Plea for referring matter to Larger bench

Case: RAMANIYAM REAL ESTATES (P) LTD. versus COMMR. OF SERVICE TAX, CHENNAI

Citation: 2011 (24) S.T.R. 728 (Tri - Chennai)

Issue:- Construction Service – Stay/waiver of pre-deposit application – plea to refer matter to Larger Bench – held, matter cannot be referred to a Large Bench solely on account of prima-facie disagreement with the earlier orders of the Tribunal.

Financial hardship - unless balance of convenience is clearly in favour of waiving pre-deposit, stay cannot be granted even if prima facie case is made out.

Brief Facts:- Appellants have taken registration as provider of commercial construction services and construction of residential complex services during the relevant period i.e. 10-9-2004 to 31-3- 2007. They had already paid an amount of Rs. 76, 85,552/- by cash and Rs. 51, 17,844/- through credit for the first category of services and Rs. 1,50,58,007/- by cash and Rs. 7,00,773/- by credit for the second category of services.

Revenue demanded differential service tax.

The initial demand amount raised during the impugned show-cause notice was reduced during adjudication while passing the impugned order after taking into account the tax amount already paid by the Appellants for the period in dispute and in addition he has imposed a penalty of Rs. 1,75,00,000/-. He has also demanded interest which is not quantified.

Appellant is now before the Tribunal. Application for grant of stay and waiver of pre-deposit is also filed.

Appellant’s Contention:- The contention of Appellants is that the requirement of pre-deposit should be waived and the matter should be referred to the Larger Bench doubting the correctness of the Larger Bench decision in the case of C.C.E., Raipur v. BSBK Pvt. Ltd. – [2010 (253) E.L.T. 522 (Tri.-LB) on the ground that the said Larger Bench decision has been rendered per incuriam.

Respondent’s Contention:- Department has strongly argued that since the impugned service has been brought into tax net w.e.f. 10-9-2004, the value of such services received by the service provider is required to be charged to tax and hence he supports the order of the Adjudicating Commissioner. He also points out that if such amount is exempted from tax, it would result in an iniquitous situation inasmuch as one service provider receiving the money in advance would escape the tax whereas another service provider receiving the money later on would pay the tax even though both the services have been provided during the same period.

Reasoning of Judgment: - The Tribunal noted that it is not a case where the Appellants have taken a stand during the relevant period that no tax is payable by them. Rather, it is a case where they have paid the aforesaid tax amounts on their own and the department is seeking to recover differential tax amount through the impugned order.

It was noted that the present demand has two major components. An amount of Rs. 37, 43,887/- relates to the amount received prior to 10-9-2004 in respect of services rendered after that day. The Appellants are claiming exemption in respect of this amount in terms of Notification 18/2004-ST dated 10-9-2004 which grants exemption to portion of the value of taxable services which are defined in sub-clauses zzm, zzn, zzo, zzo, zzci, zzt, zzu, zzv, zzw, zzx and zzy of clause 105 of Section 65 of the said Act which is received by the service provider from the customer, exhibitor, client or any person, as the case may be, prior to the 10.09.2004.

