Customs, Excise and Gold Tribunal - Delhi
Jindal Steel And Power Ltd. vs Commissioner Of Central Excise on 2 February, 2006
ORDER
R.K. Abichandani, J. President Facts:
1. The appellant challenges the order of the Commissioner (Appeals), Raipur, made on 1.3.2005 upholding the order of the Assistant Commissioner of Central Excise, Division Bilaspur, passed on 29.11.2004 by which he had rejected the refund claim of the present appellant to the tune of Rs. 10,56,648/-.
2. The appellant made an application for refund of service tax on 14.6.2003, claiming the refund of the aforesaid amount on the following grounds :
(a) We have wrongly paid the aforementioned amount towards the 'Consulting Engineering Services' received from a foreign company, NKK Corporation, Japan against their Invoice No. JDPL/ RMON/02 dated 2nd October-2002. The payment made through TR-6 Challan No. 01 dated 24.12.2002, "Under Protest", is covered in the return in Form ST-3 for the half year ending March, 2003 filed by us on 25.4.2003.
(b) The Service Tax is exempted on the above services vide Notification No. 18/2002-ST dated 16.12.2002 to the extent of the amount paid as Research & Development Cess on account of transfer of technology under Section 3 of the Research and Development Cess Act, 1986 (32 of 1986).
3. The appellant had paid the service tax filing returns in respect (hereof in form ST-3 for the half year ending 31.12.2002 along with TR-6 challan dated 24.12.2002 for Rs. 10,56,648/-. The returns of service tax credited to the Government of India were for the periods from 1.7.2002 to 31.12.2002, and 1.10.2002 to 31.3.2003, and it was stated therein that the category of services was 'consulting engineer' (engineering consultancy taken from a foreign company). It was mentioned in the return that the particulars were given in accordance with the records and books maintained by the appellant and were correctly stated and that the appellant had assessed and paid the service tax correctly in terms of the provisions of the Act and the rules made thereunder. It was stated that the appellant was exempted from making payment of service tax on the amount paid to NKK Japan (the foreign service provider) in terms of Notification No. 18/2002-ST dated 16.12.2002.
4. In the context of the application for refund of service tax amount of Rs. 10,56,648/- made under Section 11B of the Central Excise Act, 1944, the Revenue issued a show cause notice dated 9.1.2004 as to why the refund claim should not be rejected. As per the show cause notice it, prima facie, had appeared to the Revenue that because the services provided by NKK Japan to the appellant appeared to be "technical assistance" and not "transfer of technology", their claim for exemption from service tax by virtue of the notification dated 16.12.2002, was not admissible.
4.1 In reply dated 30.1.2004 to that show cause notice, the appellant stated that for successful operation of its units it had entered into two separate agreements both dated 10.4.2002 with the foreign service provider (NKK Corporation now known as JFE Engineering Corporation, Japan). It was then stated : "One agreement stands for passing on techniques of rail steel grade production and the other agreement stands for passing on the techniques of manufacture of rails, beams, columns etc. The services of M/s. NKK Corporation fall under the category of engineering consultancy services in terms of the Service Tax Rules, 1994". It was admitted that till 16.8.2002 when Notification No. 12/2002-ST came into effect NKK Corporation was liable to comply with the Service Tax rules both in respect of making payment of service tax and in respect of filing return. It was also admitted that by virtue of the said notification, the appellant, as the person receiving engineering consultancy services from NKK Corporation had become liable for obtaining registration, making payment, filing returns and other compliances. Accordingly, on its application, the appellant was granted service tax registration on 4.10.2002, and since then it had been complying with all the provisions in the matter of taxable services taken from the foreign service provider NKK Corporation. It was further stated that first time, the appellant made a payment of service tax of Rs. 10,56,648/ under challan dated 24.12.2002 "against the amount of engineering consultancy service charges paid to NKK Corporation, Japan, as detailed in the service tax returns". The service tax so paid, was paid under protest in view of exemption Notification No. 1872002-ST dated 16.12.2002 for availing the benefit of exemption from payment of service tax. Thereafter, the appellant had filed the refund claim of the said amount on 4.7.2003, in respect of which the show cause notice dated 15.1.2004, was issued, it was contended in the reply that any kind of transfer of technology was one kind of technical assistance and that the scope of service provided by NKK Corporation, Japan was specified in Annexure-2 to the first agreement and Annexures-1 and 2 to the second agreement. It was submitted that the definition of the term "technology" was not given in the provisions of the Service Tax Act or the exemption notification dated 16.12.2002, and therefore its meaning was to be derived from the definition contained