Adjudication of demand for the same category of service for which SCN issued

PJ/Case Study/2011-12/12

CASE STUDY

Prepared by:
CA Pradeep Jain,
Sukhvinder Kaur, LLB [FYIC]
And Megha Jain

Introduction: -

It is settled law that the demand should be confirmed in the same category of service in which the show cause notice is issued. The adjudication officer cannot go beyond the show cause notice. If he does so then such order is not sustainable in eyes of law. The order going beyond the scope of show cause notice is liable to be set aside.

In the matter of M/s Taj Hari Mahal, Jodhpur
[OIA No. 517 (CB) ST/JPR-II/2010, Dated: 10.01.2010]

Brief Facts: -

- The appellant is a five star hotel situated in Jodhpur, Rajasthan. It is registered under the category of Mandap Keeper. The appellant was accepting the Foreign Exchange from their customers for settlement of bills.

- The appellant would surrender all foreign currency to M/s Thomas Cook (India) Ltd and get an incentive of 2.3% on the Indian Rupee Business Volume.

- During the period 01.04.2005 to 31.10.2006, the appellant did not pay service tax on the incentive received.

- The Adjudicating Authority considered this service under the category of Banking and Financial Services and ordered to recover service tax alongwith interest under Section 73 and 75 of the Finance Act, 1994 and also imposed penalty of Rs. 10000/- under Section 76 of the Finance Act, 1994.

- Aggrieved by the said order, appellant has filed appeal before the Commissioner (Appeal).

Appellant’s Contention:

Appellant raised the following contentions before the Commissioner (Appeal): -

- The show cause notice was issued to the assessee demanding the service tax under the head Business Auxiliary services while the order in original is passed treating the said services as Banking and Financial Services. Therefore the order in original has just treated the services of Business Auxiliary service and Banking and Financial Service as synonyms. The order in original saying that the services are covered in Banking and Financial Service which is nowhere said in the show cause notice issued to the appellant. Hence the order is going beyond the show cause notice. Such an order which itself is contradictory should be set aside. Reliance was placed on the judgment given in the case of JAY AR ENTERPRISES Versus COMMISSIONER OF CUSTOMS (SEA), CHENNAI [2007 (210) E.L.T. 459 (Tri.-Chennai)] wherein it was held that the order travelling beyond the allegations of show cause notice is not sustainable. Similar decision was given in the following cases:-

- IN RE: JANKALYAN NAGARI SAHAKARI PATSANSTHA LTD. [2009 (15) S.T.R. 603 (Commr. Appl.)]

- BHAGWATI SILK MILLS Versus COMMISSIONER OF CENTRAL EXCISE, SURAT [2006(205) E.L.T. 182 (Tri. - Mumbai)]

- RAWMIN MINING AND INDUS. LTD. Versus COMMR. OF C. EX., BHAVNAGAR-I [2009 (13) S.T.R. 269 (Tri. - Ahmd.)]:-

- KALYANI SHARP INDIA Versus COMMISSIONER OF CENTRAL EXCISE, PUNE[2005 (187) E.L.T. 315 (Tri. - Mumbai)]

- CONSOLIDATED PETROTECHIND.VersusCOMMISSIONER OF C. EX., VADODARA[2000 (123) E.L.T. 919 (Tribunal)]

- SRI NATARAJAN INDUSTRIESVersusCOMMISSIONER OF C. EX., COIMBATORE[2000 (123) E.L.T. 1016 (Tribunal)]

- GUDWIN LOGISTICS Versus COMMISSIONER OF C. EX., VADODARA [2010 (18) S.T.R. 348 (Tri. - Ahmd.)]

- M/s Oswal Paper & Allied Industries Vs CCE, Jalandhar [2010-TIOL-678-CESTAT-DEL]

- Caliber Point Business Solutions Ltd Vs CST, Mumbai [2010-TIOL-554-CESTAT-MUM.]

It was submitted that in the above referred cases, it was held that the order should be given in the same line on the allegations raised in the show cause notice. As in this the show cause notice was issued demanding the service tax under the head Business Auxiliary Services while the order in original has treated it to be Banking And Financial services. Thus the order in original is travelling beyond the scope of show cause notice. If the order is not passed in accordance with the grounds specified in the show cause notice, it is not tenable in the eyes of the law. Hence the ratio of the above mentioned cases is applicable in the instant case also and the impugned order is liable to be quashed.

- It was submitted that the demand pertains to the period from 1.4.2005 to 31.10.2006. Earlier, the Board has clarified that service provider by money changes are liable to service tax under “Banking and Financial services” by circular No. 341/44/2005-TRU dt. 06.10.2005. This circular was superseded by circular no. 92/3/2007 dated 12.03.2007. But later on, it was clarified vide circular no. 96/7/2007-St dt. 23.08.2007 that money changers are buying and selling foreign exchange and as such they are not covered in service tax. But Finance act 2008 has included the money changers and service tax levied on the same from 15.05.2008 under the category of “Banking and Financial services”.