The Tribunal noted that at this stage that an appeal against the Larger Bench decision in the case of C.C.E., Raipur v. BSBK Pvt. Ltd. – [2010 (253) E.L.T. 522 (Tri.-LB) has been dismissed by the Delhi High Court in the case of Larsen & Toubro Ltd. v. CESTAT - 2010 (20) S.T.R. 163 (Del.) and that the said decision in BSBK has been followed by several Division Benches of the Tribunal, for example in Alstoms Project India Ltd. v. CST, New Delhi [2011 (23) S.T.R. 489 (Tn. - Del.)]. (ii) Instruments Ltd. v. C.C.E., Jaipur - Final Order No. S.T./98/2011 dated 14-3-2011 by CESTAT, New Delhi [2011 (23) S.T.R. 221 (T)]. (iii) M/s. B. Rama Rao & Company v. Commr. of Customs, Excise & Service Tax, Hyderabad-IV - 2011-TIOL-573-CESTAT- Bang = 2011 (23) S.T.R. 49 (Tn. - Bang.). (iv) M/s. G.R. Natarajan v. CST, Chennai - 2011-TIOL-254-CESTAT-MAD. = 2011 (21) S.T.R. 538 (Tn. - Chennai). Apart from that, the Larger Bench of the Tribunal following various judgments of the Supreme Court, has taken a view that at the prima facie stage, while considering stay petition, a Bench cannot make a reference to the Larger Bench when it has itself not taken a final view in the matter, which is obviously not possible to take at the stage of passing of an interim order. This view has been consistently taken by the Larger Bench of the Tribunal as may be seen from the following cases (i) SAIL v. C.C.E., Raipur - 2010 (256) E.L.T. 737 (Tri.-LB) = 2011 (21) S.T.R. 473 (Tri.-LB); (ii) Amit Sales v. C.C.E., Raipur - 2010 (257) E.L.T. 424 (Tri.-LB) = 2010 (19) S.T.R. 815 (Tri.-LB); (hi) Eastern Medicines v. C.C.E., Delhi - 2010 (257) E.L.T. 590 (Tri.-LB) = 2011 (21) S.T.R. 350 (Tri.-LB); (iv) Surya Roshni Ltd. v. C.C.E., Rohtak - 2010 (260) E.L.T. 417 (Tri.-LB). It was held in M/s. SAIL that the matter cannot be referred to a Larger Bench solely on account of prima facie disagreement with the earlier orders of the Tribunal. The referral order has to disclose the basis of disagreement from the earlier view and such disagreement can only be arrived after considering the contentions with reference to the fact and that has to be substantiated by the reasons after hearing the parties on merit. In the light of the above, the contention of the Appellants to make a reference to a Larger Bench against the order of the Larger Bench in BSBK (supra) at the prima facie stage itself, before we have heard the appeal on merit, cannot at all be entertained.

The Tribunal has taken the matter South for consideration the case of the Appellants for grant of waiver from the requirement of pre-deposit on the yardsticks laid down by the Supreme Court in the decisions cited above. The law makers must have had good reason to exempt the tax payers who have received the amount before this service was brought into tax net. One possible reason could have been that since the tax was levied from the future date, the tax payer could not have anticipated the same and could not have collected the tax amount from his customer when he received the payment for the services in advance prior to imposition of the tax. As such, the Tribunal was of the view that in respect of the amount of Rs. 37,43,887/-, the Appellants have made out a prima facie case in favour of waiver of pre-deposit. This is subject to verification of the figures as according Revenue this amount is not more than Rs. 1,15,225/-.

As regards the remaining major amount of tax demand of Rs, 1,12,45,661/-, the Tribunal found that this demand has been made in respect of construction of premises that the appellants have made for the land owners. The Tribunal noted that the appellants have agreed that the construction done for the land owners is taxable service. However, they are contesting the demand challenging the valuation of such services done by the adjudicating Commissioner. As explained by the Revenue in the course of hearing, the Department has adopted the value of land owners' portion of the constructed building on the same basis as has been done for the other part of the building which has been constructed for the individual buyers. While doing so, the Department has also allowed abatement of 67%. The Revenue in the course of hearing, has also demonstrated that the demand made by the Department is limited to only such portion of the landowners' share of the constructed building which has been done after the levy came into force and not for the earlier period. In support of his submissions, Revenue has also submitted a letter from the respondent-Commissioner dated 19-4-2011 along with his written submissions dated 27-4- 2011. Therefore Tribunal found that the value adopted by the adjudicating Commissioner cannot be said to be exorbitant or high considering the prevailing rates in Chennai. For example, in one of the cases, the Revenue during the course of hearing pointed out that the per sq/ft value of constructed office area including proportionate land cost came to only about Rs. 2250/- per sq/ft and the Depart-ment has only charged service tax on the portion representing the value of construction. On the whole, prima facie, we find that the value adopted by the Department has a basis and the same cannot be stated to be prima facie unreasonable. The arguments that the Valuation Rules for the service tax purposes, have been framed only w.e.f. 18-4-2006 and therefore, for the preceding period, a comparative method of valuation cannot be adopted is also prima facie devoid of merit since the statutory, provision for valuation was available all along under Section 67 of the Finance Act, 1994 and under the same, a reasonable method could always be adopted in the absence of any rules made thereunder. In view of the foregoing, the Tribunal found that the Appellants have made out a prima facie case in respect of the first part of the demand but no such prima facie case has been made out for the second part. The appellants have no convincing pleading in regard to undue hardship or financial hardship. On the other hand, the Revenue has argued that in a similar case in M/s. G.R. Natarajan, this Bench has ordered pre-deposit of Rs. 50,000/- against a tax demand of Rs. 1,54,399/- after taking into consideration that the abatement of 67% was not allowed in that case. Revenue pleads that since 67% abatement has been already allowed in the present case, hence full pre-deposit should be ordered in this regard. The appellants have also taken a ground that only w.e.f. 1-6-2007, the works contract has been brought into service tax net and before that date, no tax is leviable on them as the same is only in the nature of works contract.

