Gujarat High Court
Kailash Enterprise vs Customs Excise And Service Tax ... on 31 July, 2014
Author: M.R. Shah
Bench: M.R. Shah, K.J.Thaker
C/SCA/3507/2014 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 3507 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE K.J.THAKER
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of India,
1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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KAILASH ENTERPRISE....Petitioner(s)
Versus
CUSTOMS EXCISE AND SERVICE TAX APPELLATE TRIBUNAL-
WEST & 1....Respondent(s)
======================================
Appearance:
MR SHALIN MEHTA, Sr. ADVOCATE with MR HARNISH V DARJI,
ADVOCATE for the Petitioner(s) No. 1
MR GAURANG H BHATT, ADVOCATE
for the Respondent(s) No. 2
NOTICE SERVED BY DS for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE K.J.THAKER
Date : 31/07/2014
CAV JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 15 C/SCA/3507/2014 CAV JUDGMENT
1. By way of this petition under Article 226 of the Constitution of India the petitioner has prayed for an appropriate writ, order or direction quashing and set aside the impugned order passed by the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad (hereinafter referred to as "CESTAT") in Application No.ST/Stay/10483/2013 in Appeal No.ST/10545/2013 dated 26/11/2013 by which the learned CESTAT has directed the petitioner to deposit a further total sum of Rs.5 Crores towards pre-deposit.
2. The facts leading to the present Special Civil Application in a nutshell are as under;
2.1. The petitioner was providing services of "Cargo Handling Services" to Food Corporation of India (hereinafter referred to as "FCI"). It was found that during the year 2006-07, the petitioner had provided "Cargo Handling Service" to FCI in respect of 736123.071 MT of wheat of which FCI had admitted the bills, which totally valued at Rs.33,94,54,351/-, which also included the amount of service tax to the tune of Rs.3,70,18,188/-. During the year 2007-08, the petitioner had provided "Cargo Handling Services" in respect of 343253.762 MT of imported wheat to FCI in respect of which FCI had admitted the bills, which totally valued at Rs.15,15,57,427/-, which included the amount of service tax to the tune of Rs.1,66,71,855/-. Thus, it was found that during the period 2006-07 and 2007-08, the petitioner charged a sum of Rs.5,44,83,233/- towards service tax and had recovered a sum of Rs.5,36,90,043/- towards service tax from FCI during the same period. It was found that during 2009-10, the petitioner Page 2 of 15 C/SCA/3507/2014 CAV JUDGMENT provided "Cargo Handling Service" to M/s. GPPL and charged a sum of Rs.2,32,75,546/- towards service tax, which was not deposited to the Government Account by the petitioner - assessee. Thus, it was found that during the period from 2006 to 2010 the service tax amounting to Rs.7,69,65,589/- recovered and collected by the petitioner was not deposited to the government account by the petitioner-assessee and, therefore, show cause notice came to be issued by the Commissioner, Central Excise & Customs, Vadodara II - adjudicating authority calling upon the petitioner to show cause why service tax amounting to Rs.7,69,65,589/- should not be recovered under Section 73A of the Finance Act, 1994 (hereinafter referred to as "the Act") alongwith interest under Section 73B of the Act. The petitioner replied to the said show cause notice dated 05/10/2012 and 24/01/2013 and the petitioner was also given an opportunity of personal hearing. Thereafter, considering the provisions of Section 73A of the Act, the adjudicating authority held that the amount of Rs.5,36,90,043/- representing service collected by the petitioner from their client - FCI, but not deposited with the Central Government, is fully recoverable under Section 73A of the Act including interest under Section 73B of the Act and ordered accordingly to recover the said amount.
2.2. Feeling aggrieved and dissatisfied with the order passed by the adjudicating authority confirming the demand of service of Rs.5,36,90,043/-, the petitioner preferred appeal before the learned CESTAT. In the said appeal, the petitioner also submitted stay application / application for waiver of pre- deposit. It was the case on behalf of the petitioner that in fact the service tax recovered by them from FCI had been adjusted Page 3 of 15 C/SCA/3507/2014 CAV JUDGMENT by FCI in the bills, which were raised by the petitioner. It was also submitted that even the adjudicating authority has also come to the conclusion that services provided with FCI by the petitioner are not taxable in view of exemption Notification No.10/2002-ST and, therefore, it was submitted that since the services are not taxable, confirmation of the demand by the adjudicating authority on the services is incorrect. By the impugned order, the learned CESTAT has directed the petitioner to deposit Rs.5 Crores within a period of twelve weeks and report the compliance on 04/03/2014 and has ordered that on such deposit and/or subject to such compliance being reported, application for the waiver of pre- deposit of balance amounts involved is allowed and recovery thereof is stayed till disposal of the appeal.
