Custom, Excise & Service Tax Tribunal
M/S. Hindustan Zinc Ltd vs Cce, Jaipur on 23 June, 2008
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, PRINCIPAL BENCH,
NEW DELHI, COURT NO.1
SERVICE TAX APPEAL NO. 523 OF 2006
[Arising out of order-in-original No.467(HKS)ST/JPR-II/2006 dated 17.8.2006 passed by the Commissioner(Appeals-II) of Central Excise, Jaipur ]
Dates of Hearing: 23.6.2008
Date of Decision: 27.6.2008
Honble Mr. Justice S.N. Jha, President
Honble Mr. M. Veeraiyan, Member (Technical)
Honble Mr.P.K. Das, Member (Judicial)
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1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982.
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
authorities?
M/s. Hindustan Zinc Ltd. Appellant
[Rep.by:Shri V.Lakshmikumaran, & Shri V.Vasudevan Advocates]
Versus
CCE, Jaipur Respondent
[Rep. by: Shri Amit Jain,DR]
Coram: Honble Mr. Justice S.N. Jha, President
Honble Mr. M. Veeraiyan, Member (Technical)
Honble Mr.P.K. Das, Member (Judicial)
O R D E R
Per Justice S.N.Jha:
The dispute in this appeal relates to the date of commencement of liability of the recipient of taxable service provided by a person who is a non-resident or is from outside India, and does not have any office in India to pay service tax. In Aditya Cement Vs. CCE, 2007 (7) STR 153, a Single Member Bench of the Tribunal held that the service receiver was not liable to pay service tax for the services received prior to 1.1.2005. The decision was followed by a Division Bench in Ispat Industries Ltd. Vs. CCE 2007 (8) STR 282. Doubting the correctness of the said decisions this appeal was referred to Larger Bench for an authoritative pronouncement on the issue.
2. The scheme of the law relating to service tax so far as relevant may briefly be noticed. The provisions are contained in Chapter V of the Finance Act, 1994 as amended from time to time. As the dispute herein pertains to the period from January 2004 to July 2005, the provisions as they stood during the relevant period, only need be noticed. Section 65 which is the definition clause, inter alia, defines taxable service. The taxable service with which we are concerned in this appeal is consulting engineer service figuring at sub-clause (g) of clause (48) of section 65 at the relevant time. Section 66 is the charging provision. At the relevant time it comprised of five sub-sections. Sub-section (3) which dealt with the consulting engineer service laid down :-
With effect from the date notified under Section 88 of the Finance Act, 1997 (26 of 1997), there shall be levied a service tax at the rate of 5% of the taxable services referred to in sub-clauses (g), (h), (i), (j), (k), (l), (m) and (o) of clause (48) of Section 65 and collected in such manner as may be prescribed. Section 67 contained provisions regarding valuation of the taxable service, that is, the measure of tax. Section 68 dealt with payment, that is, who shall pay the tax and the manner. Having regard to the significance of the provisions of section 68 in the instant case, it may be quoted verbatim as follows:-
68. (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed.
(2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. Continuing with the scheme, Section 69 contained provisions regarding registration, section 70 provided for filing returns and section 71 dealt with assessment. Section 94 conferred power on the Central Government to make rules. In exercise of the said ruling power, the Central Government framed Service Tax Rules, 1994 which too was amended from time to time.
Although not relevant for this case, it may be mentioned that with effect from 18.4.2006, section 66A was inserted in the Act by Finance Act 2006 incorporating provision regarding charge of service tax on services received from outside India. With the incorporation of section 66A, the dispute in the matter of levy of service tax on services received from abroad afterwards has generally come to an end.
3. It would appear that in terms of sub-section (1) of Section 68 of the Act, the person liable to pay service tax is the person providing taxable service to any person. That is the general rule. However, under sub-section (2) which contains a non-obstante clause, in respect of notified taxable services, any other person as may be prescribed becomes liable to pay the tax. Prescribed means prescribed by rules vide clause (30) of section 65. The prescription is contained in clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, which defines person liable for paying service tax. A new sub-clause (iv) was inserted in clause (d) by notification no.12/2002-ST dated 1.8.2002 with effect from 16.8.2002. In view of its significance, the same may also be quoted as under:-
(d) Person liable for paying service tax means,-
(iv)in relation to any taxable service provided by a person who is a non- resident or is from outside India, and does not have any office in India, the person receiving taxable service in India.
