is covered under the definition of the
'manpower recruitment or supply agency'. *****
The Noticees have stated in their reply to the show
cause notices that they had supplied manpower to five
hotels and were recovering salaries from such hotels.
They have been supplying the manpower to five hotels
from June, 2005 to March 2008 and still they have
argued that they are not engaged in supply of
manpower in the normal course of the business. It is
not one isolated incident of supply of manpower to one
hotel and hence some credence to their argument. It is
a case of supply of manpower to five hotels for a
period of nearly three years and still the
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impudent contention that they are not engaged in
the normal course of business to supply
manpower. Their contention is unacceptable. It is
not necessary that for an agency to be the
'manpower recruitment or supply agency' that the
only or dominant engagement should be the
manpower recruitment or supply. The definition is
wide enough to include services provided directly or
indirectly and in any manner. In any case, continuous
supply of manpower to five persons for three years is
sufficient reason to cover the Noticees in the definition
of 'manpower recruitment or supply agency'. The
Noticees have correctly been called upon to pay
service tax on the 'manpower recruitment or
supply agency's service' with respect to service
being discussed in this paragraph and they are
liable to pay service tax on the service rendered
by them."
(emphasis supplied)
11. Regarding the agreement with G.J. Hamburger Production, the
Commissioner observed:
"3.5.7 ***** In so far as their agreement with
G.J.Hamburger Production is concerned they have
admitted that the services rendered by
G.J.Hamburger Production was in the category of
'manpower recruitment or supply agency's
service' and they were liable to pay service tax
and they have admitted that service tax to the
extent of Rs.11,99,700/- (Rupees Eleven lakhs
ninety nine thousand seven hundred) is payable by
them. *****"
(emphasis supplied)
12. With respect to the service provided by Michael Brian Agars, the
Commissioner observed:
"3.5.8 ***** I accept the argument of the
Noticees that since Mr. Michael Brian Agars
performed the programme as an artist in the
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restaurant of their hotels, hence there was no
question of 'supply of manpower' in such a case.
Consequently, the demand to the extent of Rs.
1,28,269/- (Rupees one lakh twenty eight thousand
two hundred and sixty nine) does not stand on merit."
(emphasis supplied)
13. Regarding the fifth issue relating to service tax computed on higher
of the two values of the expenditure made in foreign currency, the
Commissioner observed as follows:
"3.6 ***** As discussed in paragraph 2.4 (supra)
there were two sets of figures (in Annexure-A and
in Annexure-17) available to the auditors of the
department in relation to expenditure made in
foreign currency by the Noticee. The expenditure
was in relation to number of heads, such as,
management consultancy, maintenance and repair,
advertisements outside India, membership fee for clubs
and associations outside India, commercial coaching
and traveling, business exhibition services, business
support service, Sheraton fee etc. There were
variations in two sets of figures and also the amounts
on which the service tax was paid. For computing the
demand of short payment of service tax the
revenue authority has computed the demand on
higher of the two figures in both the Annexure.
3.6.1 Issuing show cause notice for recovery of
services tax without ascertaining the correct value of
the service and by selectively picking up the higher
amount of the value of services from more than one
source, is an incorrect way of issuing the show cause
notice. No tax liability can be computed on basis of
presumption or some hypothetical value of the
services. Before the tax liability is computed, the exact
value of the transaction which has to be taxed, the rate
applicable and the time period involved have to be
correctly computed and explicitly stated in the show
cause notice. Any failure to do so would amount to
denial, to the person charged with short payment of
tax, a reasonable opportunity to defend himself. The
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demand computed in the manner in which it has
been computed in the show cause notice can be
set aside only on the ground of being
presumptive."
(emphasis supplied)
14. Details of the five show cause notices containing the description of
the service, the period of demand and the period beyond the normal
period is shown in the following table:
S. Show Name of the service Period Beyond normal
No. cause period/amount
notice
date
1. 05.01.2007 BAS (Promotion and 01.07.2003 Entire period is beyond
marketing) to normal period. Entire period
16.06.2005 is also prior to 18.04.2006
2. 17.10.2008 BAS (SPGP + FFP) July 2003 Beyond normal period is
to from July 2003 till April
June 2008 2007
3. 23.10.2008 i. Manpower supply June 2005 Beyond normal period is
services to from June 2005 till April
March 2008 2007. Amount is Rs.
1,34,00,673/- out of total
demand of Rs.
2,43,91,836/-.
ii. BAS (SPGP+FFP) April 2003 Beyond normal period is
to from April 2003 till April
March 2008 2007. Amount is Rs.
1,51,37,141/- out of total
demand of Rs.
2,80,86,783/-.
iii. Commercial training April 2003 Beyond normal period is
& coaching services to from July 2003 till April
March 2008 2007. Amount is Rs.
2,31,35,619/- out of total
demand of Rs.
2,44,37,842/-.
4. 31.03.2009 i. Manpower supply April 2008 Within normal period
services to
Sept 2008
ii. BAS (SPGP+FFP) April 2008
to
Sept 2008
5. 24.04.2009 i. BAS (Promotion and October 2003 Since the demand is prior to
marketing) to 01.01.2005, it has been
March 2004 dropped by the
Commissioner. Department
ii. BAS (SPGP+FFP)
has not challenged this
iii. Interior Decorators funds.
iv. Architect service
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15. The Commissioner noticed that the demand sustainable with respect
to the first show cause notice dated 05.01.2007 is for the period from
01.01.2005 to 16.06.2005. The Commissioner noticed that the last date
for issuing the demand for the normal period of one year was not later
than 25.10.2006 but the show cause notice was issued on 05.01.2007.