in Section 2(h) of the Research & Development Cess Act, 1986 as per which, "technology" means any special or technical knowledge or any special service required for any purpose whatsoever by an industrial concern under any one collaboration, and included designs, drawings, publications and technical personnel. It was further submitted that NKK Corporation had undertaken to provide nothing but transfer of special technical knowledge/service required by the appellant as an industrial concern under the collaboration including designs, drawings and services of technical personnel, duly approved by the Government of India in its letter dated 14.6.2002. It was contended that inasmuch as the question of co-relation between the amount in the R&D Cess challans and the corresponding amount in ST-3 return was concerned, whereas the amount of service tax of Rs. 10,56,648/- was determined on the assessable value against the invoice dated 2.10.2002, the amount of R & D Cess of Rs. 12,786,005/- had been paid against two invoices dated 2.10.2002. As the second invoice dated 2.10.2002 related to off shore service provided to the appellant, that transaction had no relevance with the service tax return.
5. It will thus be noticed that the case of the appellant both in the claim application as well as in the reply to show cause notice entirely rested on the exemption claimed on the basis of the exemption notification No. 18/2002-ST dated 16.12.2002. According to the appellant, when cess was payable on transfer of technology under Section 3 of the Research & Development Cess Act, 1986, and such cess had been paid by the appellant, the benefit of such exemption was available to the appellant for the purpose of payment of service tax payable on taxable services provided by NKK Corporation, Japan. It was categorically admitted, even in the reply to the show cause notice, by the appellant that the appellant as the person receiving engineering consultancy services from NKK Corporation, Japan, had become liable for obtaining registration, making payment, filing returns and other compliances.
6. The learned Assistant Commissioner on the basis of the material on record and the contentions raised before him came to the conclusion that the Notification No. 18/2002-ST dated 16.12.2002 exempted the taxable services provided by a consulting engineer to a client on the transfer of technology from so much of the service tax leviable thereon under Section 66 of he Act as was equivalent to the amount of cess paid on the said transfer of technology under the provisions of Section 3 of R & D Cess Act, 1986. That notification was effective from 16.12.2002 and gave exemption to taxable services from payment of service tax to the extent equivalent to the said cess paid under the R & D Cess Act and therefore, the taxable services provided by a consulting engineer prior to 16.12.2002, did not fall within the scope of the said notification. It was held that the notification issued by the Government of India did not have retrospective effect and operated prospectively from the date of its publication. The refund claim was, therefore, rejected on the ground that exemption equivalent to the R & D cess paid under the provisions of the R & D Cess Act was not available to the appellant as the services on which exemption was sought pertained to the period prior to the date of that notification.
6.1 The Commissioner (Appeals) after considering all the relevant aspects of the matter noted that the main issue to be decided in the case was whether the Notification No. 18/2002-ST dated 16.12.2002, had a retrospective effect. It was held that the said notification exempted the taxable services provided by a consulting engineer to a client on transfer of technology from so much of service tax leviable under Section 66 as was equivalent to the amount of cess paid on or after 16.12.2002, and that there was no indication in the notification that it would have retrospective effect. Since the service tax was paid on the basis of the invoice dated 2.10.2002 issued by the foreign service provider NKK Corporation, the payment of the value and the service tax related to the services received by the appellant prior to 2.10.2002, i.e., before the issuance of the notification dated 16.12.2002. Even the R & D cess was paid on 18.11.2002, i.e., prior to the date of the notification. It was, therefore, held that the benefit of the said notification cannot be given to the appellant. The Appellate Commissioner also found that the appellant was taking services from the contractor on regular basis and making the payments on the basis of each individual bills, which could only be finalized on completion of the total contract. It was held that in such cases payment of service tax was required to be made by the appellant on the basis of the bills raised to them on every occasion. The appellant had contested the addendum issued for the show cause notice, but the Appellate Commissioner rejected the contention on the ground that the show cause notice issued in the context of the refund application under Section 11B was not to be confused with a show cause notice, that may be issued under Section 11A for recovery of erroneous refund. That finding is not challenged before us during the arguments.