4. The issue which arises for consideration is whether by virtue of notification no. 12/2002 dated 1.8.2002 inserting sub-clause (iv) in rule 2(1)(d) of the Rules, the recipient of the taxable service provided by a non-resident or from outside India, who does not have any office in India, became the person liable to pay service tax in terms of section 68(2) of the Act. If so, they became liable from 16.8.2002 itself as contended on behalf of the Revenue. The case of the appellant, on the other hand, is that unless the taxable service, as such, in relation to which the person other than provider of the service is liable to pay service tax, is notified by the Central Government, that person cannot be held liable to pay the tax, which according to the appellant, was done under notification no.36/2004-ST dated 31.12.2004 effective from 1.1.2005, and, therefore, the appellant as recipient of taxable service, received from outside India, became liable to pay service tax only from 1.1.2005.
5. We have quoted sub-section (2) of section 68 above. From a close reading thereof it would appear that the provision can be broadly divided into two parts. The first part contemplates specifying the service(s) in relation to which the person other than the provider of taxable service is to be made liable. Clearly, the services have to be identified, and specified, for this purpose. This is to be done by way of a notification published in the Official Gazette. The second part contemplates specifying the person liable to pay service tax on such service(s) i.e. the service(s) notified under the first part. This is to be done by making rules which is clear from the words as may be prescribed.
6. The contention of the Revenue is that under clause (a) of sub-section (2) of section 94 of the Act, the Central Government is authorized to make rules regarding collection and recovery of service tax under sections 66 and 68; that the manner of collection and recovery includes the person from whom the tax is to be collected and recovered; that therefore, the rule so made can also provide for the person liable to pay service tax under section 68(2); that notification no.12/2002 dated 1.8.2002 satisfied the twin tests of notifying the service as well as prescribing the person liable to pay the service tax; that the rules are more sacrosanct than notification, in fact they are part of the Act; that the Central Government having prescribed the recipient of taxable service received from outside India as the person liable to pay service tax within the meaning of Section 68(2), he became liable to pay service tax with effect on 16.8.2002 itself when the notification dated 1.8.2002 came into force.
7. It is not possible to accept the contention that the manner of collection of tax can be extended to include the person liable to pay the tax. The person liable to pay the tax is an integral component of any tax as a concept, distinct from the mechanism for its collection and recovery. Reference to section 68 in section 94(2)(a) simply means that the Central Government is required to make rules for collection and recovery of service tax under section 68, read with section 66 which is the charging section. As seen above, section 68(2) envisages specifying the services in relation to which a person other than the service provider is to be made liable to pay service tax; it also envisages specifying the person other than the service provider to be made liable to pay service tax. While the former is to be done by way of notification, the latter can be done by making rules. It is well known that where the law provides the manner for doing something, it should be done in that manner or not at all. It is relevant to mention here that while notification no. 12/2002 was issued amending the Service Tax Rules in exercise of rule making power under section 94 of the Act, notification no.36/2004 was issued in exercise of powers under section 68(2).
8. It would be appropriate to quote notification no.36/2004 in extenso as under :-
In exercise of the powers conferred by sub-section (2) of section 68 of the Finance Act 1994 (32 of 1994), the Central Government hereby notifies the following taxable services for the purposes of the said sub-section namely :-
(A) the services :-
(i) in relation to a telephone connection or pager or a communication through telegraph or telex or a facsimile communication or a leased circuit;
(ii) in relation to general insurance business;
(iii) in relation to insurance auxiliary service by an insurance agent, and
(iv) in relation to transport of goods by road in a goods carriage, where the consignor or consignee of goods is :-
(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948)
(b) any company established by or under the Companies Act, 1956 (1 of 1956);
(c) any corporation established by or under any law;
(d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India;
(e) any co-operative society established by or under any law;
(f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder; or
(g) any body corporate established, or a partnership firm registered by or under any law. (B) any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India.
2.This notification shall come into force on the first day of January, 2005.
9. A doubt arose while hearing the appeal earlier as to whether the consulting engineer service having already been mentioned as a taxable service in the Finance Act itself vide sub-clause (g) of clause (48) of Section 65 as the law stood at the relevant time, with the issuance of notification no.12/2002 amending the Service Tax Rules as mentioned above, recipient of the service did not become liable to pay service tax within the meaning of section 68(2) with effect from 16.8.2002 itself. This in fact led to the reference doubting the correctness of Aditya Cement and Ispat Industries, supra. On further consideration it appears to us that notwithstanding the fact that the consulting engineer service was already a taxable service, the mere prescription of recipient of such service as the person liable to pay service tax under notification no.12/2002 was not sufficient. Notification no.12/2002, as seen above, inserted another sub-clause in clause (d) of Rule 2 which is the definition clause of the Service Tax Rules. The definition clause cannot be read as a substantive provision creating liability muchless in a tax statute. The notification/amendment simply enlarged the definition of person liable to pay service tax in relation to any taxable service provided by a person who is a non-resident or from outside India, does not have any office in India making the recipient of such service liable to pay service tax. It did not specify, and possibly could not have, the particular service or services in relation to which recipient would be liable to pay service tax. This was done by notification no.36/2002 which was issued under section 68(2) of the Act specifying the taxable services for the purposes of the said sub-section i.e. sub-section (2) of section 68.
