Custom, Excise & Service Tax Tribunal
Srinath Elevators vs Vadodara-I on 27 February, 2025
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Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO. 01
Service Tax Appeal No. 11957 of 2017
(Arising out of OIA-VAD-EXCUS-001-APP-097-2017-18 Dated- 18/05/2017 passed by
Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-
VADODARA-I)
Srinath Elevators ........Appellant
C/43, Shreeji Flats, B/H Samta Flats Subhanpura,
Vadodara, Gujarat
VERSUS
C.C.E. & S.T.-Vadodara-i ........Respondent
1st Floor...Central Excise Building, Race Course Circle, Vadodara, Gujarat-390007 APPEARANCE:
Shri. Rahul Gajera, Advocate for the Appellant Ms. Sunita Menon, Superintendent (AR) for the Respondent CORAM: HON'BLE MR. SOMESH ARORA, MEMBER (JUDICIAL) Final Order No. _10138/2025_ DATE OF HEARING:11.02.2025 DATE OF DECISION: 27.02.2025 M/s. Shrinath Elevators (appellant) is a proprietorship concern of Mr. Chetravelu Poochan who during the period year 2011 to 2016 was engaged in providing erection, commissioning, and installation and maintenance services for elevators supplied by M/s. Maspero Elevatori. Italy (Maspero) to its customers in India. For the said purpose, appellant entered into agreement with Maspero by which Maspero appointed appellant as an authorized contractor for carrying out the aforesaid activity on its behalf in respect of elevators it sold to its customers at their refineries in India. The appellant received payment of Rs. 4,15,93,054/- from M/s. Maspero in foreign convertible currency towards the said service. The aforesaid services as per the department were falling within ambit of "Erection Commissioning & Installation Services" as defined under section 65(39a) of Finance Act. 1994, and hence appellant in respect of its Annual Maintenance Contracts (AMCs) for elevators
2|Page ST/11957/2017 -SM to other customers paid service tax for such services provided directly by appellant. However, when services were provided on behalf of M/s. Maspero, no service tax is paid as appellants because as per them they were under bonafide belief that since appellant is providing services to Maspero-Italy based company - and receiving consideration from Maspero in foreign convertible currency, the same is treated as export of services and hence the same is not taxable and accordingly, value of such services were not included in while filing ST-3 returns during the relevant period. A Show cause notice (SCN) dated 09.12.2016 was issued by the Assistant commissioner of service tax division-
I, Vadodara- I Commissionerate by which it a demand of service tax amounting to Rs. 49,87,484/- was raised under proviso 73(1) of Act. It was contended in the said SCN, that appellant has claimed the consideration received from M/s. Maspero as export remittance. However, the service does not qualify as "Export of Service" under Rule 6(A) (1) of the Service Tax Rules, 1994, as the condition requiring the place of service provision to be outside India is not met. Under Rule 4 of the Place of Provision (POP) Rules, 2012, the location of the service is where it is performed, i.e., in India, making it taxable. That services amounting to Rs 1,21,60,843- rendered during 2011-12, before the introduction of POP are also taxable under Section 65(105) (zzd) of the Finance Act, 1994. The appellant was thus alleged to be liable to pay the service tax on the amount received in FY 2011-12 to 2015-16 from M/s. Maspero as the word "to any person" in the definition of service under (zzd) 65(105) of the Act does not need to be a 'customer' of the service provider, but can be "any person other than the service provider also. The appellant thus was alleged to have contravened provisions of Finance Act, 1994-Section 66, 68 R/w Rule 6 of Service Tax Rules, 1994, section 70 R/w Rule 7 of ST Rules, 1994 as they failed to pay the service tax totally amounting to Rs. 49,87,484/- for period from 01.04.2011 to 31.03.2016 as not shown value of these service in his ST-3 returns even if presumably export.
3|Page ST/11957/2017 -SM 2. Thereafter, the Learned Assistant Commissioner (adjudication)
adjudicated the said SCN vide his Order-in-original (010) dated 31.07.2017 holding, inter alia, as follows: that as per Export of Service Rules, 2005, the appellant service under Rule 3(1)(ii) does not qualify as "Export of Service"
since it was performed in India on the direction of M/s. Maspero Elevatori, Italy, thus, services provided before 20.06.2012 are also taxable. Section 65B of the Finance Act permits taxation of services in the taxable territory. CBEC Notification No. 28/2012-ST dated 20.06.2012 introduced the Place of Provision of Service Rules, 2012, where Rules 3 and 4 determine the place of service provision. The demand for Rs.49,87,484 of service tax under Section 73(1) for 2012-14 along with applicable interest under Section 75, and a penalty of Rs. 10,000 under Section 77(2) and Rs. 49.87,484 under Section
78.
