Karnataka High Court
M/S Tyresoles India Pvt., Ltd vs The Union Of India on 10 January, 2025
IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH
DATED THIS THE 10TH DAY OF JANUARY, 2025
BEFORE
THE HON'BLE MR. JUSTICE C.M. POONACHA
WRIT PETITION No.102458 OF 2019 (T-RES)
C/W
WRIT PETITION No.108984 OF 2015 (T-TAR)
WRIT PETITION No.102040 OF 2017 (T-EX)
IN W.P.NO.102458 OF 2019
BETWEEN
M/S.TYRESOLES (INDIA) PVT. LTD.,
PLOT NO.35 AND 36,
KAKATI INDUSTRIAL ESTATE,
BELAGAVI-591113,
(REPRESENTED BY ITS AUTHORISED SIGNATORY
AND VICE-PRESIDENT,
SHRI. SHIVANAND GOPAL PATIL)
...PETITIONER
(BY SRI. RAJESH CHANDER KUMAR, SENIOR COUNSEL,
SRI. ARAVIND D KULAKARNI, ADVOCATE)
AND
1. THE UNION OF INDIA
REPRESENTED BY ITS SECRETARY,
MINISTRY OF FINANCE,
NORTH BLOCK,
NEW DELHI-110011.
2. THE MINISTRY OF FINANCE,
GOVERNMENT OF INDIA,
REPRESENTED BY ITS SECRETARY MF (DR)
NEW DELHI-110011.
3. THE COMMISSIONER OF
CENTRAL TAX AND CENTRAL EXCISE
NO.71, CLUB ROAD,
-2-
BELAGAVI-590001.
...RESPONDENTS
(BY SRI. SHIVARAJ S BALLOLLI, ADVOCATE FOR R1 TO R3)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT OF
MANDAMUS/CERTIORARI OR ANY OTHER SUCH WRIT, ORDER OR
DIRECTION AS THIS HON'BLE COURT MAY DEEM FIT QUASHING THE
IMPUGNED ORDER-IN-ORIGINAL NO.BEL-EXCUS-000-COM-BKK-006-
2018-19(ST) PASSED ON 23.10.2018 AND ISSUED ON 05.11.2018
BY RESPONDENT NO.3 (ANNEXUE-"A") AS BEING IN ABUSE OF
JURISDICTION, WHOLLY ARBITRARY, ILLEGAL AND UNTENABLE IN
LAW, AS WELL AS BEING IN VIOLATION OF ARTICLES 14, 19(1)(g)
AND 141 OF THE CONSTITUTION OF INDIA AND ETC.
IN W.P.NO.108984 OF 2015
BETWEEN
M/S TYRESOLES INDIA PVT., LTD.,
KAKATI INDUSTRIAL AREA,
KAKATI, BELAGAVI-591113
REPRESENTED BY ITS GENERAL
MANAGER ACCOUNTS
...PETITIONER
(BY SRI. SATISH L KARALE, SRI. ANIRUDHA R J NAYAK AND
SRI. ARAVIND D KULKARNI ADVOVCATES)
AND
1. THE UNION OF INDIA
R/BY ITS SECRETARY
MINISTRY OF FINANCE,
NORTH BLOCK, NEW DELHI
2. THE MINISTRY OF FINANCE
GOVERNMENT OF INDIA,
R/BY ITS SECRETARY MF (DR),
NEW DELHI.
3. THE COMMISSIONER OF CENTRAL EXCISE
AND SERVICE TAX
C R BUILDINGS, NO. 71, CLUB ROAD,
BELAGAVI-590005
...RESPONDENTS
(BY SRI.MRUTYUNJAY TATA BANGI, ADVOCATE FOR R1 TO R3
-3-
SRI. SHIVARAJ S BALLOLLI, ADVOCATE FOR R1 TO R3
SRI. K. B. NAVALAGIMATH, ADVOCATE FOR R1 & R2)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT OF
CERTIORARI OR ANY OTHER WRIT, ORDER OR DIRECTION AS THIS
HON'BLE COURT MAY DEEM FIT AND PROPER, QUASHING ORDERS-
IN-ORIGINAL NOS.BEL-EXCUS-000-COM-BHR-7 (ST)-15-16
DATED:04.06.2015 OF RESPONDENT NO.3 ANNEXURE-B AS BEING
AS BEING WITHOUT JURISDICTION AND THUS ILLEGAL AND
UNTENABLE IN LAW AND ETC.