2.3. Feeling aggrieved and dissatisfied with the impugned order passed by the learned CESTAT directing the petitioner to deposit a further sum of Rs.5 Crores as pre-deposit, the petitioner - assessee has preferred the present Special Civil Application under Article 226 of the Constitution of India.
3. Shri Shalin Mehta, learned Counsel appearing on behalf of the petitioner has vehemently submitted that learned CESTAT has materially erred in directing the petitioner to deposit the sum of Rs.5 Crores as pre-deposit. It is submitted that as such by passing the impugned order, the learned CESTAT has not dealt with in detail the submissions made on behalf of the petitioner, more particularly, to the effect that on the services rendered by the petitioner to FCI, no tax is leviable in view of exemption Notification. It is submitted that the learned CESTAT has also not considered and/or dealt with Page 4 of 15 C/SCA/3507/2014 CAV JUDGMENT the submissions made on behalf of the petitioner that the amount of service tax, which was recovered by the petitioner, was taken credit by FCI subsequently and they have adjusted the entire amount in the bills, which were raised by the petitioner subsequently as they were having running account. It is further submitted by Shri Shalin Mehta, learned Counsel appearing on behalf of the petitioner that the impugned order passed by the learned CESTAT directing the petitioner to deposit a sum of Rs.5 Crores towards pre-deposit cannot be sustained.
3.1. Shri Shalin Mehta, learned Counsel appearing on behalf of the petitioner has further submitted that as such in the case of pre-deposit not only undue hardship is likely to be caused to the revenue but also the interest of the assessee is required to be considered. He has further submitted that something more than economical hardship of the petitioner - assessee is also required to be considered. In support of his above submission, he has relied upon the decision of the Hon'ble Supreme Court in the case of Benara Valves Ltd. & Ors Vs. Commissioner of Central Excise in (2006) 13 SCC 347.
3.2. It is further submitted by Shri Shalin Mehta, learned Counsel appearing on behalf of the petitioner that though technically speaking the petitioner might be liable to pay the service tax considering Section 73A of the Act, however, in view of Section 73A(5) of the Act, even if the amount of service tax is deposited by the petitioner, in that case also, in view of the exemption Notification, the amount so recovered and/or credited in the account of the Central Government is required to be returned to FCI. It is submitted that therefore the Page 5 of 15 C/SCA/3507/2014 CAV JUDGMENT learned CESTAT ought to have granted unconditional stay and ought to have passed an order of full waiver of pre-deposit.
3.3. It is further submitted by Shri Mehta, learned Counsel appearing on behalf of the petitioner that even otherwise as such the petitioner is trying to settle the dispute with FCI and is in the process of persuading FCI to return the amount of service tax, which they have adjusted in the bills raised by the petitioner. It is submitted that the said amount of Rs.5 Crores is lying with the FCI and FCI has also invoked the bank guarantee. It is submitted that considering the aforesaid facts and circumstances, this is a fit case for full waiver of pre- deposit. Making the above submissions and relying upon the above decision, it is requested to admit / allow the present Special Civil Application and direct the learned CESTAT to hear, decide and dispose of the appeal on merits without insisting for deposit of any amount of pre-deposit.
4. The present petition is opposed by Shri Gaurang Bhatt, learned advocate appearing on behalf of respondent no. 2. It is submitted that as such in the facts and circumstances of the case, no error has been committed by the learned CESTAT in directing the petitioner to deposit the entire amount of service tax collected i.e. Rs.5 Crores. It is submitted that as such the petitioner had collected the amount of service tax from its clients i.e. FCI, however, did not deposit the same with the Central Government. It is submitted that therefore the petitioner is liable to make the payment of service tax to the Central Government, which the petitioner had collected from his clients. It is submitted that therefore considering the provisions of the Finance Act, 1994, more particularly, Section Page 6 of 15 C/SCA/3507/2014 CAV JUDGMENT 73 of the said Act, show cause notice has rightly been confirmed and, therefore, the petitioner is rightly directed to deposit Rs.5 Crores as pre-deposit.