The Commissioner then examined whether the extended period of
limitation contemplated under the proviso to section 73(1) of the Finance
Act could have been invoked and held that the extended period of
limitation could not have been invoked.
16. With respect to the show cause notices at serial no's. 3 and 4 dated
23.10.2008 and 31.03.2009, the Commissioner held that part of the
demand pertaining to "manpower recruitment or supply agency services"
is to be paid by ITC. ITC also admitted liability of Rs. 11,99,700/- as a
recipient of service. The Commissioner also noticed that ITC was liable to
pay service tax in relation to the manpower supply to the five hotels.
Thus, the Commissioner found that the demand sustainable on merits
pertaining to the third and fourth show cause notices for supply of
manpower is for the period from June 2005 to September 2008. The third
show cause notice was issued on 23.10.2008 though the last date within
the normal period was 25.04.2007. The demand for the show cause notice
at serial no. 3 was, therefore, confirmed only for the period between April
2007 and March 2008 which was the normal period of limitation.
Regarding the fourth show cause notice dated 31.03.2009, the
Commissioner found that the entire demand was within a normal period of
limitation.
17. The Commissioner ultimately passed the following order:
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"4.1 In view of the above discussion and findings, I
pass the following order:
4.2 Service Tax including Cess amounting to Rs.
1,01,25,811/- (Rs. One Crore one lac twenty
five thousand eight hundred and eleven only)
is required to be paid by the Noticees in
relation to "manpower recruitment or supply
agency's service" as a provider of services
4.3 Service Tax including Cess amounting to Rs.
11,99,700/- (Rs. Eleven lac ninety nine
thousand and seven hundred only) is required
to be by the Noticees in relation to "manpower
recruitment or supply agency's service" as a
recipient of service.
4.4 Service Tax including Cess amounting to Rs.
4,24,110/- (Rs. Four lac twenty four thousand
one hundred and ten) is required to be paid by
the Noticees in relation to foreign expenditure
made on online access of reports.
4.5 Service Tax including Cess amounting to Rs.
1,70,904/- (Rs. One lac seventy thousand nine
hundred and four) is required to be paid by the
Noticees in relation to foreign expenditure
made on certain reimbursements.
4.6 Interest under Section 75 of the Act'94 is to be
paid by the Noticees on all the aforesaid
amounts from the due date till the date of
payment.
4.7 The Noticees are to pay penalty under Section
76 of the Act'94, which shall not be less than
two hundred rupees for every day during which
such failure continues or at the rate of two
percent of such tax, per month, whichever is
higher, starting with the first day after the due
date till the date of actual payment of the
outstanding amount of service tax and cess.
Such penalty shall in no case be more than the
service tax to be paid by the Noticees as
mentioned in paragraph 4.2 to 4.5.
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4.8 Penalty of Rs. 5,000/- is imposed under
Section 77 of the Act'94 on the Noticees."
18. Service Tax Appeal No. 706 of 2011 has been filed by the
department to assail the following five issues that had been decided
against the department:
(i) Promotion and marketing of ITC hotels by Sheraton USA
on account of such hotels being members of SGPG and
FFP;
(ii) Services provided by ITC as manpower recruitment and
supply agency;
(iii) Commercial training and coaching services only on the
difference in amount of demand as calculated by ITC and
the department;
(iv) The expenditure incurred by ITC in foreign currency on
account of the fee for artist Michael Brian Agars covered
by manpower recruitment and supply agency; and
(v) Invocation of extended period of limitation.
FIRST ISSUE
19. The contention of the department is that Sheraton USA is providing
the service of promotion and marketing of ITC hotels since such hotels are
members of SPGP and FFP administered by Sheraton USA and service tax
has to be recovered from ITC under the reverse charge mechanism under
rule 2(1)(d)(iv) of the 1994 Rules.
20. The Commissioner has found as a fact that BAS was not involved in
the activities of Sheraton so far as the administration of SPGP and FFP are
concerned. Paragraph 3.4.3 and 3.4.6 of the order have been reproduced
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above. The findings contained in paragraph 3.4.2 of the order are also
relevant and are reproduced below:
"3.4.2 Under the programmes, the member-guests
opting to staying in the hotels of the Noticees or other
hotels were to earn points on specified expenditures
and the points earned could be redeemed by way of
free stay in any of the hotels that were members of the
programmes, free travel on the partner airlines or by
way of purchase of merchandise. The hotels that
were member to the programmes had to pay 5%
of the amount spent by the member guest during
his stay in the hotel, to Sheraton for
administering the programmes. Whenever, a
member-guest stayed in any of the hotels of the
Noticees and redeemed his accumulated points
for free stay, Sheraton compensated the Noticees
for the free stay. Similarly in the FFP, whenever a
member-guest availed free travel the partner-hotels
compensated the airlines through Sheraton by way of
contributing out of the expenditure made by the
member-guest during his stay in the hotel."