So from the above legal position, it is clear from the circular dated 23.08.2007 that the providing services of money changers were never covered under service tax net. This is sale and purchase of foreign currency and hence is not liable to service tax at all. This was submitted by the appellant but the learned adjudication officer has held that during the period in dispute, it is covered by earlier Board circular and hence liable to service tax. But the assessee submit that when the board circular has categorically said that the purchase and sale of foreign currency is not service at all then the service tax is not applicable even for the earlier period. Thus, the analogy drawn by the order-in-original is totally erroneous and liable to be set aside.

- The appellant further submit that even the board circular no. 341/44/2005-TRU dt. 06.10.2005 said that the impugned activity will be covered under “Banking and Financial services” but the show cause notice has been issued to us under category of “Business auxiliary service”. Thus, the department is not following its own circular and has issued us show cause notice and order under wrong category and hence the demand is not sustainable. It is settled law that when the demand is issued under wrong category of service then the demand is not sustainable.

- The impugned service has been specifically included in the service tax with effect from 15.05.2008 in “Banking and financial services”. This clearly underlines that the impugned activity was not covered under the service tax prior to this amendment. Reliance is placed on FEDERAL BANK LTD. Versus COMMR. OF C. EX., CUS. & S.T. (APPEALS), COCHIN [2009 (15) S.T.R. 279 (Tri. - Bang.)], IBM INDIA PVT. LTD. Versus COMMISSIONER OF SERVICE TAX, BANGALORE [2010 (17) S.T.R. 317 (Tri. - Bang.)] and GANDHI & GANDHI CHARTERED ACCOUNTANTS Versus C.C.E., HYDERABAD [2010 (17) S.T.R. 25 (Tri. - Bang.)]. Following the ratio of aforesaid decisions, it is clear that the service tax is not leviable on these services prior to 16.05.2008. Even the Board circular 96/7/2007-ST dated 23.08.2007 also supports our contention that prior to this amendment, this was not taxable. Following the same ratio of aforesaid decisions, the demand is not legally sustainable and order-in-original is void abintio and non est.

- Further when the service is specifically included in a particular category from 15.5.2008, it cannot be made taxable under other head before this period. Nor the said category can be made taxable under the same category. As if the service was taxable from the beginning there was no need for the government to bring amendment and bring the service under the service tax net. This has been also said in various cases-

KUTTUKARAN LEASING & INVESTMENTS LTD. Versus C.C.E., COCHIN[2010 (19) S.T.R. 499 (Tri. - Bang.)]

PRAVEEN AUTOFIN PVT. LTD. Versus COMMISSIONER OF C. EX., MANGALORE [2008 (10) S.T.R. 187 (Tri. - Bang.)]

CAMEO CORPORATION SERVICES LTD. Versus COMMR. OF SERVICE TAX, CHENNAI [2008 (11) S.T.R. 161 (Tri. - Chennai)]

SODEXHO PASS SERVICES INDIA P. LTD. Versus COMMR. OF C. EX., NAVI MUMBAI [2009 (13) S.T.R. 402 (Tri. - Mumbai)]

PRINCE FOUNDATIONS (P) LTD. Versus COMMR. OF SERVICE TAX, CHENNAI [2009 (16) S.T.R. 149 (Tri. - Chennai)]

SEPCO ELECTRIC POWER CONSTRUCTION CORPN. Versus COMMR. OF C. EX., RAIPUR [2007 (7) S.T.R. 229 (Tri. - Del.)]

Therefore the above cases clearly say that when services are brought in levy on a particular date they cannot be made taxable under any other service before that date. The same has also been held in M/s SAP India Pvt. Ltd. Vs. The Commissioner of Central excise Bangalore-III Commissionerate [2010-TIOL-1569-CESTAT- Bang]. Therefore the ratio of all these cases will be applicable on us. Service tax cannot be levied on the assessee when the entry itself was added in the Banking and Financial Services from 15.5.2008.

- The impugned order relates to demand for the period from 1.4.2005 to 31.1.2006. The circular no. 341/44/2005-TRU was issued on 6.10.2005. But there was no circular for the period from 1.4.2005 to 5.10.2005. Hence, the demand for this period is not sustainable. Further, the above circular was also withdrawn and new circular no. 96/7/2007-St dt. 23.08.2007 was issued which says that the activity of purchase and sale of foreign exchange is not chargeable to service tax. The appellant contention was that the service tax is not payable for any period as the circular clearly says that it is not chargeable to service tax. But the department has tried to make out the proposition that earlier circular is applicable during that period and new circular is applicable from the date of issue of circular. If this analogy is accepted that the circular is effective from the date of issuance than the earlier circular is also applicable only from 5.10.2005. But the impugned order has confirmed the demand from 1.04.2005. Thus, the order itself is taking contradictory stands. Such an order is totally erroneous.