4.1. It is submitted that during the year 2006-07, the petitioner had provided "Cargo Handling Service" to FCI in respect of 736123.071 MT of wheat of which FCI had admitted the bills, which totally valued at Rs.33,94,54,351/- inclusive of the service tax amounting to Rs.3,70,18,188/-. It is submitted that during the year 2007-08, the petitioner had provided "Cargo Handling Services" to FCI in respect of 343253.762 MT of imported wheat to FCI in respect of which FCI had admitted the bills, which totally valued at Rs.15,15,57,427/- inclusive of service tax to the tune of Rs.1,66,71,855/-. It is submitted that the petitioner had recovered the total amount of Rs.5,36,90,043/- towards service tax from FCI during the said period, however, the same was not deposited by the petitioner
- assessee to the Central Government account. It is submitted that therefore when the petitioner collected the service tax from FCI and did not deposit the same with the Central Government Account, the petitioner was served with the show- cause notice and after giving an opportunity to the petitioner and considering the provisions of Section 73 of the Act, show- cause notice and the demand of service tax collected from FCI but not deposited with the Central Government has been confirmed alongwith interest under Section 75 of the Act. It is submitted that as such the petitioner has deliberately and intentionally attempted to suppress the fact from the Department with intent to evade the payment of service tax. It is submitted that the Department had not initiated the investigation against the petitioner the evasion of the service Page 7 of 15 C/SCA/3507/2014 CAV JUDGMENT tax indulged into by the petitioner for a long period would have remained undetected and the petitioner would have continued with the same practice. It is submitted that as such the petitioner has specifically admittedly the recovery of the service tax from FCI, which was not deposited by him with the Central Government. It is submitted that however subsequently the petitioner had come out with a case that he had thereafter returned the said amount of service tax to the FCI by two credit notes dated 02/07/2007 and 31/03/2008. It is submitted that the petitioner had made request to FCI to encash the credit notes from the redeemed money of the petitioner lying with FCI. It is submitted that the contention on behalf of the petitioner that the amount of service tax recovered from FCI has been returned to FCI is far from the truth. Now so far as the contention on behalf of the petitioner that on the service provided by it to the FCI the petitioner is entitled and liable to the benefit of exemption Notification No.10/2002-ST and, therefore, such demand of service tax of Rs.5,36,90,043/- is not sustainable is concerned, it is submitted that as such and in fact so far as the petitioner is concerned, the petitioner had already recovered from FCI the service tax amounting to Rs.5,36,90,043/- and, therefore, the same is liable to be recovered from the petitioner under Section 73 of the Act.
4.2. Now so far as the submissions made by Shi Shalin Mehta, learned Counsel appearing on behalf of the petitioner that in view of the exemption Notification and after the petitioner deposits the amount of service tax in the Central Government Account, the FCI Is entitled to get back the same, considering Section 73 A (5) of the Act is concerned, it is submitted that Page 8 of 15 C/SCA/3507/2014 CAV JUDGMENT the aforesaid aspect is not required to be considered at this stage. It is submitted that so far as the petitioner is concerned as the petitioner had recovered the service tax amounting to Rs.5,36,90,043/- from FCI, considering Sections 73 and 74 of the Act, the petitioner is liable to make the said payment and credit it to the account of the Central Government.