Arguments on behalf of the Appellant:
7. It was contended on behalf of the appellant that the appellant was the receiver of service from outside India prior to 24.12.2002, and was, therefore, not a "person liable to pay" under Section 68(2) of the Finance Act, 1994, as the taxable service alleged in the notice was not notified by the Central Government under Section 68(2) in the official gazette till 7.6.2005. It was then argued that Rule 2(d) merely prescribed the person and the manner in which the tax was to be paid, but did not notify the taxable service, as contemplated by the first part of Section 68(2). It was submitted that the power under Section 68(2) had been exercised by issuance of Notification No. 36/2004 dated 31.12.2004. It was then submitted that agreement provided for transfer of technology which was not a taxable service. It was contended that intellectual property services became taxable service with effect from 10.9.2004 by notification of the even date by inserting Clause (55b) in Section 65 of the Finance Act, 1994, and therefore, no service tax could be recovered on the transfer of technology under the agreement in question. It was, therefore, submitted that the appellant was entitled to get the refund of service tax which was paid under protest.
7.1 In support of her contention, the learned Counsel for the appellant placed reliance on the following decisions:
(A) The decision of the Tribunal in Yamaha Motors (I) Pvt. Ltd. v. Commissioner of Central Excise, Delhi-IV (Faridabad) , was cited for the proposition that the agreement for licensing the transfer of intellectual property rights which included teaching services which formed part of transfer of know-how, did not amount to consultancy service since it was a transfer of intellectual property. It will be seen from paragraph 7 of the judgment that the Tribunal had found on facts that the relationship between the parties was not one of consultant and client, but seller and buyer of assets. In paragraph 9 of its judgment, the Tribunal acknowledged the proposition laid down in Bajaj Auto Ltd. and Aviat Chemicals Pvt. Ltd. etc. that if a manufacturer undertakes consultancy in addition to manufacture, it will be liable to tax in regard to the service rendered and held that the said proposition had no application to where the agreement was, as in the case before it, for transfer of intellectual property and no consultancy service was rendered.
(B) The decision of the Tribunal in Commissioner of Central Excise, Noida v. Motherson Auto Component Engineering Ltd. reported in 2005 (186) ELT. 96, was cited in which where service tax was not paid and a show cause notice proposing recovery of service tax and imposition of penalty was issued on the receivers of consulting engineering service, but the Commissioner set aside the adjudication order on the ground that the period of dispute was prior to 28.2.99 and August 2002 when service tax rule was amended to provide that in a case of a person who is a non-resident or was outside from India and did not have office in India, service tax shall be paid either by such person or on his behalf by any per authorized by him, the Tribunal saw no reason to interfere with the impugned order.
(C) The decision of this Tribunal in Bajaj Auto Ltd. v. Commissioner of Central Excise, Aurangabad reported in 2005 (179) 481 (Mumbai), was cited to point out that in a case where the Commissioner (Appeals) had confirmed adjudication order of demand of service tax in respect of consulting engineering services rendered by a foreign service provider, the Tribunal upheld the contention that the recipient of service cannot be both client and agent simultaneously and that proviso to Rule 6 of the Service Tax rules was obviously meant to ensure that the service provider outside India not having any office in India, did not escape liability to pay if he had a representative/agent in India and to ensure that such representative/agent did not wriggle out of liability for payment of service tax on the ground that he did not render any taxable service in India.
(D) The decision of the Tribunal in Moser Baer India Ltd. v. Commissioner of Central Excise, Noida reported in 2005 (187) ELT 123, was cited to point out that, in a case where the Commissioner (Appeals) confirmed the service tax liability on the appellant on the ground that, they were authorized agents of the service provider in terms of the agreement, it was held that from the perusal of the agreement, it could not be concluded that the appellant had been appointed as authorized agent by that company during the period in dispute to discharge the "service liability" on their behalf and, therefore, the service tax for the period in dispute could only be legally claimed/recovered from the service provider.