- It was submitted that the main business of the assessee is to run Hotels and not that of promoting the Foreign Exchange Money Changer business. Thus, they are not providing any service as a foreign exchange broker. The services provided by them to their customers regarding the same are absolutely free of charge i.e. no charges like that of brokerage etc. is levied by them. They simply receive the foreign exchange converted into Indian Rupees and pass on to Banks/ Full Fledged Money Changers (FFMC). The department itself by way of circular has clarified that the services such as transfer of money through money orders, operation of savings accounts, issue of postal orders provided by the Department of Posts are not liable to service tax as their main business is not related to “banking and other financial services” but it is only an extra service which they provide to their customers. Similarly they are engaged in hotel business and not banking and other financial services. The Circular No. 83/1/2006-ST dt. 4th July, 2006. Thus, they are not liable to pay Service tax for the aforesaid services provided by them. This submission of the appellant was not discussed and distinguished by the learned adjudication officer. Thus, the impugned order-in-original is totally against the principle of natural justice. This renders the impugned order-in-original as null and void.

- Further it was submitted that the demand has been confirmed on the appellant saying that the appellant has suppressed material facts from the department. The show cause notice was issued to the appellant invoking the extended period under Section73 of the Finance Act. The information was collected by the audit wing of the department from Balance sheet. Balance Sheet is a publically document and nobody can suppress the same. Further we rely on-

ROLEX LOGISTICS PVT. LTD. Versus COMMISSIONER OF SERVICE TAX, BANGALORE 2009 (13) S.T.R. 147 (Tri. - Bang.)

KIRLOSKAR OIL ENGINES LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NASIK 2004 (178) E.L.T. 998 (Tri. - Mumbai)

JINDAL VIJAYANAGAR STEEL LTD. Versus COMMISSIONER OF C. EX., BELGAUM 2005 (192) E.L.T. 415 (Tri. - Bang.)

HINDALCO INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., ALLAHABAD [2003 (161) E.L.T. 346 (Tri. - Del.)]

MARTIN & HARRIS LABORATORIES LTD. Versus COMMISSIONER OF C. EX., GURGAON [2005 (185) E.L.T. 421 (Tri. - Del.)]

In the light of the above decisions, it is ample clear that the show cause notice issued by invoking the extended period of limitation is not legally tenable and is liable to be quashed.

- The order is also imposing penalty under Section 76 of the Service tax wherein it is said where there is failure to pay service tax then the assessee will be liable for this penalty. The analysis of the section makes it clear that if the assessee is liable to pay the service tax and has not paid it then the penalty can be imposed on him. But the appellant is not liable to pay the service tax on the basis of our aforesaid submissions. So the penalty imposed on the appellant is totally bad. The order in original should be set aside.

Reasoning of Order-in-Appeal:

The Commissioner (Appeal) held as under:

- The Commissioner (Appeal) found force in the appellant’s contention that the show cause notice has been issued under the category of “Business and Auxiliary Services” and the demand was confirmed under the category of “Banking and Financial Services”, hence order-in-original traveled beyond the show cause notice.

- The Commissioner (Appeal) also found force in the Appellant’s contention that as show cause notice was issued under the category of “Business Auxiliary Services” and the demand was confirmed vide impugned order under the category of “Banking and Financial Services”.

- The Commissioner (Appeal) relied upon the judgment of the Hon’ble Supreme Court on this issue in the case of Toyo Engineering India Ltd [2006(201) E.L.T. 513 (S.C.)] wherein it has been held that “Show Cause Notice – Scope of- grounds did not find mention in show cause notice – department cannot travel beyond show cause notice – Section 28 of Customs Act, 1962”.

- It was held that in view of above, the Adjudicating Authority cannot travel beyond the show cause notice, accordingly without going into merit. The Commissioner (A) set aside the impugned order.

Decision of the Commissioner (Appeal):

Appeal allowed.

Conclusion:

The Commissioner (Appeal) rightly set aside the impugned order which confirmed the demand of service tax under Banking and Financial services whereas the show cause notice was issued on the allegation that appellant-assessee was providing Business Auxiliary service.

**********

Comments

PJ/CASE STUDY/2011-12/12
22 June 2011

Post a Comment

Query

Comments

PJ/CASE STUDY/2011-12/12 22 June 2011

Post a Comment

Query

PJ/CASE STUDY/2011-12/12
22 June 2011