The Tribunal found that this plea is not taken by them initially and, in fact, as recorded above, they have taken registration under the service tax and have paid the tax amount as determined by them, Subsequently, when show-cause notice was issued for the differential tax amount, at that stage also, they did not raise this issue before the adjudicating Commissioner. As pointed out by the Revenue, appellant have taken this ground only while contesting the differential tax demand before the Tribunal. It is argued by the appellants that a legal ground can be taken at any stage. But as pointed out by the Revenue in this regard, the levy on works contract was brought into force on 1-6-2007 and the show-cause notice in this regard was issued on 31-3-2008. Revenue states that the appellants never raised the issue of works contract earlier even though the show-cause notice, the reply to the show-cause notice and the personal hearing, were on dates subsequent to the introduction of new levy. Moreover, the Legislature was competent to impose a service tax on construction services and the Legislature recognizes the possibility of overlapping entries and that is why Section 65A providing for classification of taxable services has been introduced under the Finance Act, 1994, by the Finance Act, 2003.

The Tribunal found that the arguments raised before them to the effect that since works contract service has been introduced w.e.f. 1-6-2007, hence the construction service cannot be charged to tax before that date, have been raised earlier before other Benches of the Tribunal. The argument has been comprehensively dealt with in the case of M/s. B. Rama RflO & Company by the Bangalore Bench of the Tribunal holding that the construction services were taxable to service tax prior to 1-6-2007. While coming to this decision, the Bangalore Bench of the Tribunal has taken into account the earlier decisions of the Tribunal in the cases of Diebold Systems (P) Ltd. v. CST, Chennai - 2008-TIOL-489-CESTAT-Mad = 2008 (9) S.T.R. 546 (Tn. - Chennai), Sunil Hi-tech Engineers Ltd. v. Commissioner of Central Excise - 2009-TIOL-1867-CESTAT-Mum = 2010 (17) S.T.R. 121 (Tn.. Mum.), Daelim Industrial Co. Ltd. v. C.C.E., Vadodara - 2003-TIOL-110-CESTAT-Del = 2006 (3) S.T.R. 124 (Tn. - Del.) as well as the Larger Bench decision in the case of BSBK..

The Tribunal noted that the appellants have also taken the ground of limitation. However, in the view taken by the Tribunal, the question of limitation has been dealt with in detail by the adjudicating Commissioner in Paragraph 9 of his order. The Tribunal also funnd that there was delay on the part of the appellants by not furnishing necessary details, in the absence of which, the Department could not have calculated the tax amount and issued demand notice earlier, apart from the fact that the appellants have delayed tax payment and have not paid differential tax amount during the relevant period. Hence, The Tribunal were of the prima facie view that the appellants do not have a case on the ground of limitation.

In view of the foregoing and also taking into account the facts that :- (i) the appellants have got themselves registered and have paid the service tax on the construction services during the relevant period, and that the present demand is only limited to differential tax amount, (ii) the different Benches of the Tribunal have held that the tax on the construction services for the impugned period is payable, (iii) the same has not been declared ultra vires by any superior Court, (iv) the appellants have made out only a prima facie case in respect of first part of the demand and not for the second part, (v) there is no strong pleas made about undue hardship or financial hardship; and also keeping in view the guide-lines laid down under various judgments of the Supreme Court in regard to waiver of pre-deposit, the Tribunal is of the view that the appellants have not made out a case for full waiver of the same. Hence, the Tribunal directed the appellants to pre-deposit an amount of Rs. 80,00,000/- (Rupees eighty lakhs only) against the demanded tax amount of Rs. 1,66,06,432/, penalty of Rs. 1,75,00,000/- and applicable interest within stipulated time. Subject to compliance with the above direction, pre-deposit of the balance amount of tax, penalty and interest shall remain waived during pendency of the appeal.

Decision:- Application disposed off.

Comments

PJ/Case Laws/2012-13/1059

Post a Comment

Query