(emphasis supplied)
21. It is, therefore, clear from the aforesaid finding that the amount paid
by a hotel, being 5% of the amount spent by the member guest, is for the
purpose of administering the programme. On receipt of the amount,
Sheraton compensates the hotels where the points are redeemed by the
hotel guests. Similarly, in the FFP programme, the member airlines where
the member guest avails free travel is compensated through Sheraton by
way of contributing out of the expenditure made by the member guest
during his stay in the hotel. It would also be pertinent to refer to
paragraph 3.4.4 of the order and it is reproduced below:
"3.4.4. ***** Each one of them contributed to the
success of the schemes and some revenue earned out
the schemes was contributed to the administrator of
the schemes to administer the schemes. The
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administrator also compensated the members at whose
establishment the points accumulated from the
schemes were redeemed."
22. What, therefore, transpires is that the contribution given by the
hotel to the administrator of the Scheme is to compensate the hotel
member where the hotel guest redeems the points. Thus, payments are
made to compensate and meet the expenditure and, therefore, there is no
taxable value.
23. ITC has also given details of the manner in which the SPGP program
operates. Under the SPGP programme more than 1000 different hotels
across the world participate and are members. The programme is so
designed that by virtue of the terms and conditions of the programme, a
hotel guest is entitled to the benefit of the programme by earning points
upon stay in a member hotel. The hotel guest can then redeem the points
so earned at any of the member hotels. The member hotels, where the
points are redeemed by the hotel guest, are entitled to be reimbursed by
Sheraton as per the terms and conditions of the programme. In order to
meet the expenses to reimburse the member hotel where the points are
redeemed, an initial payment is made by every member hotel to Sheraton,
and Sheraton administers the programme to meet the cost.
24. It would be seen that such payments are made by the member
hotels to enable the reimbursement of expenses incurred by member
hotels on account of redemption of points by the hotel guests. As such,
only on account of the terms and conditions of the programme, the
benefits to the hotel guests are ensured and the expenses incurred on
account thereof are met. The function of Sheraton is like any other person
who may be appointed to administer a voluntary programme organized for
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mutual interest of several hotels. The role of Sheraton is only to
administer the programme. It cannot, therefore, be said that merely on
account of this administrative functions carried out by Sheraton, it renders
any promotional or marketing service to any member hotel. The
administrative function involves the receipt of payment from member
hotels for reimbursing the redemption expenses to member hotels.
25. There is no service rendered by Sheraton. The hotel guests come to
member hotels to take advantage of the benefit under the programme.
This happens on account of the underlying Scheme of the programme on
account of which the hotel guests come to stay in member hotels.
Sheraton does not play any role in recommending any member guest to
stay in any particular member hotel. The choice to stay in a member hotel
is entirely of the hotel guest. No role is played by Sheraton to promote or
market any particular hotel. The role is limited to administering the
programme to ensure that the amount is received from the member hotel,
where the hotel guests earn the points, by way of its contribution, so that
the said amount is utilized for payment by way of reimbursement to the
member hotel where the hotel guests redeem the points.
26. As such, no service or promotion or marketing is rendered by
Sheraton to the member hotels where the hotel guest earns the points and
makes its contribution for implementation of the programme.
27. Frequent Flyer works in the same manner. The points earned by
using flights can also be redeemed at the hotels.
28. It is, therefore, not possible to accept the contention advanced by
the learned authorized representative appearing for the department that
the services provided by Sheraton are in the nature of publicity and aimed
19
ST/706/2011 &
ST/1086/2011
at increasing the occupancy of the hotels and hence covered under the
scope of BAS.
29. Even if it is assumed that some service is provided by Sheraton, still
no service tax can be levied as there is no "taxable value" in the SPGP and
FFP. The amount charged has to be necessarily towards consideration for
the service provided which is taxable under the Finance Act. There has to
be a nexus between the amount charged and the service provided and,
therefore, any amount charged which has no nexus with taxable service is
not a consideration for the service provided nor does it become a part of
the value taxable under section 67 of the Finance Act. This is what was
held by the Tribunal in Balaji Enterprises vs. Commissioner of Central
Excise and Service Tax, Jaipur-I 8.
SECOND ISSUE
30. The show cause notice proposes to recover service tax on
"manpower recruitment and supply agency services" on the following two
services provided by ITC to the service recipient:
"(i) Manpower supply to four hotels under
"Operating Service Agreements"
(ii) Manpower supply to five units on cost recovery
basis."
31. In addition, the show cause notice also proposes to recover service
tax on manpower recruitment and supply agency services in the following
two cases:
"(a) Services provided by G.J. Hamburger
Production
(b) Services provided by Mr. Michael Brian Agars"
8. Service Tax Appeal No. 54510 of 2014 decided on 20.09.2019
20
ST/706/2011 &
ST/1086/2011
32. In respect to the first set relating to manpower supply to the four
hotels under "operating service agreements", the Commissioner held that
the dominant nature of the agreement is not for supply of manpower and,
therefore, service tax could not have been charged. However, with regard
to the supply of manpower to the five units and the agreement with G.J.
Hamburger Production, the Commissioner confirmed the demand. The
Commissioner also dropped the demand with regard to the service
provided by Michael Brian Agars.
33. Learned authorized representative appearing for the department
submitted that the Commissioner committed an error in dropping the
demands. Learned authorized representative pointed out that ITC was
recovering staff charges, namely, gross salary including provident fund,
pension, gratuity of the employees and this clearly shows that the staff
belongs to ITC and it was recovering such cost from the owners of the five
hotels. Learned authorized representative also submitted that it is a fact
that Michael Brian Agars had performed as an artist in the restaurants
and, therefore, service tax should not have been dropped.