IN W.P.NO.102040 OF 2017
BETWEEN
M/S TYRESOLES (INDIA) PVT. LTD.,
PLOT NO: 35 AND 36,
KAKATI INDUSTRIAL ESTATE,
BELAGAVI-591113,
REPRESENTED BY ITS VICE PRESIDENT
SHRI SHIVANAND GOPALL PATIL,
AGE 44, R/O: BELAGVI
...PETITIONER
(BY SRI. ANIRUDHA R J NAYAK, SMT/SRI. YOVINI RAJESH KOHRA,
SRI. T V AJAYAN AND SRI. ARAVIND D KULKARNI, ADVOCATES)
AND
1 . THE UNION OF INDIA
REPRESENTED BY ITS SECRETARY,
MINISTRY OF FINANCE,
NORTH BLOCK, NEW DELHI
2 . THE MINISTRY OF FINANCE
GOVERNMENT OF INDIA,
REP BY ITS SECRETARY MF (DR)
NEW DELHI-110011
3 . THE COMMISSIONER OF
CENTRAL EXCISE and SERVICE TAX
C R BUILDINGS, NO.71, CLUB ROAD
BELGAUM-590005
4. THE ASSISTANT COMMISSIONER OF CENTRAL
-4-
EXCISE AND SERVICE TAX,
C R BUILDINGS, NO.71, CLUB ROAD,
BELGAUM-590005
... RESPONDENTS
(BY SRI. M B KANAVI, ADVOCATE FOR R1 AND R2
SRI. JEEVAN J NEERALAGI, ADVOCATE FOR R3 AND R4)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT OF
CERTIORARI OR ANY OTHER WRIT, ORDER OR DIRECTION AS THIS
HON'BLE COURT MAY DEEM FIT AND PROPER, QUASHING ORDERS-
IN-ORIGINAL NOS.BEL-EXCUS-000-COM-BKK-026-2016-17(ST)
DATED:29.11.2016, VIDE ANNEXURE-H, BEL/ EXCUS/000/DIV1/
ASC/KKM/83/2016-17-ST DATED:28.12.2016 VIDE ANNEXURE-J AND
BEL/ EXCUS/000/DIV1/ ASC/KKM/84/2016-17-ST DATED:28.12.2016
ANNEXURE-K AS BEING AS BEING WITHOUT JURISDICTION AND
THUS ILLEGAL AND UNTENABLE IN LAW AND ETC.
THESE PETITIONS HAVING BEEN HEARD AND RESERVED FOR
ORDERS ON 19.12.2024 COMING ON FOR 'PRONOUNCEMENT OF
ORDER' THIS DAY, THE COURT MADE THE FOLLOWING:-
CORAM: HON'BLE MR JUSTICE C.M. POONACHA
CAV ORDER
W.P.No.102458/2019 is filed seeking for the following
reliefs:
"(a) Issue a writ of mandamus/certiorari or any
other such writ order or direction as this
Hon'ble Court may deem it fit quashing the
impugned Order-In-Original NO.BEL-EXCUS-
000-COM-BKK-006-2018-19 (ST) passed on
23.10.2018 and issued on 05.11.2018 by
respondent No.3 (Annexure-'A') as being in
abuse of jurisdiction, wholly arbitrary, illegal
and untenable in law, as well as being in
violation of Articles 14, 19(1)(g) and 141 of the
Constitution of India.
(b) Issue a writ of mandamus, or any other
such writ order or direction, holding and
declaring that the provisions of Section 35F of
-5-
the Central Excise Act, 1944 is wholly arbitrary,
ultra-vires and violative of Article 14 of the
constitution and thus unenforceable.
(c) In the alternative, and without prejudice to
the foregoing reliefs prayed for; issue a writ of
mandamus or any other such writ, order or
direction as this Hon'ble Court may deem fit
dispensing with the requirement to pre-deposit
of 7.5% (ten percent) of the demand of tax
made under the order-in-original NO.BEL-
EXCUS-000-COM-BKK-006-2018 19 (ST)
passed on 23.10.2018 and issued on
05.11.2018 by respondent No.3 (Annexure-'A')
otherwise required to be made under the
provisions of Section 83 of the Finance Act,
1994, read with Section 35F of the Central
Excise Act 1944, should this Hon'ble Court, in
the facts and circumstances of the case deem it
fit and proper that the petitioner ought to
prefer an appeal before the Hon'ble Customs
Excise and Service Tax Appellate Tribunal,
against the Order-In-Original No.BEL-EXCUS-
000-COM-BKK-006-2018-19 (ST) passed on
23.10.2018 and issued on 05.11.2018
(Annexure-'A')."
