Custom, Excise & Service Tax Tribunal
C. Ramachandran vs Commissioner Of Service Tax on 13 July, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH
CHENNAI
Appeal No.ST/282/2010
[Arising out of Order-in-Original No.86/09 dt.24.12.2009 passed by the Commissioner of Service Tax, Chennai]
C. Ramachandran Appellant
Versus
Commissioner of Service Tax,
Chennai Respondent
Appearance:
Shri T.R.Ramesh, Advocate For the Appellant Shri A. Cletus, ADC (A.R) For the Respondent CORAM :
Honble Shri P.K. Choudhary, Judicial Member Honble Shri C.J. Mathew, Technical Member Date of hearing / decision : 13.07.2016 FINAL ORDER No.41224/2016 Per P.K. Choudhary The issue involved in the appeal relates to waiver of penalty under Section 76 invoking Section 73 (3) of the Finance Act and also waiver of penalty under Section 78 invoking Section 80 of the Act during the period October 2006 to September 2008.
2. The brief fact of the case is that the appellant herein is a proprietary firm engaged in providing outdoor catering service for industrial units and educational institutions situated in and around Chennai. They are registered with service tax department under the category of "Outdoor Catering Service". The appellant's unit was taken up for routine audit between 28.10.2008 and 12.11.2008 and it was noticed non-payment of Service Tax for the period January 2008 to September 2008. It was also noticed by the Audit Team that appellant had not discharged the service tax liability on TDS amount and reimbursements received towards LPG gas and Milk from the recipient of services, to the tune of Rs.8,07,252/-. Proceedings initiated culminated in the impugned order. Hence the present appeal.
3. The learned Advocate appearing for the appellant-assessee submits that that the bona fides of the appellant can be seen from the fact that he had been computing the service tax liability payable to the Government based on the invoiced amount instead of the amount actually realized due to ignorance of the Service Tax Rules and Regulations. He submits that the fact that service Tax liability based on the receipt or cash basis will be less than the Service Tax liability computed reckoning the invoiced amount irrespective of its realisation is also recorded in the impugned order. This clearly demonstrates that there was no mala fide intention on the part of the appellant warranting invocation of extended period.
3.1 With regard to non-payment of service tax on TDS quantum, he submits that appellant was under bonafide belief that the liability was being worked out based on the invoice value and there was no question of adding TDS again, which will result in double accounting of the same figure since the invoiced amount includes the TDS amount, which was later deducted by the recipient of the service in terms of the Income Tax Act.
3.2 With regard to the non-inclusion of reimbursement of expenses incurred on behalf of the recipient of services in respect of LPG and Milk, he submits that the Appellant was under the bona fide impression that as per the Agreement, it is provided by the recipient of services and payments were made on their behalf which was later reimbursed to the Appellant. Thus the Appellant has acted as a pure agent of the recipient of services, which are not includible in the value in terms of Rule 5(2) of Service Tax (Determination of Value) Rules, 2006. Any Service Tax collected forcefully on the erroneous interpretation needs to be refunded to the Appellant. Further, the demand on this score is barred by limitation in the absence of any active suppression especially when the matter involves interpretation besides availability of set-off credit at the recipient end making the situation revenue-neutral. In any case, there cannot be levy prior to 16.6.2005, the date on which the activity was brought under tax net. Further, a sum of Rs.8,07,252/- appropriated in the impugned order needs to be adjusted against the future payment since the same is not payable and barred by limitation.
3.3 He further submitted that in the absence of any mala fide intention on the part of the Appellant to evade Service Tax, there is no warrant for invoking extended period of time limit under proviso to Sec.73(1) of the Finance Act, 1994. This submission is further corroborated by the fact that there is no clandestine operation, in any manner, by the Appellant, which is evident from the fact that all transactions were invoiced and all payments were received only by Cheque through Bank and there was no cash transaction between the recipient of the service and the Appellant.
3.4 Further, most of the recipients of service are eligible to avail input credit of the tax paid on invoices raised by the Appellant for rendering them 'outdoor catering services' and thus the payment of Service Tax, its collection from the Service recipient and its availment as input credit thereafter results in revenue-neutral situation, which again would not attract the proviso to Sec.73(1) viz. the extended period of time limit. He submits that in this case, Section 76 is not applicable in a case wherein SCN is issued either under Section 73 (1) or under 73 (3) of the Act. On applicability of Section 73 (3), he relied on the judgement of Hon'ble Karnataka High Court in the case of CCE & ST., LTU Bangalore Vs Adecco Flexione Workforce Solutions Ltd. 2012 (26) STR 3 (Kar.).
3.5 He submits that in the matter of interpretation as to whether the reimbursement of amount towards gas and milk would be excludible under Rule 5(2) of Service Tax (Determination of Value) Rules, 2006 and would not warrant invocation of extended period of time limit, which proposition is well settled. Consequently, no penalty under Sec.78 of the Finance Act, 1994, is warranted in the facts and circumstances of the case.
3.6 He submitted that the Appellant only stand to lose by way of payment of interest @ 13% per annum if the service tax amount is not paid on the due date. The bona fides of the Appellant can be seen from the fact that he has disclosed in the following ST3 Returns in Column No.4(c) that outstanding Service Tax is payable.
3.7 He submits that Explanation to Section 73 (3) is clarificatory in nature and hence it can be made applicable both prospective and retrospective. On this submission, he drew our attention to para-8 of the judgement of Hon'ble Madras High Court in the case of Tamil Nadu Small Indus. Corpn. Ltd. Vs CCE Chennai 2009 (234) ELT 413 (Mad.).