34. Learned senior counsel appearing for ITC, however, submitted that
the issue involved is covered by the order dated 14.03.2018 of the
Tribunal in Commissioner of Central Excise, Delhi vs. M/s. ITC Ltd.9
for the subsequent period. Learned senior counsel also pointed out that
the Commissioner committed no illegality in dropping the demand.
35. The submissions advanced by the learned authorized representative
appearing for the department and the learned senior counsel for ITC have
been considered.
9. Service Tax Appeal No. 51447 of 2014 decided on 14.03.2018
21
ST/706/2011 &
ST/1086/2011
36. In the decision rendered by the Tribunal on 14.03.2018 in the
matter of ITC for the subsequent period, the Tribunal observed as follows:
"5. The respondent, in this case, made agreements/
arrangements with the hotels namely, WH Rama
International, Grand Bay, Srinivasa Resort, ITC Park
(Chennai), Fortune Park Hotels Ltd., Maharaja Heritage
Resorts Ltd., Landbase India Ltd., Sullivan Court and
International Travel House for stationing various
managerial/ supervisory personnel, in order to maintain
ITC standards and run its operation in a smooth and
efficient manner. Since the respondent and those hotels
are independent cost centers, the salary and other cost
were recovered on actual basis, without any markup. It
is an undisputed fact on record that the respondent is
not engaged in the business of providing/ recruiting/
supply of man power. Rather, the respondent was
established with the sole objective of providing the
hospitality business of itself and through its associated
companies. Since the actual expenses incurred by the
respondent towards deployment of the managerial
personal were reimbursed by the hotels on actual basis,
without any markup, it cannot be said that such
expenses should be considered a service fee, taxable
under the category of "Manpower Recruitment or
Supply Agency" service. We find that in the case of
Fortune Parks Hotels Ltd. (supra), which is one of the
hotels, where the respondent deploys its staff
members, the Tribunal has held that the salary paid to
the employees and reimbursed by the hotels, without
any markup, cannot be subjected to service tax under
Section 67 of the Act, by treating the same as part of
the 'gross amount' charged by service provider 'for
services provided by him'."
37. In view of the aforesaid decision of the Tribunal, it has to be held
that the Commissioner committed no illegality in dropping the demand.
38. This apart, it needs to be noted that the Commissioner has also
found as a fact that ITC recovers salary and other costs of the employees
on actual basis without any markup.
22
ST/706/2011 &
ST/1086/2011
THIRD ISSUE
39. This issue pertains to commercial training and coaching services. It
has not been assailed by the department on merits and the only ground
taken in the appeal is regarding difference in the amount of demand
calculated by ITC and the department.
40. There was a difference in the figure as per the balance sheet of ITC
and the figures supplied to the audit. The department intended to recover
the demand on the basis of the higher of the two values. ITC had in their
reply given detailed explanation on this aspect. The Commissioner has
held that merely issuing the show cause notice without asserting the
correct value of the service and by selectively picking up the higher
amount is an incorrect way of issuing the show cause notice, and thus the
demand being only on presumptive basis was required to be set aside. The
Commissioner also observed that the department had not placed any
evidence to sustain the allegations. The Commissioner also observed that
the explanation offered by ITC in their reply to the show cause notice was
reasonable and appeared to be correct and should be accepted unless the
department was able place any evidence. The department has not been
able to point out any error in the findings recorded by the Commissioner.
FOURTH ISSUE
41. In the matter of Michael Brian Agars, the Commissioner observed
that he was performing programs in the hotels as an artist and, therefore,
there was no question of "supply of manpower service". There is no error
in the finding recorded by the Commissioner.
23
ST/706/2011 &
ST/1086/2011
FIFTH ISSUE
42. To examine the extended period of limitation, it would be pertinent
to refer to the finding recorded by the Commissioner that the extended
period of limitation contemplated under the proviso to section 73(1) of the
Finance Act could not have been invoked. The Commissioner observed as
follows:
"3.9.1 If the Noticees failed to assess the tax
correctly for period between 01.01.2005 and
16.05.2005 and pay the tax on time and file correct ST-
3 Return, then the initial onus of proof that the
Noticees had intentionally evaded the tax was on the
revenue. Only after the initial burden is discharged, the
extended period of limitation can be applied. Other
than the allegation of intentional evading of tax,
no evidence has been adduced to show that the
Noticees had the knowledge that they were liable
to pay tax and they avoided to pay the tax. It is
well established law that mere failure to pay the
tax is not sufficient to invoke the extended period
of limitation. The text of proviso to Section 73 (1) is
such that only fraud, suppression, mis-statement or
contravention of law is not sufficient to invoke the
extended period of limitation. The acts or omissions of
the defaulter have to be intentional. There, thus, is the
requirement of guilty mind or mens rea on part of the
defaulter. Mere allegation of intentional evasion is
not sufficient. The allegation has to be supported
by evidence. *****
In the present proceedings no evidence has been
brought on record to prove that the situations
visualised in proviso to Section 73 (1) existed. There is
nothing on record to show that the Noticees were
aware that they were liable to tax and they
intentionally evaded the payment of tax. In such
circumstances it is unfair to invoke extended period of
limitation.