2. W.P.No.108984/2015 is filed seeking for following
reliefs:
"(a) Issue a writ of certiorari, or any other writ,
order or direction as this Hon'ble Court may
deem fit and proper, quashing order -in-original
in No.BEL-EXCUS-000-COM-BHR-07(ST)-15-16
dated 04.06.2015 of respondent no.3
Annexure-B as being without jurisdiction and
thus illegal and untenable in law.
(b) To hold that section 35F of the Central
Excise Act, 1944 is arbitrary and therefore ultra
vires Section 86 of the FA.
(c) To pass such other orders, directions and
writs as this Hon'ble High Court may deem fit in
the facts and circumstances of the case, and in
-6-
the interests of justice, including the cross of
this writ petition."
3. W.P.No.102040/2017 is filed seeking for following
reliefs:
"(a) Issue a writ of certiorari or any other order
of direction as this Hon'ble Court may deem fit
and proper, by quashing orders in original
Nos.BEL-EXCUS-000-COM-BKK-026-2016-
17(ST) dated 29.11.2016 vide Annexure-H,
BEL/ EXCUS/ 000/DIV1/ ASC/KKM/83/2016-17
ST dated 28.12.2016 in Annexure-J & BEL/
EXCUS/ 000/DIV1/ ASC/KKM/84/2016-17 ST
dated 28.12.2016 vide Annexure-K as being
without jurisdiction and thus illegal and
untenable in law.
(b)To issue a writ of mandamus or any other
directing the CESTAT/Commissioner (Appeals)
to hear their appeals without insisting on pre-
deposit of any tax.
(c) To hold that section 35F of the Central
Excise Act, 1944 is arbitrary and therefore ultra
vires Section 86 of the Finance Act.
(d) To pass such other orders, directions as this
Hon'ble High Court may deem fit in the facts
and circumstances of the case, and in the
interest of justice, including the costs of this
writ petition."
4. At the outset, during the course of hearing it is
relevant to place on record that learned Senior Counsel Sri.
Rajesh Chander Kumar appearing for the petitioners submitted
that the petitioners in the aforementioned writ petitions do not
press prayer No.(b) made in W.P.No.102458/2019 and
-7-
W.P.No.108984/2015 and prayer No.(c) made in
W.P.No.102040/2017 with regard to the challenge to Section
35F of the Central and Excise Act, 1944, as being arbitrary.
Hence, the contention of the petitioners regarding the same
raised in the writ petitions is not been considered in this order
in view of the said submission.
5. The petitioner in the aforementioned writ petitions
has called in question the orders-in-original passed by
respondent No.3/Commissioner, the details of which are as
under:
Sl. Order-in- Date of the
Writ Petition No. Period
No. Original No. order
From April-2016
1. W.P.102458/2019 No.6/2018-19 23.10.2018
to June-2017
From April-2012
2. W.P.108984/2015 No.7/2015-16 03.06.2015
to March-2013
April-2013 to
No.26/2016-17 28.11.2016
March-2014
From Oct-2005
3. W.P.102040/2017 No.83/2016-17 28.12.2016
to March-2006
From April-2006
No.84/2016-17 28.12.2016
to Sept-2006
6. The relevant facts in a nutshell leading to the
present writ petitions are that the petitioner in the
aforementioned writ petitions carries on the business of
-8-
retreading tyres, which is a process whereby tread rubber is
affixed to worn out tyres by bonding in order to reinforce them
for further use. It is the case of the petitioner that the said
activity involves various stages wherein the materials are
procured and consumed in the process of retreading which
becomes part and parcel of the retreaded tyres. That the
execution of the work by the petitioner is a composite
indivisible works contract.
7. It is the case of the petitioner that it is registered
under the provisions of the Finance Act, 19941 (Act of the Union
of India) and the Karnataka Value Added Tax Act, 20052 (Act of
the State of Karnataka). That the petitioner discharges Value
Added Tax3 to the State of Karnataka on 70% of the turnover,
being the value of the deemed sale component and discharges
Service Tax to the Union of India on 30% of the turnover being
the value of the service provided.
8. The respondent authorities/Revenue have issued
the impugned orders-in-original seeking to levy service tax on
the entire turnover of the value of the service provided by the
1
Hereinafter referred to as "Finance Act"
2
Hereinafter referred to as "KVAT Act"
3
Hereinafter referred to as "VAT"
-9-
petitioner, which the petitioner has called in question in the
present writ petitions on various grounds.