4.3. Now so far as the submission of Shri Mehta, learned Counsel appearing on behalf of the petitioner that as the petitioner had already approached the FCI to return the amount to the petitioner so that the same can be deposited with the Central Government is concerned, it is submitted by Shri Bhatt, learned advocate appearing on behalf of respondent no. 2 that so far as the correspondence between the petitioner and the FCI is concerned, the Department has nothing to do with the same. It is submitted that as the petitioner had recovered the amount of service tax from FCI the petitioner was required to deposit the same with the Central Government, which the petitioner had failed and, therefore, no error has been committed by the learned CESTAT in directing the petitioner to deposit the balance amount of Rs.5 Crores as pre-deposit. It is submitted that in the facts and circumstances of the case, the decision relied upon by the learned Counsel appearing on behalf of the petitioner in the case of Benara Valves Ltd. & Ors (Supra) would not be applicable to the facts of the case and/or the same would not be of any assistance to the petitioner. It is submitted by Shri Bhatt, learned advocate appearing on behalf of respondent no. 2 that as such the present Special Civil Application has been preferred against the impugned order passed by learned CESTAT directing the petitioner to deposit the amount of pre-
Page 9 of 15 C/SCA/3507/2014 CAV JUDGMENTdeposit. It is submitted that as such the petitioner has not pleaded any financial hardship and whatsoever submissions are made, the same are on merits, which are required to be considered by the learned CESTAT in appeal subject to compliance of depositing the amount towards pre-deposit. Relying upon the decision of this Court in the case of M/s. Explosion Proof Electrical Control and Ors. Vs. Commissioner of Central Excise and Customs, Vapi reported in 2012 (2) GLR 1673 as well as the unreported decision of the Division Bench of this Court rendered in Special Civil Application No.18003/2013, it is requested to dismiss the present Special Civil Application.
5. Heard the learned advocates appearing on behalf of the respective parties at length. At the outset, it is required to be noted that as such the present Special Civil Application is filed challenging the impugned order passed by the learned CESTAT directing the petitioner to deposit the balance amount of Rs.5 Crores as pre-deposit, which the petitioner recovered from FCI as service tax and did not deposit the same with the Central Government. It appears that during the year 2006-07, the petitioner had provided "Cargo Handling Service" to FCI in respect of 736123.071 MT of wheat of which FCI had admitted the bills, which totally valued at Rs.33,94,54,351/- inclusive of the service tax amounting to Rs.3,70,18,188/-. It is submitted that during the year 2007-08, the petitioner had provided "Cargo Handling Services" to FCI in respect of 343253.762 MT of imported wheat to FCI in respect of which FCI had admitted the bills, which totally valued at Rs.15,15,57,427/- inclusive of service tax to the tune of Rs.1,66,71,855/-. It is submitted that the petitioner had recovered a total amount of Page 10 of 15 C/SCA/3507/2014 CAV JUDGMENT Rs.5,36,90,043/- towards service tax from FCI during the said period, however, the same was not deposited by the petitioner
- assessee to the Central Government account.
5.1. Considering the above, when the petitioner was providing the services of "Cargo Handling Services" and recovered a sum of Rs.5,36,90,043/- towards service tax from FCI, however, did not deposit the same to the Central Government Account, considering Section 73A of the Act, the petitioner was liable to pay the said amount to the Central Government Account and as the petitioner failed to deposit the said amount of service tax to the Central Government Account, though recovered from the FCI, the petitioner was served with the show-cause notice and thereafter the show-cause notice and the demand of service tax with interest payable has been confirmed against which the petitioner has preferred appeal before the learned CESTAT and considering the provisions of Section 73A of the Act the petitioner is directed to deposit the balance amount of Rs.5 Crore as pre-deposit.
5.2. At the outset, it is required to be noted that even Shri Mehta, learned Counsel appearing on behalf of the petitioner has candidly admitted that considering Section 73A of the Act, the petitioner was liable to deposit the amount of service tax of Rs.5,36,90,043/- to the account of the Central Government, which the petitioner recovered from FCI. However, it is the case on behalf of the petitioner that the aforesaid amount of service tax has been recovered by FCI by two credit notes dated 02/07/2007 and 31/03/2008 and the petitioner has made various correspondence to FCI to return the said amount so that the same can be deposited with the Central Page 11 of 15 C/SCA/3507/2014 CAV JUDGMENT Government. However, it appears that as such it is the case on behalf of the Department that during the course of the investigation, FCI has categorically denied having received any credit notes from the petitioner dated 02/07/2007 and 31/03/2008. In any case, the aforesaid can be a dispute between the petitioner and the FCI. However, so far as the service liability is concerned, in view of Section 73A of the Act when the petitioner recovered the amount of service tax from FCI and retained the same with it and did not credit the same to the account of the Central Government, it is the petitioner, who is liable to pay / deposit the service tax to the account of the Central Government.