*****
24 ST/706/2011 & ST/1086/2011 3.9.3 In the present proceedings there was doubt about the taxability of the services provided by a non resident service provider who had no office or establishment in India. Though Rule 2 (1) (d) (iv) was notified on 16.08.2002 yet no notification under Section 68 (2) was issued till 31.12.2004, which only could have enabled collection of service tax from a person other than the service provider. The Notification No. 36/2004- ST dated 31.12.2004 was issued under Section 68 (2) and it was made effective from 01.01.2005. The legal implications of the Rule 2 (1) (d) (iv) and notification 36/2004 have been discussed in paragraph 3.3.1. In such circumstances any ordinary assessee would have entertained doubts about the taxability of services received from a service provided located outside India. Even the revenue authorities themselves took time to rectify the situation of not notifying services under Section 68 (2). Only after notification of services under Section 68 (2) the legality of Rule 2 (1) (d) (iv) was upheld as discussed in paragraph 3.3.1. In such circumstances to charge the Noticees with suppressions of fact, mis- statement or contravention of law with intent to evade payment of tax is unjustified and illegal. ***** 3.9.4 The invoking of extended period of limitation under proviso to Section 73 (1) was, therefore, unjustified and illegal. As the demand for non-payment of service tax is beyond the normal period of one year hence the demand is unenforceable. As no service tax is recoverable, no interest can be demanded from the Noticees. The circumstances under which penalty under Section 78 can be imposed are similar to invoking of extended period of limitation. The invoking of extended period of limitation has been held to be unjustified. Accordingly, there can be no ground to impose penalty under Section 78."
(emphasis supplied) 25 ST/706/2011 & ST/1086/2011
43. Learned authorized representative appearing for the department submitted that the Commissioner committed an error in holding that the extended period of limitation could not have been invoked. The learned authorized representative pointed out that in the regime of self- assessment, it is the responsibility of an assessee to provide all relevant information and in any case even if there was a doubt, ITC could have sought clarification from the department. Thus, learned authorized representative submitted, it is the duty of an assessee to disclose all the material facts and any deviation would amount to intention to evade payment of service tax. To support this connection, learned authorized representative placed reliance upon the judgment of the Supreme Court in Mallur Siddeswara Spinning Mills (P) Ltd. vs. C.C.E., Coimbatore10 and the decisions of the Tribunal in Andhra Pradesh State Electricity Board vs. Collector of Central Excise, Hyderabad 11, Aircell Digilink India Ltd. vs. Commissioner of Central Excise, Jaipur 12 and Bharti Cellular Ltd. vs. Commissioner of Central Excise, Delhi 13.
44. Learned senior counsel appearing for ITC, however, supported the findings recorded by the Commissioner on the issue of invocation of the extended period of limitation.
45. The submissions advanced by the learned authorized representative appearing for the department and the learned senior counsel for ITC have been considered.
46. In order to appreciate the contentions, it would appropriate to reproduce section 73 of the Finance Act, as it stood at the relevant time.
10. 2004 (166) E.L.T. 154 (S.C.)
11. 1984 (16) E.L.T. 579 (Tribunal)
12. 2006 (3) S.T.R. 386 (Tri. - Del.)
13. 2006 (3) S.T.R. 423 (Tri. - Del.) 26 ST/706/2011 & ST/1086/2011 This section deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. It is as follows:
"73(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
PROVIDED that 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, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words "one year", the words "five years" had been substituted."
47. It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within one year from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay amount specified in the notice.
48. The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion 27 ST/706/2011 & ST/1086/2011 or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word "one year", the word "five years" has been substituted.
49. It is correct that section 73 (1) of the Finance Act does not mention that suppression of facts has to be "wilful‟ since "wilful‟ precedes only misstatement. It has, therefore, to be seen whether even in the absence of the expression "wilful" before "suppression of facts" under section 73(1) of the Finance Act, suppression of facts has still to be willful and with an intent to evade payment of service tax. The Supreme Court and the Delhi High Court have held that suppression of facts has to be "wilful‟ and there should also be an intent to evade payment of service tax.
50. Before adverting to the decisions of the Supreme Court and the Delhi High Court, it would be useful to reproduce the proviso to section 11A of Central Excise Act, 1944 14, as it stood when the Supreme Court explained "suppression of facts" in Pushpam Pharmaceutical Co. vs. Commissioner of Central Excise, Bombay 15. It is as follows:
"11A. Where any duty of excise has not been levied or paid or has been short-levied or short-pain or erroneously refunded, by the reason of-
(a) fraud; or
(b) collusion; or
(c) any wilful misstatement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Act of the rules made thereunder with intent to evade payment of duty
14. the Central Excise Act
15. 1995 (78) E.L.T. 401 (SC) 28 ST/706/2011 & ST/1086/2011 by any person chargeable with the duty, the Central Excise Officer shall, within five years from the relevant dated, serve notice on such person requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under Section 11AA and a penalty equivalent to the duty specified in the notice."
51. In Pushpam Pharmaceuticals Company, the Supreme Court examined whether the department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Central Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since "suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows:
"4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of court the context in which it has been used indicates otherwise. A perusal 29 ST/706/2011 & ST/1086/2011 of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression."
(emphasis supplied)
52. The Delhi High Court in Bharat Hotels Limited vs. Commissioner of Central Excise (Adjudication) 16 also examined the issue relating to the extended period of limitation under the proviso to section 73 (1) of the Finance Act, 1994 and held as follows:
"27. Therefore, it is evident that failure to pay tax is not a justification for imposition of penalty. Also, the word "suppression" in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso, i.e. "fraud, collusion, wilful misstatement". As explained in Uniworth (supra), "misstatement or suppression of facts" does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the assessee to avoid excise duty.