9. It is forthcoming that the order-in-original
No.83/2016-17 and 84/2016-17 both dated 28.12.2016 are for
the period from October-2005 to March-2006 and from April-
2006 to September-2007. Hence, the said two orders-in-
original pertain to the period prior to 2012. The said orders are
challenged in W.P.No.102040/2017 wherein they are produced
as Annexure-J to the said writ petition.
10. With regard to the said orders-in-original dated
28.12.2016, it is the contention of the petitioner that the
Hon'ble Supreme Court in the case of Safety Retreading
Company (P) Ltd., v. Commissioner of C.EX., Salem4 i.e.,
in the petitioner's own case having granted relief to the
petitioner on a similar ground that is urged in the present
petition, but for a different period and the said order of the
Hon'ble Supreme Court has also been followed by the Customs
Excise and Service Tax Appellate, Tribunal5 vide order bearing
No.23255-260/17 dated 13.12.2017 (Annexure-D to
W.P.No.102458/2019) as also by the High Court of Judicature
4
2017 (48) S.T.R. 97 (SC)
5
Hereinafter referred to as "CESTAT"
- 10 -
of Bombay in Goa in the case of Tyresoles India Pvt. Ltd., v.
Union of India6 and the said orders having become final, the
relief sought for by the petitioner with regard to the said order-
in-original bearing No.83-84/2016-17 dated 28.12.2016 is
liable to be granted and the said orders are required to be
quashed.
11. It is the primary contention of the
petitioners/assessee that VAT having been discharged, the
demand of the respondents/revenue of service tax on the same
value, on the ground that notwithstanding the tax paid to the
State, service tax also ought to be paid to the Union as such
goods consumed in retreading are not sales, is ex-facie
untenable and that the revenue/Union of India cannot tax a
component of a deemed sale, which is within the exclusive
domain of the State Legislature and falls in Entry 54 of List-II
of the Schedule-VII of the Constitution of India.
12. In the said context, it is relevant to note that the
Hon'ble Supreme Court in the case of Commissioner of
Central Excise & Customs Kerala v. Larsen and Toubro
Limited7, after referring to its earlier judgment in the case of
6
2019 (367) E.L.T. 537 (Bom.)
7
2015 (39) S.T.R. 913 (S.C.)
- 11 -
Gannon Dunkerley & Company & others v. State of
Rajasthan & others8 has held as follows:
"15. A reading of this judgment, on which counsel for
the assessees heavily relied, would go to show that
the separation of the value of goods contained in the
execution of a works contract will have to be
determined by working from the value of the entire
works contract and deducting therefrom charges
towards labour and services. Such deductions are
stated by the Constitution Bench to be eight in
number. What is important in particular is the
deductions which are to be made under sub-paras (f),
(g) and (h). Under each of these paras, a bifurcation
has to be made by the charging Section itself so that
the cost of establishment of the contractor is
bifurcated into what is relatable to supply of labour
and services. Similarly, all other expenses have also
to be bifurcated insofar as they are relatable to
supply of labour and services, and the same goes for
the profit that is earned by the contractor. These
deductions are ordinarily to be made from the
contractor's accounts. However, if it is found that
contractors have not maintained proper accounts, or
their accounts are found to be not worthy of
credence, it is left to the legislature to prescribe a
formula on the basis of a fixed percentage of the
value of the entire works contract as relatable to the
labour and service element of it. This judgment,
therefore, clearly and unmistakably holds that unless
the splitting of an indivisible works contract is done
taking into account the eight heads of deduction, the
charge to tax that would be made would otherwise
contain, apart from other things, the entire cost of
establishment, other expenses, and profit earned by
the contractor and would transgress into forbidden
territory namely into such portion of such cost,
expenses and profit as would be attributable in the
works contract to the transfer of property in goods in
such contract. This being the case, we feel that the
learned counsel for the assessees are on firm ground
when they state that the service tax charging section
itself must lay down with specificity that the levy of
service tax can only be on works contracts, and the
8
(1993) 1 SCC 364
- 12 -
measure of tax can only be on that portion of works
contracts which contain a service element which is to
be derived from the gross amount charged for the
works contract less the value of property in goods
transferred in the execution of the works contract.
This not having been done by the Finance Act, 1994,
it is clear that any charge to tax under the five heads
in Section 65(105) noticed above would only be of
service contracts simpliciter and not composite
indivisible works contracts.
16. At this stage, it is important to note the scheme
of taxation under our Constitution. In the lists
contained in the 7th Schedule to the Constitution,
taxation entries are to be found only in lists I and II.