5.3. Under the circumstances and considering the aforesaid facts and circumstances, as such, the learned CESTAT has not committed any error in not passing the full waiver of pre- deposit. It is required to be noted that as such the petitioner has never pleaded any financial hardship, which is required to be considered while considering the issue with respect to pre- deposit. Identical question came to be considered by the division Bench of this Court in the case of M/s. Explosion Proof Electrical Control and Ors. (Supra) and in the said decision the Division Bench has considered the decision of the Hon'ble Supreme Court in the case of Benara Valves Ltd. & Ors (Supra); the decision of the Hon'ble Supreme Court in the case of Mehsana District Cooperative Mil P.U.Ltd Vs. Union of India reported in 2003 (154) ELT 347 (SC) and the decision of the Hon'ble Supreme Court in the case of Indu Nissan Oxo Chemicals Industries Ltd. Union of India reported in 2008 (221) ELT 7 (SC) wherein it is held that while considering waiver of condition as to pre-deposit, Page 12 of 15 C/SCA/3507/2014 CAV JUDGMENT condition can can be waived on the ground of undue hardship. In the aforesaid decision, the Division Bench has also observed that twin requirement at the time of directing the pre-deposit under Section 35F of the Act as laid down in the case of Benara Valves Ltd. & Ors (Supra) are; (a) undue financial hardship of the parties and (b) safeguarding the interest of the revenue. In the present case, as observed hereinabove, as such the petitioner has not pleaded any undue financial hardship. Now so far as safeguarding the interest of the revenue is concerned, as it is required to be noted that as such the petitioner did charge and recovered the amount of service tax from FCI, which the petitioner retained with it and did not deposit the same in the Central Government Account and, therefore, considering Section 73A of the Act the petitioner is liable to deposit the same in the Central Government Account. Under the circumstances and in the facts and circumstances of the case and considering the provisions of Section 73 of the Act, no error has been committed by the learned CESTAT in not passing the order of full waiver of pre-deposit, which the petitioner charged and recovered from FCI and did not deposit the same in the Central Government Account.
5.4. Now so far as the submissions of Shri Mehta, learned Counsel appearing on behalf of the petitioner that considering the exemption Notification the petitioner shall not be called upon to make the pre-deposit and ultimately the FCI shall be entitled to get the refund of the service tax, which the petitioner was required to pay is concerned, the aforesaid eventuality will arise only in case the service provider deposits the amount to the account of the Central Government. It is required to be noted that as per Section 73A of the Act even if Page 13 of 15 C/SCA/3507/2014 CAV JUDGMENT a person, who is liable to pay the service tax, has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of Chapter V of the Act or the Rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. Under the circumstances, the contention on behalf of the petitioner that the petitioner may not be called upon to deposit the balance amount of Rs.5 Crores as pre-deposit, the amount of service tax, which the petitioner charged and collected from FCI, cannot be sustained.
5.5. Now so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Benara Valves Ltd. & Ors (Supra) by Shri Mehta, learned Counsel appearing on behalf of the petitioner is concerned, the same shall not be applicable to the facts of the case on hand and the same shall not be of any assistance to the petitioner, more particularly, considering Section 73 A of the Act.
5.6. However, in the peculiar facts and circumstances of the case, if the petitioner is called upon and/or directed to pay a sum of Rs.5 Crores as pre-deposit, the same may cause undue hardship to the petitioner (even if no financial hardship has been pleaded) and, therefore, we are of the opinion that in the facts and circumstances of the case, if the petitioner is called upon and/or is directed to pay a sum of Rs.3 Crores as pre-deposit, to be deposited within a period of three months from today and on that the appeal is directed to be considered by the learned CESTAT on merits, it will meet the ends of Page 14 of 15 C/SCA/3507/2014 CAV JUDGMENT justice and it will be in the fitness of things.
6. In view of the above and for the reasons stated hereinabove, the impugned order passed by the learned CESTAT directing the petitioner to deposit the balance amount of Rs.5 Cores as pre-deposit is hereby modified to the extent directing the petitioner to deposit a sum of Rs.3 Crores as pre- deposit, to be deposited with the Department within a period of three months from today and on reporting such compliance, the learned CESTAT to consider the appeal preferred by the petitioner in accordance with law and on its own merits. Rule is made absolute to the aforesaid extent. However, in the facts and circumstances of the case, there shall be no order as to costs.
(M.R. SHAH, J.) (K.J. THAKER, J.) siji Page 15 of 15