3.8 The appellant has paid the service tax and interest before issue of SCN which can be seen from the worksheet submitted by them in the paper book, duly certified by the Chartered Accountant. In fact, there is an excess payment of tax to the tune of Rs.3,23,770/- and Rs.8,07,252/- and pleads for adjustment of same against subsequent payments.
3.9. Appellant is not liable for payment of penalty under Section 76 of the Finance Act, 1994 inasmuch as the amounts were paid before issuance of SCN and hence the penalty needs to be set aside in terms of Section 73 (3) of the Act. The Original Authority has imposed a huge penalty of Rs.27,12,710/- on this score, which is not warranted on the facts as stated above and under the circumstances of the case.
4.0 Inasmuch as the whole demand with interest is paid, imposition of penlaty of Rs.8,10,000/- is unsustainable since there was no mala fide intention on the part of the appellant warranting imposition of penalties, as both the penalty under Section 76 and Section 78 are mutually exclusive and this submission has not been considered. Levy of tax on LPG and milk reimbursements which are not taxable under Rule 5(2) of Service Tax (Determination of Value) Rules, 2006 is barred by limitation.
4. Ld. A.R for the Revenue submits that appellant is one of the top outdoor catering service providers. In 2006 itself, SCN was issued and since it was the first incidence, the adjudicating authority did not impose the proposed penalty under Section 76 and by invoking the provisions of Section 80. However, for the subsequent proceedings, plea of bona fide cannot be accepted where reimbursements of cost of LPG and milk should be included in the gross value of service since the appellant has received money against the cost of the LPG and milk and should have included the same in their taxable value. Failure to do so, it establishes element of suppression. Accordingly, benefit of Section 80 cannot be given. He further submits that penalty is imposed under Section 76 and 78 under two different heads and they cannot be mixed here.
5. We have carefully gone through the records and submissions. We find that the disputed tax and interest have already been paid (excess tax paid as claimed by the Appellant), the issue to be addressed in this appeal is the imposition of penalty under Section 76, Section 78 of the Finance Act, 1994 and adjustment of excess tax paid by the Appellant.
6. Penalty under Section 76 has been invoked on the ground that the Appellant has been recurring defaulter in payment of tax and that the delay ranges around 150-400 days. In this connection, we find that there has been delay in payment of tax owing to the cash flow problems faced by the Appellant. While we are of the view that financial hardship is not a ground for non-payment of taxes, we find that the said amounts have already been disclosed in the ST-3 returns and that the tax along with interest has already been deposited during the course of audit and before the issuance of Show cause notice. In this regard, we find that the provisions of Section 73(3) of the Finance Act, 1994 is applicable to the facts of the present case. Section 73(3) of the Finance Act, 1994 is reproduced below:
SECTION 73.?Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded.
(3)?Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid :
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We also find that an explanation was inserted to Section 73(3) of the Finance Act, 1994 which is reproduced below:
Explanation 2. For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon.
In the case of Tamil Nadu Small Inds. Corporation Limited vs. Commissioner of Central Excise Chennai - 2009 (234) ELT 413, it was held that where an amendment has been introduced to clarify the intention of a notification, the said amendment was said to be retrospective in nature. Applying the analogy to the facts of the present case, we are of the view that the amendment vide Explanation to Section 73(3) is retrospective in nature as the said amendment has declared that no penalty shall be applicable in case the tax and interest is being paid even before the issuance of Show cause notice .
Accordingly penalty u/s. 76 of the Finance Act, 1994 is liable to be set aside.
7. As regards imposition of penalty u/s. 78 of the Finance Act, 1994, we find that the Learned Commissioner has imposed penalty for the following two reasons:
a) Service Tax not paid on TDS portion deducted by Customers
b) Service Tax not paid on LPG/milk reimbursed by the Customer
8. As regards service tax on TDS portion we find that Appellant's contention merits consideration as Appellant have always been under the belief that the value on which tax has been deposited by them was inclusive of tax and that at the insistence of the Department they had once again deposited tax.
9. As regards service tax on LPG/milk reimbursements from customer, we find that the issue revolves around interpretation of law i.e. whether reimbursement of expenditure was subject to levy of service tax in terms of Rule 5(1)of Service Tax Rules, 1994 and that the Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd.Vs UOI - 2013 (29) S.T.R. 9 (Del.) has held that reimbursements would not be subject to levy of service tax. Also, an amendment was introduced in Section 67 of the Finance Act, 1994 (with prospective effect from 14th May 2015) to effect that gross amount charged shall include value of reimbursement received by the service provider. Hence, we are of the view that the Appellant's case deserves a waiver of penalty under Section 78 of the Finance Act, 1994 in view of Section 80 of the Finance Act, 1994 as it existed during the period of dispute.
10. As regards the consequential relief on excess payment of tax, we find that no substantiation in the form of documentary evidence has been produced and the claim is being made based on assertions . Accordingly, we are unable to accede to the prayer. Accordingly, appeal is allowed in so far as they relate to imposition of penalties under Section 76 and Section 78 of the Finance Act, 1994.
(Operative part of the order pronounced
in open court on 13.07.2016)
(C.J. MATHEW) (P.K. CHOUDHARY)
TECHNICAL MEMBER JUDICIAL MEMBER
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