This is for the reason that in our Constitutional
scheme, taxation powers of the Centre and the
States are mutually exclusive. There is no concurrent
power of taxation. This being the case, the moment
the levy contained in a taxing statute transgresses
into a prohibited exclusive field, it is liable to be
struck down. In the present case, the dichotomy is
between sales tax leviable by the States and service
tax leviable by the Centre. When it comes to
composite indivisible works contracts, such contracts
can be taxed by Parliament as well as State
legislatures. Parliament can only tax the service
element contained in these contracts, and the States
can only tax the transfer of property in goods
element contained in these contracts. Thus, it
becomes very important to segregate the two
elements completely for if some element of transfer
of property in goods remains when a service tax is
levied, the said levy would be found to be
constitutionally infirm. ........"
(emphasis supplied)
13. It is clear from the same that the portion of the
contract relating to the value of deemed sale as assessed and
taxed by the State to sales tax/VAT is conclusive and the same
cannot be subjected to tax by the Union of India as service tax.
- 13 -
14. At this stage, it is relevant to notice that the
petitioner has furnished the copies of the tax invoices that have
been maintained by it, which has been submitted to the
Revenue wherein the petitioner has clearly stipulated the value
of the VAT of 5.5% on the materials (which is levied by the
State) and service tax of 14% on labour charges (which is
levied by the Union). The said invoices clearly stipulates the
portion of the amount collected as material charge and the
portion of the amount collected as labour charges.
15. It is also relevant to note that the petitioner has
submitted these invoices to the Taxation Authorities in the
State and the State of Karnataka has passed reassessment
orders under the KVAT Act on the said basis.
16. It is also relevant to note that in the order-in-
original bearing No.6/2018-19 dated 23.10.2018 that the
Commissioner has held as follows:
"However, it is a fact that items like tread rubber,
patches, bonding gum are utilized for re-treading
the tyres. In other words, these materials are
consumed in the rendering of tyre re-treading
services, and there is no sale of these materials to
the customers. No customer would come to a re-
treading-service provider for the purpose of the
buying material like tread rubber, patches,
bonding gum etc., and the customer are interested
only in the treading of tyres. It is also not the case
of the noticee that they are providing treading
- 14 -
service to a company under a job work and that
company is providing the raw material as free
supplies to the noticee. Therefore, I am of
considered view that there is no sale of material to
the customers except consumption of these
materials during the course of rendering the
impugned service by the noticee. I accordingly
hold that the impugned activity cannot come
under 'works contract'."
(emphasis supplied)
16.1 Thereafter, in the operative portion of the order, at
paragraph 2, it is stated as follows:
"(ii) I confirm and order for recovery of the differential
Service Tax of Rs.4,31,67,951/- (Rupees Four Crores
Thirty One Lakhs Sixty Seven Thousand Nine Hundred
and fifty one only) (inclusive of cesses), under "Works
Contract Service" under section 65B(54), under Section
73(1) of the Finance Act, 1994"
(emphasis supplied)
17. Hence, it is clear that the Commissioner at
paragraph 23 has recorded a finding that the activity of the
petitioner does not come under "works contract". However,
while confirming the order for recovery of the differential
services tax, the commissioner has levied the same under
"works contract" under Section 65-B (54) under Section 73(1)
of the Finance Act.
18. It is clear from the aforementioned that the order
passed by the Commissioner is ex-facie untenable as being
mutually contradictory, as has been noticed above.
- 15 -
19. It is relevant to note that the Hon'ble Supreme
Court vide order dated 18.01.2017 passed in Civil Appeal
No.641/2012 in the case of Safety Retreading Company (P)
Ltd3 has also considered Civil Appeal No.6375-6376/2014 in
the petitioner's own case. In the said case, the matter having
been decided against the petitioner/assessee before CESTAT,
the Hon'ble Supreme Court was considering a challenge made
by the petitioner. In the said case, the order of the CESTAT has
been noticed as follows:
"7. A demand for levy of tax on the gross value
of the service rendered including the cost of
materials used and transferred was raised and
answered against the assessee leading to an
appeal before the Customs, Excise and Service Tax
Appellate Tribunal, South Zonal Bench at Chennai
(hereinafter referred to as "appellate Tribunal").