***** Thus, invocation of the extended limitation period under the proviso to Section 73(1) does not refer to a scenario where there is a mere omission or mere failure to pay duty or take out a license without the presence of such intention.
16. 2018 (12) GSTL 368 (Del.) 30 ST/706/2011 & ST/1086/2011 ***** The Revenue has not been able to prove an intention on the part of the Appellant to avoid tax by suppression of mention facts. In fact it is clear that the Appellant did not have any such intention and was acting under a bonafide belief."
(emphasis supplied)
53. It would also be appropriate to refer the decision of the Delhi High Court in Mahanagar Telephone Nigam Ltd. vs. Union of India and others 17. The Delhi High Court observed that merely because MTNL had not declared the receipt of compensation as payment for taxable service, does not establish that it had wilfully suppressed any material fact. The Delhi High Court further observed that the contention of MTNL that receipt was not taxable under the Act is a substantial one and no intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. The relevant portion of the observations are:
"28. In terms of the proviso to Section 73(1) of the Act, the extended period of limitation is applicable only in cases where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, or collusion, or wilful misstatement, or suppression of facts, or contravention of any provisions of the Act or the Rules made thereunder with an intent to evade payment of service tax. However, the impugned show cause notice does not contain any allegation of fraud, collusion, or wilful misstatement on the part of MTNL. The impugned show cause notice alleges that the extended period of limitation is applicable as MTNL had suppressed the material facts and had contravened the provisions of the Act with an intent to evade service tax. Thus, the main question to be addressed is whether the allegation
17. W.P. (C) 7542 of 2018 decided on 06.04.2023 31 ST/706/2011 & ST/1086/2011 that MTNL had suppressed material facts for evading its tax liability, is sustainable.
*****
41. In the facts of this case, the impugned show cause notice does not disclose any material that could suggest that MTNL had knowingly and with a deliberate intent to evade the service tax, which it was aware would be leviable, suppressed the fact of receipt of consideration for rendering any taxable service. On the contrary, the statements of the officials of MTNL, relied upon by the respondents, clearly indicate that they were under the belief that the receipt of compensation/financial support from the Government of India was not taxable. Absent any intention to evade tax, which may be evident from any material on record or from the conduct of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income. As stated above, merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL‟s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return."
(emphasis supplied)
54. It is, therefore, clear from the aforesaid decisions that the extended period of limitation could have been invoked only if there was suppression of facts with intent to evade payment of service tax.
55. It is in the light of the aforesaid position of law that the facts of the present case would have to be examined. The Commissioner has observed in the impugned order that even if ITC failed to correctly assess the 32 ST/706/2011 & ST/1086/2011 service tax for the period between 01.01.2005 and 16.05.2005 and had not filed correct ST-3 returns, then too it was for the department to substantiate that ITC had knowledge that it was liable to pay tax but still it avoided payment of tax since mere failure to pay tax is not sufficient to invoke the extended period of limitation. The findings recorded by the Commissioner are in accordance with the principles laid down in the aforesaid decisions.
56. This apart, it has also been contended by the learned senior counsel for ITC that ITC bona fide believed that it was not liable to pay service tax and, therefore, there can possibly be no intention on the part of ITC to evade payment of service tax.
57. ITC was justified in forming such an opinion as ultimately most of the demands have been dropped by the Commissioner. This contention advanced by the learned senior counsel of ITC deserves to be accepted in view of the judgment of the Supreme Court in Commissioner of C. Ex. & Customs vs. Reliance Industries Ltd. 18. The Supreme Court held that if an assessee bona fide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be mala fide. If a dispute relates to interpretation of legal provisions, the department would be totally unjustified in invoking the extended period of limitation. The Supreme Court further held that in any Scheme of self-assessment, it is the responsibility of the assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bona fide manner. The relevant portion of the judgment is reproduced below:
18. 2023 (385) E.L.T. 481 (S.C.) 33 ST/706/2011 & ST/1086/2011 "23. We are in full agreement with the finding of the Tribunal that during the period in dispute it was holding a bona fide belief that it was correctly discharging its duty liability. The mere fact that the belief was ultimately found to be wrong by the judgment of this Court does not render such belief of the assessee a mala fide belief particularly when such a belief was emanating from the view taken by a Division Bench of Tribunal. We note that the issue of valuation involved in this particular matter is indeed one were two plausible views could co-
exist. In such cases of disputes of interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation by considering the assessee's view to be lacking bona fides. In any scheme of self-assessment it becomes the responsibility of the assessee to determine his liability of duty correctly. This determination is required to be made on the basis of his own judgment and in a bona fide manner.
24. The extent of disclosure that an assessee makes is also linked to his belief as to the requirements of law. *****. On the question of disclosure of facts, as we have already noticed above the assessee had disclosed to the department its pricing policy by giving separate letters. It is also not disputed that the returns which were required to be filed were indeed filed. In these returns, as we noticed earlier there was no separate column for disclosing details of the deemed export clearances. Separate disclosures were required to be made only for exports under bond and not for deemed exports, which are a class of domestic clearances, entitled to certain benefits available otherwise on exports. There was therefore nothing wrong with the assessee's action of including the value of deemed exports within the value of domestic clearances."