3. By Order-In-Appeal (OIA) dated 18.05.2017 learned commissioner (Appeals-1) Central Excise, & Service Tax, Vadodara -upheld the said OIO and rejected the appeal filed by the appellant. Appellant is in appeal against the said OIA dated 18-5-2017 Submissions by the party:
4. At the outset, the appellant stated that it is contesting the above appeals on limitation only. It was submitted that SCN dated 9-12-2016 demands service tax for the period 2011-12 to 2015-2016, to the extent, it seeks to demand tax beyond normal period of (18 months as it existed then) the same is barred by limitation provided under proviso to section 73(1) of the Finance Act. It was submitted that the larger period of limitation under Section 73 (1) cannot apply as there was no fraud, collusion, willful mis-statement or suppression of facts or contravention with intent to evade duty on the part of the Appellant. It was submitted that appellant is a proprietor and has been paying service tax on installation and maintenance services in respect of industrial elevators, however, such services were provided to Maspero a foreign based seller of
4|Page ST/11957/2017 -SM elevator and further consideration was received in convertible foreign currency, it was under bonafide belief that the same was not taxable as the same is treated as export of services. This fact is stated in statement dated 6-9-2016 of appellant recorded during investigation. It was further an undisputed fact that appellant maintained all records in respect of his activity including consideration he received from the foreign based entity and demand of tax is raised based on audit of records maintained by the appellant. It was submitted that since demand of service tax was based upon the audit of records maintained by the appellant in respect of his activity, extended period of limitation cannot be invoked in the present case. Reliance in this behalf was placed on the following decisions:
i. Steelcast Ltd v CCE-2009 (14) STR 129 ii. CCE v Steel Cast Ltd- 2011 (21) STR 500 iii. Religare Securities Ltd v CCE -2014 (36) S.T.R. 937 (Tri. - Del.) It was submitted that it is settled law that for invoking the Proviso to Section 73 (1) and for imposition of penalty under Section 78 of the Finance Act 1994, there must be some positive and deliberate act of concealment or clandestine activity. In the present case there was no such concealment or clandestine activity. The Appellant has maintained complete record of the transactions in question which are duly reflected in the Appellant's accounts and it is on scrutiny of these very documents maintained by the Appellant in normal course of business that the department of service tax raised the issue whether the transactions are liable to service tax. It was submitted that in absence of any evidence of positive act of suppression mere non-payment of tax is not enough to invoke extended period. The appellant in this behalf relied upon the following judgment:
i. Chemphar Drugs and Liniments - 1988 (40) ELT 276
5|Page ST/11957/2017 -SM Further, during the disputed period, legislature had introduced provisions to bring clarity by way of introduction of place of provisions (POP) of service rules, 2012 It shows that there was not much clarity and hence lack of clarity prevailed initially as regards its applicability in the field. In view of above submissions, it was prayed that demand beyond 18 months from the date of SCN covering the period 2011-12 to 2014-15 is barred by limitation and is liable to be set aside. Since demand is barred by limitation, penalty under section 78 would also not apply and is liable to be set aside as well.
5. On the other hand, the authorized representative for the department submits as follows:-
That the appellant was providing services of Erection, Commissioning or Installation service' of industrial elevators in the refineries located in India. The appellant had an agreement with a Italy based company i.e. M/s. Maspero Elevators (Italy) as authorized contractor for providing service of erection, commissioning and maintenance of elevators and elevators shaft supply by M/s. Maspero Elevators to Indian customer. The appellant had received commission in foreign convertible currency from M/s. Maspero for providing service to their Indian customers but did not discharge service tax liability on full taxable amount by showing less taxable value.
2. The issue to be decided is that whether the service provided by the assessee is Erection, Commissioning or Installation service or Commission Agent Service and whether extended period is applicable.
3. The appellant had filed ST-3 returns which did not include the value of services provided to Indian Buyers of M/s. Maspero as part of agreement with the said foreign firm who incidentally had not provided any direct service in India.
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4. The appellant's contention that the services are to be treated as export of services during the relevant period, though the services provided by the appellant may be apparently covered under erstwhile Rule 3(1)(ii) of the Export of Services Rules, 2005, but had failed the condition of "be provision of such services as are performed outside India" as the services performed in India are on the directions of M/s. Maspero. Further from the facts of the case, it is clear that the services are provided within the taxable territory of India and as per Rule of POPR, 2012 contemplates a situation where material / goods are provided by the service recipient. Here in this case, once the sale of elevators are completed and delivered to the buyer of the elevator the ownership and possession of the goods gets transferred to the buyer of goods and not M/s.
Maspero. The buyer in India has thus made the goods available i.e. elevators to the appellant for being erected, commissioned and installed at their premises. In this situation as per Rule 4(a) of POP Rules, the place of provision of service is the place where services are actually performed which is situated in India.