The learned appellate Tribunal returned a split
verdict with the Technical Member taking the view
that the gross value of the service rendered would
be exigible to tax under the Act. The third member
(Technical) to whom the matter was referred held
as follows:
"21. From the foregoing, the following
emerges:
a) There is no evidence of sale of materials
in rendering the impugned service of
"Maintenance and Repairs".
b) "Maintenance and Repair Service" being
as specific service cannot be treated as
service under the category of "Works
Contract" for the service tax purposes.
c) The concept of "deemed sales" is relevant
only in respect of services under the
category of "Works Contract" and not in
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respect of "Maintenance and Repair
Service".
d) The assessee has not proved that the
conditions under Notification 12/03 ST dated
20.06.2003 have been satisfied and,
therefore, they are not entitled to the
benefit of deduction of cost of raw materials
consumed in providing the impugned
service."
19.1 Considering the same, the Hon'ble Supreme Court
held as follows:
"10. The exigibility of the component of the gross
turnover of the assessee to service tax in respect of
which the assessee had paid taxes under the local Act
whereunder it was registered as a Works Contractor,
would no longer be in doubt in view of the clear
provisions of Section 67 of the Finance Act, 1994, as
amended, which deals with the valuation of taxable
services for charging service tax and specifically excludes
the costs of parts or other material, if any, sold (deemed
sale) to the customer while providing maintenance or
repair service. This, in fact, is what is provided by the
Notification dated 20th June, 2003 and CBEC Circular
dated 7th April, 2004, extracted above, subject, however,
to the condition that adequate and satisfactory proof in
this regard is forthcoming from the assessee. On the
very face of the language used in Section 67 of the
Finance Act, 1994 we cannot subscribe to the view held
by the Majority in the appellate Tribunal that in a
contract of the kind under consideration there is no sale
or deemed sale of the parts or other materials used in
the execution of the contract of repairs and
maintenance. The finding of the appellate Tribunal that it
is the entire of the gross value of the service rendered
that is liable to service tax, in our considered view, does
not lay down the correct proposition of law which,
according to us, is that an assessee is liable to pay tax
only on the service component which under the State Act
has been quantified at 30%.
12. No dispute has been raised with regard to the
assessment of the appellant on its turnover under the
- 17 -
local/State Act, insofar as payment of value added tax on
that component (70%) is concerned. A reading of the
show cause notice dated 24th January, 2008 would go to
show that the entire thrust of the Department's case is
the alleged liability of the appellant - assessee to pay
service tax on the gross value. In the aforesaid show
cause notice, the details of the value of the goods, raw
materials, parts, etc. and the value of the services
rendered have been mentioned and service tax has been
sought to be levied at the prescribed rate of ten per cent
(10%) on the differential amount. It is now stated before
us that the aforesaid figures have been furnished by the
assessee himself and, therefore, must be understood not
to be authentic. This, indeed, is strange. No dispute has
been raised with regard to the correctness of the said
figures furnished by the assessee in the show cause
notice issued to justify the stand now taken before this
Court; at no point of time such a plea had been
advanced.
13. Besides the above, the affidavit of the learned
Commissioner, referred to above, proceeds on the basis
that the appellant assessee is also liable to pay service
tax on the remaining seventy per cent (70%) towards
material costs in addition to the 30% of the retreading
charges. This is clear from the following averments made
in the said affidavit of the learned Commissioner:
"The relevant bills showed that the Appellant
had paid service tax only on the labour
component after deducting 70% towards
material cost on the gross tyre Retreading
charges billed and received for the period from
16.06.2005. In short, they have paid service
tax only on the 30% of the tyre Retreading
charges received from the customers, by
conveniently omitting 70% of the consideration
received towards Retreading charges to avoid
tax burden.
The verification of invoices of the Appellant for
the period from Jan-2007 to
March-2007, the officers noticed that the
Appellant have shown material cost, patch cost
and misc. charges i.e. Labour charges
separately in their invoices. However, on the
follow-up action the customers of the Appellant
revealed that they have neither purchased nor
received raw materials intended for Retreading
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and they had paid only the Retreading charges
for carrying out the Retreading activity."
The invoices which the appellant assessee has also
brought on record by way of illustration show the break
up of the gross value received. There is again no contest
to the same. Leaving aside the question that the case
now projected, with regard to lack of proof of incurring of
expenses on goods and materials which has been
transferred to the recipient of the service provided,
appears to be an afterthought, even on examination of
the same on merits we have found it to be wholly
unsustainable.
14. We, therefore, in the light of what has been
discussed above, set aside the majority order of the
appellate Tribunal dated 14th October, 2011 and hold
that the view taken by the learned Vice President of the
appellate Tribunal is correct and the same will now
govern the parties. All reliefs that may be due to the
appellant - assessee will be afforded to it forthwith and
without any delay. All amounts, as may have been,
deposited pursuant to the order(s) of this Court shall be
returned forthwith to the appellant, however, without
any interest. Bank guarantee furnished insofar as the
penalty amount is concerned shall stand discharged.