10. As seem above, four services (as seen above) were (initially) specified in Part A of notification no.36/2004 dated 31.12.2004. The service specified in Part B was omnibus, namely, any taxable service meaning thereby all types of taxable services provided by a person who is a non-resident or is from outside India and does not have any office in India. In other words, apart from the four services specifically mentioned as items (i) (ii) (iii) and (iv) in Part A, where any taxable service is provided from outside India, by a non-resident who does not have any office in India, the recipient became liable for paying service tax. It is clear that besides the services specified in Part A for which there may be specific reasons, so far as the service provided from abroad is concerned, the service provider could not be made liable to pay service tax and brought under the net of service tax in the absence of the apparent mechanism to collect and recover tax from them. A different provision, therefore, had to be made.
11. It would appear that the phraseology of rule 2(1)(d) (iv) and Part B of notification no.36/2004 is the same except that after referring to the taxable service, rule 2(1)(d)(iv) also mentions the person i.e. the recipient liable to pay service tax. But it is to be kept in mind that similarity was inevitable because both pertain to the same taxable service.
12. We are inclined to think that the taxable service referred to in Part B of notification no.36/2004 is part of the taxable service referred to in various sub-clauses of clause (48) [now clause (105)] of Section 65. It need hardly be explained that a number of taxable services can be provided inside India as well as from abroad. For example, consulting engineer service itself can be provided both inside and from outside. Where the service is provided from outside India or by a non-resident who does not have office in India, it is clear that the provider of the service cannot be fastened with the liability, and therefore, a different provision has to be made with respect to such services. It is to be kept in mind that the levy is on rendering of the taxable service and not on the person. No sooner than the taxable event takes place, tax must be collected and therefore provision has to be made to fasten the liability to pay tax. As observed above, the person liable to pay the tax is a component of the tax scheme. Since the liability to pay service tax generally is on the provider of service, where liability is to be fastened on any other person, the service (s) in relation to which liability is to be so fastened, has also to be identified and specified. It is relevant to mention that services had been specified in the erstwhile sub-section (1A) of Section 68, itself, - corresponding to present sub-section (2) in which it has now been left to the Central Government to do so by a notification.
13. On behalf of the appellant attention was drawn to the fact that whenever any addition was made in the list of taxable service for the purposes of Section 68(2), corresponding amendment was made in the Rules i.e. rule 2(1)(d) of the Service Tax Rules. For example, the service in relation to business auxiliary service of distribution of mutual fund by mutual fund distributor or an agent and in relation to sponsorship service provided to any body corporate or firm located in India were specified by notification no.5/2005-ST dated 1.3.2005 and notification no.16/2006 dated 25.4.2006, respectively. Corresponding amendments were made inserting clauses (vi) and (vii) in rule 2(1) (d) of the Service Tax Rules with effect from 1.4.2005 and 1.5.2006 which reflect the understanding of the Central Government that making amendment in the Service Tax Rules or the List of the services under section 68(2) alone is not sufficient, and amendments have to be made in the Rules to make the person liable to pay service tax as well as in the List of taxable services to specify the taxable service(s) in relation to which such person is made liable to pay service tax. A combined reading of notification no.12/2004 and notification no.36/2004 would show that while the former makes the person i.e. the recipient of taxable service in India provided by a non-resident or from outside India liable to pay service tax - without specifying the taxable service , as such, in relation to which he is so made liable, notification no.36/2004 does not specify the person liable to pay service tax; it merely specifies the taxable services for the purpose of section 68(2) of the Act. Both the notifications, therefore, have to be read as complimentary or supplemental to each other and in the absence of either, service tax cannot be collected or recovered (in respect of the specified services).