(emphasis supplied) 34 ST/706/2011 & ST/1086/2011
58. Learned authorized representative also submitted that since it is a case of self-assessment, it was imperative for ITC to have provided all the relevant documents to the department
59. It is not possible to accept this contention. Even in a case of self- assessment, the department can always call upon an assessee and seek information and it is the duty of the proper officer to scrutinize the correctness of the duty assessed by the assessee. The departmental instructions issued to officers also emphasise that it is the duty of the officers to scrutinize the returns.
60. In this connection, reference can be made to the decision of the Tribunal in M/s. Raydean Industries vs. Commissioner CGST, Jaipur 19. The relevant portion of the decision of the Tribunal in Raydean Industries is reproduced below:
"24. It would be seen that the ER-III/ER-I returns filed by the applicant clearly show that the applicant had categorically declared that it had cleared the final products by availing the exemption under the notification dated 17.03.2012. The applicant had furnished the returns on the basis of self assessment. Even in a case of self assessment, the Department can always call upon an assessee and seek information. It is under sub-rule (1) of rule 6 of the Central Excise Rules, 20028 that the assessee is expected to self assess the duty and sub-rule (3) of rule 12 of the 2002 Rules provides that the proper officer may, on the basis of information contained in the return filed by the assessee under sub-rule (1), and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee. Sub-rule (4) of rule 12 also provides that every assessee shall make available to the proper officer all the documents and records for
19. Excise Appeal No. 52480 of 2019 decided on 19.12.2022 35 ST/706/2011 & ST/1086/2011 verification as and when required by such officer. Hence, it was the duty of the proper officer to have scrutinized the correctness of the duty assessed by the assessee and if necessary call for such records and documents from the assessee, but that was not done. It is, therefore, not possible to accept the contention of the learned authorized representative appearing for the Department that the appellant should have filed a proper assessment return under rule 6 of the Rules.
25. Departmental instructions to officers also emphasise upon the duty of officers to scrutinize the returns. The instructions issued by the Central Board of Excise & Customs on December 24, 2008 deal with "duties, functions and responsibilities of Range Officers and Sector Officers". It has a table enumerating the duties, functions and responsibilities and the relevant portion of the table is reproduced below:
*****
26. The Central Excise Manual published by CBEC on May 17, 2005, which is available on the website of CBEC, devotes Part VI to SCRUTINY OF ASSESSMENT.
*****
27. It is thus evident that not only do the 2002 Rules mandate officers to scrutinise the Returns to verify the correctness of self assessment and empower the officers to call for documents and records for the purpose, Instructions issued by the department also specifically require officers at various levels to do so."
(emphasis supplied) 36 ST/706/2011 & ST/1086/2011
61. In M/s G.D. Goenka Private Limited vs. The Commissioner of Central Goods and Service Tax, Delhi South 20, the Tribunal made similar observations and they are as follows:
"16. Another ground for invoking extended period of limitation given in the impugned order is that the appellant was operating under self- assessment and hence had an obligation to assess service tax correctly and take only eligible CENVAT credit and if it does not do so, it amounts to suppression of facts with an intent to evade and violation of Act or Rules with an intent to evade. We do not find any force in this argument because every assessee operates under self- assessment and is required to self-assess and pay service tax and file returns. If some tax escapes assessment, section 73 provides for a SCN to be issued within the normal period of limitation. This provision will be rendered otiose if alleged incorrect self- assessment itself is held to establish wilful suppression with an intent to evade. To invoke extended period of limitation, one of the five necessary elements must be established and their existence cannot be presumed simply because the assessee is operating under self-assessment."
(emphasis supplied)
62. It would also be pertinent to refer to the decision of the Tribunal in M/s. India Glycols Limited vs. Commissioner of CGST & Central Excise 21. The Tribunal held:
"39. What, therefore, transpires from the aforesaid decisions is that there can be a difference of opinion between the department and Revenue and an assessee may genuinely believe that it is not liable to pay duty. On the other hand, the department may have an opinion that the assessee is liable to pay duty. The assessee may, therefore, not pay duty in the self-
20. Service Tax Appeal No. 51787 of 2022 dated 21.08.2023
21. Excise Appeal No. 52129 of 2019 decided on 20.08.2024 37 ST/706/2011 & ST/1086/2011 assessment carried out by the assessee, but this would not mean that the assessee has wilfully suppressed facts. To invoke the extended period of limitation, one of the five necessary elements must be established and their existence cannot be presumed merely because the assessee is operating under self assessment. If some duty escapes assessment, the officers of the department can always call upon the assessee to submit further documents and he may also conduct an enquiry. In fact when the audit was conducted, the officers of the audit team would have scrutinized the records and, therefore, notice should have been issued within the stipulated time from the date the audit was conducted. Even otherwise merely because facts came to light only during the audit does not prove that there was an intent on the part of the assessee to evade payment of duty."