5. The appellant's argument with regard to limitation, the issue of non payment of service tax came to knowledge of the department during the course of audit of the records of the appellant. Hence the extended period has been rightly invoked as there is a clear case of suppression of facts as the appellant had neither filed any service tax return nor declared any taxable value for the services rendered by them and therefore liable for penalty u/s 78 of the Finance Act, 1994.
6. The adjudicating authority has correctly imposed penalty u/s 78(1) of the Finance Act, 1994 and penalty u/s 77(2) for failing to assess their tax liability and file ST-3 returns. The appellant was also liable to pay interest at appropriate rate u/s 75.
6. In rejoinder, the advocate for the appellants vide letter dated 19.02.2025, further submitted as follows:
7|Page ST/11957/2017 -SM "Further to oral and written submissions advanced during hearing, particularly on the issue of lack of clarity prevailed on the issue of taxability of installation of elevators, we rely upon the judgement of Hon'ble Supreme Court in the case of Kone Elevator India Pvt Ltd V State of Tamil Nadu 2014 (304) ELT 161 (SC), a copy of which was submitted during hearing It is submitted that issue of taxability of sale and installation of lift itself was not settled until Hon'ble Supreme Court decided the same on 6-5-2014 in the Judgment supra. It is thus evident that there was not much clarity in legal position qua activity of installation of elevators. If that be so, malafide cannot be attributable upon an assessee who is an individual on account of lack of clarity in legal position prevailed during the disputed period in the field. In view of above, it is prayed that demand beyond 18 months from the date of SCN covering the period 2011-12 to 2014-15 is barred by limitation and is liable to be set aside. Since demand is barred by limitation, penalty under section 78 would also not apply and is liable to be set aside as well"
7. Considered. This Court finds that the arguments of the department on limitation that extended period has been invoked as suppression of facts can easily be deduced as no Service Tax returns were filed in relation to the intermediate services undertaken by the appellant nor any taxable value was indicated but it was only through the audit that the misconduct of the party came to be known to the department. Department has emphasized that the Rules, of POPR, 2012 and even the older ones of Export of services Rules, 2005 through the statutory provisions were quite clear in this regard. And the contents of the agreement which they had could have been known to the party only till department chose to do the audit. Learned Advocate on the other hand states, inter alia, that the demand being raised on the basis of audit and the records of the party, extended period could not have been invoked. As there was no deliberate act of concealment and also that the position in relation to taxability of Elevators was not clear and same only got settled in KONE ELEVATOR INDIA PVT. LTD VS. STATE OF TAMIL NADU as reported in 2014 (304) ELT 161 (S.C), in which lifts were taken to be the goods and installation etc. made the same as 'work contract' only in 2014 . Same came to be ultimately considered as a service in cases of indivisible composite contract for sale and services which involved both sale of goods
8|Page ST/11957/2017 -SM and services as works contract finally in relation to lifts and their installation. The Apex Court had departed and overruled earlier decision of the Apex Court reported in 2005 (181) ELT 156 (S.C) in the matter of KONE ELEVATOR INDIA PVT. LTD only, that such composites contracts involving manufacture supply and installation of lifts in a building was essentially not a contract of sale of goods but a works contract. It was the appellants submission that when position has been finally clarified by the Apex Court only vide order dated 06.05.2014, it cannot be said that position was not fluid for the majority of the period under contention and therefore the demand was barred by limitation and only normal period involved could have been worked out. This Court finds that the Hon'ble Commissioner (Appeals) did not have the benefit of going through the decision as reported in 2014 (304) ELT 161 (S.C) in the matter of KONE ELEVATOR INDIA PVT. LTD VS.
STATE OF TAMIL NADU and developments prior to that in taxation specially from the point of view of limitation. The matter therefore deserves to be remanded to Commissioner (Appeals) to consider the impact of KONE ELEVATOR INDIA PVT. LTD VS. STATE OF TAMIL NADU judgement-II of 2014 (cited above) and see its effect on limitation based on the facts of this matter. In case it is found that now settled law, which earlier was following the predominance test between services and goods and later started following the aspect doctrine between service tax and taxability of goods clarified the position in relation to works contract around 2014 only, will need special consideration of Commissioner (Appeals). The Learned Commissioner giving his decision will look into the decision of KONE ELEVATOR INDIA PVT. LTD- 2014 and decide the limitation keeping in mind that the law came to be settled only around that time. Further, if appears that only some portion of limitation will survive if decided against the party, then question of penalty shall be accordingly decided. Party shall be free to support its stand on limitation with any case law or established facts.
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8. Matter is accordingly remanded for Commissioner to pass a reasoned decision on limitation as well as to finally quantify the sustainable demand and penalty as per law.
9. Appeal allowed by limited remand.
(Pronounced in the open court on 27.02.2025) (SOMESH ARORA) MEMBER (JUDICIAL) Prachi