14. Learned counsel for the appellant referred to Laghu Udhyog Bharti Vs. Union of India, 1999 (112) ELT 365 (SC) and submitted that the provisions of rule 2(d)(xii) and (xvii) of the Service Tax Rules as amended in 1997 were struck down on the ground that as per the scheme of the Finance Act, the charge of service tax is on the person who is responsible for collecting the service tax, and it is he who by virtue of the provisions of Section 65(5) is regarded as an assessee being the person responsible for collecting the service tax, rules 2(d)(xii) and (xvii) which treat the customers or the clients as the assessee, were clearly in conflict with sections 65 and 66 of the Act. Learned SDR, on the other hand, placed reliance on Gujarat Ambuja Cements Ltd. Vs. Union of India, 2005 (182) ELT 33 (SC) and submitted that the amendments made with retrospective effect were upheld. Having regard to the limited issue involved in this reference which is different from the issue involved in Laghu Udhyog Bharti or Gujarat Ambuja Cements, we do not think it necessary to deal with the decision in details. Suffice it to say that the amendments were upheld in view of the enactment of sections 116 and 117 of the Finance Act, 2000 and Section 158 of the Finance Act, 2003 by reason of which the bases on which rules 2(1)(d), (xii) and (xvii) of the Service Tax Rules struck down were displaced and removed. The Court observed that a legislature is competent to remove infirmities retrospectively and make any imposition of tax declared invalid, valid. The following observations may be noticed :-
21. As we read the decision in Laghu Udhyog Bharati, the basis was the patent conflict between Sections 65, 66m 68(1) and 71 of the Finance Act, 1994 as amended in 1997 on the one hand and Rules 2(1)(d)(xii) and (xvii) of the Service Tax Rules, 1994 on the other. Each of these sections of the Finance Act, 1994 as amended in 1997 proceeded on the basis that the tax was imposable on the person providing the service. All other sections regarding the liability to furnish returns, assessments, penalties etc. flowed from that. It was because unamended Section 66 spoke of the liability to pay tax in respect of services which are provided to any person by the person responsible for collecting the service tax and Section 65(5) defined assessee as meaning a person responsible for collecting the service tax, that this Court held that Clauses (xii) and (xvii) of Rule 2(1)(d) of the Service Tax Rules were illegal.
23. As we have said, Rule 2(1)(d)(xii) and (xvii) had been held to be illegal in Laghu Udhyog Bharati only because the charging provisions of the Act provided otherwise. Now that the charging section itself has been amended so as to make the provisions of the Act and the Rules compatible, the criticism of the earlier law upheld by this Court can no longer be availed of. There is thus no question of the Finance Act, 2000 overruling the decision of this Court in Laghu Udhyog Bharati as the law itself has been changed. A legislature is competent to remove infirmities retrospectively and make any imposition of tax declared invalid, valid.
15. On behalf of the Revenue, attention was drawn to the Explanation inserted at the end of sub-section (105) of section 65 (as it then stood) by Finance Act, 2005 with effect from 16.2.2005. The explanation was to the effect :-
For the removal of doubts, it is hereby declared that where any service provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India and such service is received or to be received by a person who has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India, such service shall be deemed to be taxable service for the purposes of this clause. From a bare reading it is manifest that it was incorporated to declare a taxable service provided from outside India as deemed taxable service for the purpose of clause (105) which contains the definition of taxable service. It has no relevance to the issue involved. It may not be out of place to mention that the explanation was omitted when section 66A was inserted with effect from 18.4.2006. It was a temporary provision intended to make service provided from outside the country as a taxable service. There being no dispute about the nature of the service in question, namely, consulting engineer service as a taxable service within the meaning of section 65(48)(g) of the Act as it then stood, reference to explanation would appear to be misplaced.
16. In fairness to the learned S.D.R. we must mention that a rather detailed argument was made on the rules of interpretation; he also cited decisions to support his contention (so did the learned Advocate for the appellant); in view of the clear legal position, as it appears to us and stated hereinabove, we have not considered it necessary to deal with them.
17. The upshot of the above discussion is that the taxable service provided by a non-resident or from outside India, who does not have any office in India, having been specified as taxable service with effect from1.1.2005, under notification No.36/2004, recipient of such service could not be held liable for paying service tax prior to 1.1.2005 notwithstanding the amendment in rule 2(1)(d) of the Service Tax Rules under notification no.12/2004.
18. We thus concur in the view expressed in the cases of Aditya Cement and Ispat Industries, supra. The issue is thus answered in favour of the assessee and it is held that as a recipient of the consulting engineer service from outside India, the appellant was not liable to pay service tax prior to 1.1.2005.
19. The reference having been answered, the appeal may be listed before the Division Bench for final disposal according to law.
(Pronounced in open court on 27th day of June, 2008) (JUSTICE S.N. JHA) PRESIDENT (M. VEERAIYAN) MEMBER (T) (P.K. DAS) MEMBER (J) nk