Service tax credit on outward transportation is admissible only if freight forms part of price.

PJ/Case Law/2013-14/1841

Case:- M/s NICCO CORPORATION LTD VERSUS COMMISSIONER OF SERVICE TAX, KOLKATA

Citation:-2013-TIOL-190-CESTAT-KOL

Brief Facts:-Applicant filed this application for waiver of amount of Service Tax, interest and penalty. The demand of Service Tax of Rs.3,57,801/- is confirmed after denying credit of Service Tax paid on outward transportation of the goods. The demand of Rs.54,01,842/- is confirmed on the ground that the applicant has undertaken the activity which is covered under Business Auxiliary Service and are liable for Service Tax. Another demand of Rs.22,85,484/- in respect of activity of erection and commissioning.

Appellant Contentions:-The contention of applicant in respect of the demand of Rs.3,57,801/- is that applicant has rightly taken credit in respect of the Service Tax on outward transportation. The cost of outward transportation is part of the price. The applicant relied upon the Board Circular dated 23/08/2007 whereby it has been clarified that in case the outward freight is part of price, the credit of service tax paid in this regard is admissible. In view of this the contention is that the applicants are entitled for credit of service tax paid in respect of outward transportation of the goods.

In respect of the demand of Rs.54,01,842/-, the contention is that the period in dispute is 10/9/2004 to 31/3/2006 and the definition of business auxiliary service was amended with effect from 16/6/2005. Prior to 16/6/2005, business auxiliary service includes production of goods on behalf of the client and after 16/6/2005, the definition is amended to the effect that business auxiliary service means production of goods for, or on behalf of the client. In view of this amendment, the applicants are liable to pay service tax with effect from 16/06/2005 in respect of business auxiliary service undertaken by them. It is also submitted that the applicants are undertaking processing in respect of gems and diamonds which is exempt from service tax by Notification No.21/05-ST dated 7/6/05. In respect of the demand of Rs.22,85,484/-, the contention is that applicants undertaken the activity of laying the cables and as per Board Circular No.123/05-10 TRU dated 24/5/10 whereby it has been clarified that activity of laying the cable is not taxable under the Service Tax Rules for service tax.

Respondent Contentions:-Respondent submitted that in respect of the demand of Rs.3,57,801/- that though the applicant has taken the plea that the outward freight is part of price but there is no evidence on record to show that the same is part of the price. It is also submitted that this plea was not taken before the adjudicating authority nor in the present grounds of appeal therefore the applicants want to make a new case which is not permissible under law.

In respect of the demand of Rs.54,01,842/-, the contention of Revenue is that before the adjudicating authority in reply to show cause notice, the applicants admitted the taxability of the service and claimed the benefit of Notification No.21/05-ST dated 7/6/05. Even in the taxability of service was not challenged in the present appeal also. Therefore, the plea of the applicant that prior to 16/6/05, the activity of the applicants are not covered under Service Tax has no merit. In respect of the demand of Rs.22,85,484/-, the demand is confirmed by treating the activity undertaken by the applicant is erection and commissioning. Now the applicant has taken a new plea which was not before the adjudicating authority. The case before the adjudicating authority was that the contract was for works contract and relied upon the decision of the Tribunal in the case of Daelim Industrial Co Vs. Commissioner - 2003 (155) ELT 457 (Tribunal) = 2003-TIOL-110-CESTAT-DEL .The contention of Revenue is that the above decision is overruled by the Larger Bench in the case of Commissioner of Central Excise, Raipur Vs. BSBK Pvt Ltd - 2010 (253) ELT 522 (Tn. LB) = 2010-TIOL-646-CESTAT-DEL-LB .

The Revenue also relied upon the Hon'ble Andhra Pradesh High Court's decision in the case of Commissioner of Central Excise, Guntur Vs. Shri Chaitanya Educational Committee - 2011 (22) STR 135 (A.P) = 2011-TIOL-147-HC-AP-ST whereby the Hon'ble High Court laid the principles to be taken into consideration while deciding the stay or dispensing with the requirement of pre-deposit under Section 35 of the Central Excise Act.

Reasoning of Judgment:-We find that the demand of Rs.3,57,801/- is confirmed after denying the credit in respect of the service tax paid on outward transportation. During arguments a specific query is made by the Bench, whether outward freight is part of the price of the goods on which duty has been paid, Ld. Counsel submitted that the same is part of the price. However, no evidence by way of producing any document in support of the claim. The Board Circular which was considered by the Hon'ble Punjab & Haryana High Court in the case of Ambuja Cements Ltd Vs. UOI - 2009 (236) ELT 431 (P&H) = 2009-TIOL-110-HC-P&H-ST where it has been clarified that credit in respect of Service Tax on outward transportation is admissible if the freight is part of price. In absence of any evidence to show that the freight is part of the price, we find that applicant had not made out a case for total waiver of the demand in this regard.

In respect of the demand of Rs.54,01,842/- it is confirmed on the ground that the applicant undertaken the activity which is covered under the scope of business auxiliary service. The applicant admitted during argument that from 16/6/05 the applicants are liable to pay Service Tax as provider of business auxiliary service. Further we find that the taxability of the service was not before the adjudicating authority. The applicant admitted that the service undertaken by applicant is liable for service tax however claimed the benefit of Notification No.8/05. The applicant during arguments submitted that even after 16/6/05, the applicants are entitled for benefit of Notification No.21/05-ST dated 7/06/2005 which exempts the activity in respect of gems and diamond. From the record we find that the applicants are also undertaking the activity in respect of other goods also such as petrdidish, dental powder, medical equipments, semi-conductors, irradiation of 0 ring, LDPE Gaskets etc and these items are not covered under the Notification No.21/05-ST. In these circumstances, we find that the applicant has not made out a total waiver of demand in this regard.

In respect of the demand of Rs.22,85,484/- which is confirmed by treating the activity undertaken by applicant as erection and commission. We have gone through the contracts. The contracts are for laying the cables and the Board vide Circular dated 24/5/10 clarified that laying of cables are not liable to service tax. No doubt, this plea was not taken before the adjudicating authority but on the facts of the case in respect of the activity of laying cables, prima facie, the applicant has a strong case on this issue.

In view of the above discussion, as we held that applicant has not made out a case for total waiver of service tax in respect of the demand of Rs.3,57,801/- and Rs.54,01,842/- after taking into consideration the facts and circumstances of the case and the guidelines laid down by the Hon'ble High Court in the case of Shri Chaitanya Educational Committee (supra), the applicants are directed to deposit a total amount of Rs.31,00,000/- (Rupees Thirty One Lakhs only) within a period of eight weeks. On deposit of the above amount, pre-deposit of remaining amount of Service Tax, interest and penalty are waived during pendency of the appeal and report compliance on 23rd of January, 2012.

Decision:-Stay application disposed of.

Comment:-The stay application was partly allowed only due to the fact that a part of the demand raised under the category of Errection and commission pertained to laying of cables that was exempt vide board circular.

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PJ/Case Law/2013-14/1841

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