(emphasis supplied)
63. In Sunshine Steel Industries vs. Commissioner of CGST, Customs & Central Excise, Jodhpur 22, the Tribunal observed that the department cannot be permitted to invoke the extended period of limitation by merely stating that it is a case of self-assessment. The relevant observations are:
"20. The Department cannot be permitted to invoke the period of limitation by merely stating that it is a case of self-assessment as even in a case of self-assessment, the Department can always call upon an assessee and seek information. It is under sub-rule (1) of rule 6 of the Central Excise Rules, 2002 that the assessee is expected to self-assess the duty and sub-rule (3) of rule 12 of the Rules provides that the proper officer may, on the basis of information contained in the return filed by the assessee under sub-rule (1), and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the
22. (2023) 8 Centax 209 (Tri.-Del.) 38 ST/706/2011 & ST/1086/2011 assessee. Sub-rule (4) of rule 12 also provides that every assessee shall make available to the proper officer all the documents and records for verification as and when required by such officer. Hence, it was the duty of the proper officer to have scrutinized the correctness of the duty assessed by the assessee and if necessary call for such records and documents from the assessee, but that was not done. It is, therefore, not possible to accept the contention of the learned authorized representative appearing for the Department that the appellant should have filed a proper assessment return under rule 6 of the Rules."
(emphasis supplied)
64. Civil Appeal No. 4246 of 2023 (Commissioner of CGST, Customs and Central Excise vs. Sunshine Steel Industries) filed by the department before the Supreme Court to assail the aforesaid decision of the Tribunal in Sunshine Steel Industries was dismissed by the Supreme Court on 06.07.2023 and the judgment is reproduced below:
"Delay condoned.
2. Heard learned counsel for the appellant.
3. This Court is not inclined to interfere with the impugned order of the High Court (Sic).
4. The appeal is dismissed.
5. Pending applications, if any, are disposed of."
65. Learned authorised representative appearing for the department also submitted that in case there was any doubt, ITC could have obtained clarification from the department, but as it did not obtain clarification it is evident that it suppressed facts with intention to evade payment of service tax.
66. This contention of the learned authorized representative appearing for the department cannot be accepted. There is no requirement for an 39 ST/706/2011 & ST/1086/2011 assessee to seek clarification from the department, as was held by the Delhi High Court in Mahanagar Telephone Nigam. The relevant portion of the judgment of the Delhi High Court is reproduced below:
"32. *********. Further, there is no provision in the Act which contemplates any procedure for seeking clarification from jurisdictional service tax authority. Clearly, the reasoning that MTNL ought to have approached the service tax authority for clarification, is fallacious."
67. Learned authorized representative appearing for the department has, however, placed reliance upon certain decisions to contend that the Commissioner committed an error in holding that the extended period of limitation could not have been invoked.
68. In Mallur Siddeswara Spinning Mills, it was noticed by the Supreme Court that both the Commissioner and the Tribunal had held that the Trade Notice that was issued by the Delhi Collectorate clarified that if the machine or a generator was superficially attached or bolted to the ground to ensure that its operation was vibration free it would not mean that it became an immovable property, as it can be unbolted and bought and sold. It was, therefore, held that suppression of this fact, despite of the clarification issued in the Trade Notice, was with an intention to evade payment of service tax.
69. In Andhra Pradesh State Electricity Board, the Tribunal explained that 'bona fide belief' does not mean a blind belief or a self opinionated belief. It is a belief which is reached after a sincere attempt to understand the issue and examine it reasonably.
70. In Aircell Digilink India, the Tribunal observed that the contention of the appellant that it had been working under a 'bona fide belief' that the 40 ST/706/2011 & ST/1086/2011 service of sale of SIM cards to the subscribers was not taxable could not be accepted as there was nothing on the record to suggest that the appellant approached the office of the service tax authorities to ascertain the details. This decision of the Tribunal holding that the appellant should have approached the authorities for guidance is contrary to the decision of the Delhi High Court in Mahanagar Telephone Nigam.
71. In Bharti Cellular, the Tribunal found as a fact that suppression of facts was with an intention to evade payment of service tax.
72. The aforesaid decisions relied upon by the learned authorized representative appearing for the department, therefore, do not come to the aid of the department.
73. There is, therefore, no error in the order of the Commissioner holding that the extended period of limitation could not have been invoked in the facts and circumstances of the case.
74. As there is no merit in any of the contentions advanced by the learned authorized representative appearing for the department, Service Tax Appeal No. 706 of 2011 filed by the department deserves to be dismissed.
75. Service Tax Appeal No. 1086 of 2011 has been filed by ITC to assail that part of the order passed by the Commissioner which denies relief to ITC. This relates to the demand of service tax proposed on "manpower recruitment or supply agency service". In relation to manpower supply to five units on cost recovery basis, the Commissioner noticed that ITC had deputed employees to other hotels to operate and maintain those hotels in line with ITC Welcome group standards and run those hotels in a smooth and efficient manner. Thus, supply of manpower to five hotels for a period of nearly three years would clearly attract 41 ST/706/2011 & ST/1086/2011 service tax under the head of "manpower recruitment or supply agency service".
76. There is no error in the finding recorded by the Commissioner as indeed ITC did provide manpower supply to the five hotels.
77. In regard to the agreement with G.J. Hamburger Production, the Commissioner noted that ITC admitted the service tax liability to the extent of Rs. 11,99,700/-. This ground has, therefore, not been pressed by the learned senior counsel appearing for ITC.
78. Service Tax Appeal No. 1086 of 2011 filed by ITC, therefore, deserves to be dismissed.
79. Thus, for all the reasons stated above, Service Tax Appeal No. 706 of 2011 filed by the department and Service Tax Appeal No. 1086 of 2011 filed by ITC are dismissed.
(Order Pronounced on 15.04.2025) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) Shreya