The appeal is allowed in the above terms."
(emphasis supplied)
20. It is clear from the said judgment that the Hon'ble
Supreme Court has authoritatively pronounced that the
petitioner/assessee is liable to pay the service tax only with
respect to the service component under the State Act. The
Hon'ble Supreme Court has specifically set aside the finding of
the Appellate Tribunal that the entire gross value of the service
rendered is liable to service tax.
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21. It is the vehement contention of the Revenue that
the present writ petitions are not maintainable and that the
petitioner has an alternative remedy of an appeal before the
Appellate Authority. It is further contended by the Revenue
that the present case covering the period from April 2012 to
June 2016, changes have been made by the Government in
Service Tax vide Notification No.12/2003-ST dated 20.6.2003
which is rescinded by Notification No.34/2012-ST dated
20.6.2012 w.e.f., 1.7.2012 and that the service of retrading
from 1.7.2012 is required to be considered differently under the
provisions of the Finance Act.
22. It is relevant to notice here that pursuant to the
judgment of the Hon'ble Supreme Court in the case of Safety
Retreading Company (P) Ltd3 the petitioner/assessee relied
upon the same before the CESTAT in Appeal No.ST/1180/11-DB
and other connected matters. The CESTAT vide Final Order
bearing No.23255-260/2017, dated 13.12.2017 has
categorically held that the decision of the Hon'ble Supreme
Court covers the issues involved in the said appeal. However, it
is relevant to note that in the said appeals the orders-in-
original for various periods prior to 1.7.2012 were under
consideration.
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23. It is also relevant to note that the Division Bench of
the Bombay High Court in the case of Tyresoles India Pvt.
Ltd., v. Union of India6 was also considering a challenge
made by the petitioner to the order of the Commissioner,
Central Excise and Service Tax, confirming the demand and
penalty. In the said case, the Revenue had raised a preliminary
objection regarding the maintainability of the writ petition on
the ground that an alternative remedy of appeal was available.
The Division Bench of the Bombay High Court, considering the
said contention, rejected the same by holding that Rule had
been issued in the writ petitions and having regard to the fact
that the issue that arose for consideration was squarely covered
by the decision of the Hon'ble Supreme Court in the case of
Safety Retreading Company (P) Ltd3. Further, in the said
case, the Division Bench has held as follows:
"21. In the present case, the petitioner had
produced documentary proof by way of Cost
Accountant's certificate, clearly indicating the
details and value of the goods and materials which
formed the subject matter of sale/deemed sale.
Further, in this case, the petitioner had produced
on record documentary proof that sale/deemed sale
component corresponding to 70% of the gross
value, the petitioner was in fact assessed to and
levied sale tax/VAT to the local Sales Tax/VAT
Authorities. The petitioner also adduced
documentary proof regarding payment of such local
sales tax/VAT to the State Authorities. As regards
this position, in fact, there is no dispute
whatsoever. Rather, express cognizance of this
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aspect has been taken by the Commissioner in
paragraph 37 of the impugned order dated 14
October, 2016. In such circumstances, therefore,
there was absolutely no justification on the part of
the Commissioner in denying the petitioner the
benefit of exemption dated 20 June, 2003.
22. Incidentally, it is necessary to note that the
contention very similar to the one now raised by
Ms. Dessai, was also raised before the Hon'ble Apex
Court in the case of Safety Retreading Co. (P) Ltd.
(supra). There, the Learned Additional Solicitor
General of India had contended that there was no
evidence forthcoming from the assessee that the
value of goods or the parts used in the contract and
sold to the customers amount to 70% of the value
of the service rendered which is the taxable
component under the State Act. The Hon'ble Apex
Court, however, rejected the said contention by
observing that the said contention "overlooks
certain basic features of the case, namely
undisputed assessment of the assessee under the
local Act; the case projected by the Department
itself in the show cause notice; and thirdly the
affidavit filed before this Court by one S.
Subramanian, Commissioner of Central Excise,
Salem". The Apex Court noted that no dispute
whatsoever had been raised with regard to the
assessment of the appellant on its turnover under
the local/State Act, insofar as payment of Value
Added Tax on that component (70%) is concerned.
Therefore, the reasoning reflected in paragraphs
11, 12 and 13 of the decision of the Apex Court in
Safety Retreading Co. (P) Ltd. (supra) is sufficient
to reject Ms. Dessai's contention relating to the
alleged non-compliance with the conditions of the
exemption under Notification dated 20 June, 2003.