Arguments on behalf of the Revenue:
8. The learned authorized representative for the department supporting the reasoning and conclusions reached by the authorities below contended that the appellant cannot be allowed to raise a ground which never was raised and the appeal is required to be decided only on the basis of the record and the nature of the claim, as decided by the authorities below. He submitted that the appellant cannot go beyond the scope of the application for refund made by it. It was argued that the self-assessment made by the appellant had become final and there was no need for any regular assessment when the self assessment was accepted. The only protest was on the ground that refund claim would be admissible in view of the exemption notification issued on 16.12.2002. Referring to various clauses of the agreement, he submitted that the service tax was rightly considered to be payable by the appellant. It was submitted that all the cases on which reliance was placed on behalf of the appellant related to demand of service tax prior to 16.8.2002 and could, therefore, have no application to the case of the appellant. It was submitted that the appellant had not claimed refund on the ground that the service tax was not leviable, but the claim was based only on the ground of exemption notification, which has rightly been held by the authorities below not to have any retrospective effect.
8.1 In support of his contentions, the learned authorized representative for the department relied upon the decision of the Supreme Court in Priya Blue Industries v. Commissioner of Customs (Preventive) reported on , in which it was held that refund claim contrary to assessment order was not maintainable without the order of assessment having been modified or reviewed under the Customs Act, 1962.
Reasons:
9. During the arguments made on behalf of the appellant it became clear that the appellant was trying to shift its stand as regards the basis on which the refund was claimed by urging totally a different contention which was never the basis for making the refund claim. The entire basis of the refund claim till the stage of the arguments before this Tribunal has been that the appellant was entitled to the benefit of the exemption notification dated 16.12.2002. Now, under the guise of taking up additional ground that the appellant was not "a person liable to pay", as suggested in the miscellaneous application, the appellant has attempted to raise the refund claim on altogether a different ground not contained in the application for refund which was filed on 14.6.2003. If an application claiming refund on this new ground were to be made for the first time, when it is sought to be raised in the guise of additional grounds, it would have obviously been time barred. Such a drastic shift in the stand changing the very nature and basis of the refund claim cannot be countenanced when made for the first time before this Tribunal. In any event, the additional ground is not available to the appellant in the facts of this case as will be noticed hereafter, because the service tax liability of the provider under Section 68(1) was discharged under a mutual arrangement with the appellant.
10. The appellant had made the payment of the amount which was payable as service tax in respect of the services provided by the foreign party NKK Corporation and it was earmarked for deposit in the invoice issued by the NKK Corporation on 2.10.2002, a copy of which is on record. As per that invoice which was sent to the appellant as per the agreement for technical assistance for rail and universal rail beam mill at Raigarh Works (Stage 1) dated April 10, 2001, the service tax "for deposit" to the tune of 2,631,750 Yens was clearly added. This amount in Yen as calculated by both sides tallies with the amount of service tax paid by the appellant. This amount which was added in the invoice as service tax in respect of technical assistance rendered by the service provider was the liability of the service provider and, therefore, it was sought to be collected under the invoice by adding it to the total amount payable by the appellant. However, this amount was actually paid by the appellant instead of sending it to the foreign service provider in view of the specific stipulations reached between them in the agreement for technical assistance.
11. The relevant terms of the technical assistance agreement which has a bearing on this aspect arc reproduced hereunder from the copy of the agreement which is on record :
5.1 All the payments under ARTICLE 4-1 shall be net receivable by NKK i.e. after payment of Income Tax, Service tax/R&D Cess or any other tax or duty as may be applicable in India. Thus, in case of taxes and other charges, applicable under Indian Laws, that are deductible by JSPL the same would be borne by JSPL without impacting the compensation payable to NKK under ARTICLE 4 and in case of taxes and charges, applicable under Indian Laws, that are payable by NKK, the same would be borne by JSPL in addition to the compensation payable to NKK under ARTICLE 4.