23. Mr. Rajesh Chander Kumar, the Learned
Counsel for the petitioner has pointed out that for
the period of disputes between April 2009 to March
2010, April 2008 to September 2008, April 2010 to
July 2011, August 2011 to March 2012, October
2008 to March 2009, October 2007 to March 2008,
October 2006 to September 2007, the respondents
on the basis of reasoning now recorded in the
impugned order dated 14 October, 2016, had
required the petitioner to pay Service Tax, interest
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and penalty on the basis of the gross receipts,
without giving the petitioner benefit of the
Notification dated 20 June, 2003. As against such
assessment order, the petitioner had instituted
appeals before the CESTAT which were allowed by
the CESTAT vide Judgment and Order dated 13
December, 2017, relying entirely upon the decision
of the Apex Court in Safety Retreading Co. (P) Ltd.
(supra). Mr. Rajesh Chander Kumar states that the
Judgment and Order dated 13 December, 2017
made by the CESTAT for the aforesaid period has
not been questioned by the Department. We agree
that this is an additional circumstance for allowing
the present petition."
(emphasis supplied)
24. In the present case, the writ petitions are listed for
final hearing and there is abundant material on record to
demonstrate that the issue under consideration is squarely
covered by the judgment of the Hon'ble Supreme Court in the
case of Safety Retreading Company (P) Ltd3. Hence, the
contention of alternative remedy raised by the Revenue is
untenable and accordingly rejected.
25. As noticed herein above, the petitioner has
furnished copies of tax invoices maintained by it, wherein the
petitioner has indicated the value of the material and labour
charges separately and as also indicated that in respect of the
value of the materials the tax has been paid to State
Government and with respect to the value of the labour charges
the service tax has been paid to the Union Government. The
said invoices have also been submitted to the tax authorities in
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the State Government and the State has passed re-assessment
orders under KVAT Act.
26. It is further relevant to note here that a similar fact
situation was considered by the Hon'ble Supreme Court in the
case of Safety Retreading Company (P) Ltd3 as also by a
Division Bench of the Bombay High Court in the case of
Tyresoles India Pvt. Ltd.,6 . The Hon'ble Supreme Court, as
noticed above has clearly held that no dispute has been raised
in the show cause notice (as in the present case also) with
regard to the correctness of the figures furnished by the
petitioner and at no point of time the respondents raised a plea
as to the correctness of the invoices. The Division Bench of the
Bombay High Court has also noticed a similar factual
circumstance and relying upon the judgment of the Hon'ble
Supreme Court in the case of Safety Retreading Company
(P) Ltd3 , held that the Revenue did not dispute the invoices
furnished. In the present case also, the respondents have not
denied the correctness of the said bifurcation of the amounts
made by the petitioner/assessee. Hence, the same is required
to be accepted in the present case also.
27. Further, the contention of the Revenue that there is
a change in the legal position subsequent to 1.7.2012 having
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regard to the issuance of the Notification dated 20.6.2012, is
also untenable and liable to be rejected in view of the fact that
the Hon'ble Supreme Court in the case of Safety Retreading
Company (P) Ltd3 has categorically held that the Service tax
sought to be levied by the respondent - Union on the entire
gross value of service rendered is untenable and that the
assessee is liable to pay the service tax only on the service
component under the State Act. Hence, the Notification dated
20.6.2012 which is applicable to the transactions after
1.7.2012, does not in any manner alter the said position. The
said notification only alters the definition of what is defined as
'service'.
28. In the present case, the petitioner having clearly
bifurcated the amounts in invoices with respect to the amounts
incurred towards material charges as also the amounts towards
service charges and tax having been paid in respect of both the
said amounts by classifying the same accordingly, the question
of the respondent authorities seeking to levy service tax on the
entire value mentioned in the invoices does not arise.
29. In view of the discussion made above, the reliefs
sought for by the petitioners are required to be granted.
- 25 -
30. Hence, the following:
ORDER
i. The writ petitions are partly allowed; ii. The orders in original bearing (1) No.6/2018-19, dated 23.10.2018 for the period from April 2016 to June 2017; (2) No.7/2015-16, dated 3.6.2015 for the period from April 2012 to March 2013; (3) No.26/2016-17, dated 28.11.2016, for the period from April 2013 to March 2014; (4) 83/2016-17, dated 28.12.2016, for the period from October 2005 to March 2006; and (5) No.84/2016-17, dated 28.12.2016, for the period from April 2006 to September 2006, are hereby quashed.
Sd/-
(C.M.POONACHA) JUDGE YAN/pmp/nd