JSPL agrees to bear without making any deductions from payments to be made to NKK such amount of income tax and service tax specified in Paragraphs 5-2 and 5-3 thereof, and all other taxes and charges of whatever nature, which are presently imposed or may hereinafter be imposed by the Government of India, local and/or other authorities along with any charges incurred in connection with making payments, on all the amounts payable by JSPL to NKK under this Agreement in India in connection with and/or as a result of the execution of this Agreement. Any changes in legislation reducing or increasing any of the above taxes or charges shall be to the benefit and cost of JSPL respectively. Notwithstanding the same, the amount payable by JSPL to NKK would remain unchanged, i.e. the amount of compensation specified under ARTICLE 4.
XXX XXX XXX 5.3 In addition to the amounts specified in Paragraph 5-1 above payable to NKK JSPL shall remit to NKK the amount equivalent to the amount of service tax levied and payable/paid under the Finance Act, 1994 or any other Act governing service tax at the material point of time. The service tax shall be levied on the sum of the amounts of the compensation payable to NKK under ARTICLE 4 and also on the applicable withholding tax as provided under ARTICLE 5 above.
5.4 In case NKK is required to pay any tax, fine, penalty and/or interest arising due to JSPL not fulfilling its obligations under ARTICLES 5-1. 5-2 and 5-3, JSPL shall be required to compensate such tax, fine, penalty and/or interest paid, payable, incurred and or/suffered on or in relation to such legal/administrative charges, b y NKK in any jurisdiction".[All emphasis is added] 11.1 The service tax was chargeable on the service provider even as stipulated in the agreement, but the appellant instead of remitting it to the foreign party-service provider NKK Corporation, Japan, as required by Article 5.3, credited it to the Central Government by filing the return to discharge the statutory liability of the service provider in respect of the value of the taxable service. The service provider instead of collecting service tax from the appellant as per the invoice dated 2.10.2002 had imposed an obligation on the appellant to pay that amount in the treasury, as contemplated in Article 5.1 which provided that in the case of taxes payable by NKK Corporation, i.e., the foreign service provider, they would be borne by JCPL, i.e., the appellant and that the JCPL agreed to bear such amount of service tax specified in para 5.3. The appellant by paying the amount of service tax as per the invoice had in fact discharged the liability of the service provider pursuant to the obligation to do so, which was undertaken by the appellant under Clauses 5.1 read with Clause 5.3 of the agreement. If the appellant had not done so, it would have become liable to the service provider under Article 5.4 of the agreement. It cannot, therefore, be said that the service tax was erroneously paid or that it was not payable in respect of the services provided to the appellant, though it was earmarked for deposit, as stated in the said invoice dated 2.10.2002 which was issued by the foreign service provider on the appellant. The attempt to shift the focus of the case from Section 68(1) to Section 68(2) is, therefore, wholly misconceived. The service tax payable in respect of taxable service cannot become refundable merely because instead of the service provider collecting and crediting it to the Central Government, it was so credited by the recipient of service under their mutual arrangement. Any other view will amount to putting a premium on dishonest claim of refund of service tax due and paid in respect of the taxable service in question at the instance of the service provider by the recipient under their contractual arrangement.
12. We are not concerned with any hypothetical question, which was sought to be raised during the arguments as to what would have happened had the tax not been paid despite the contractual obligation undertaken by the appellant to pay it directly instead of sending it to the provider. When the service tax was admittedly due and payable by the provider of service and was validly paid pursuant to the mutual payment arrangement between the parties, no such irrelevant aspect can make the amount which was validly paid as service tax to be refundable. It has not been disputed before us during the arguments that the benefit of the notification dated 16.12.2002 was not admissible to the appellant, since the service tax had become payable on 2.10.2002. The reasoning of both the authorities below is sound and acceptable on the question of the non-applicability of the exemption notification to the petitioner's case. We find ourselves in complete agreement with the reasoning adopted and findings reached by both the authorities below and find no warrant for interference with the impugned order on any of the contentions raised on behalf of the appellant.
Final Order:
13. For the foregoing reasons, the appeal is dismissed and the miscellaneous application is rejected.
Pronounced on 2.2.2006.