The issue Involved in this case is whether there is Service Tax liability on the amount that has been collected towards Maintenance and Repair of Complex before formation of Society.

PJ/Case Study/2018-19

CASE STUDY

Prepared By:Adit Gupta

Introduction:The compendious of the case is that, M/S ARIHANT SUPERSTRUCTURES LIMITED, (hereinafter referred to as the appellant) is engaged in providing taxable service namely works contract. Alongwith it, the appellant is also registered under the category of manpower supply and security, legal consultancy, GTA, etc. under reverse charge. They are having Service Tax Registration No. AABCS1848LST001.
A show cause notice ST/AUDIT-III/GR-15/ARIHANT/836/2015-16/3996 DATED 17.8.2016 was issued to the appellant alleging that they are liable to pay the service tax on the maintenance charges alongwith interest. Penalty under section 78 of the Finance Act, 1994 was also proposed to be recovered from them. The Appellant replied to the above show cause notice. Personal hearing in the case was held on 17.02.2017 which was attended by CA. Pradeep Jain and Shri Ravindra Parakh on behalf of the appellant. Adjoiner to reply to show cause notice was also filed. The learned Adjudicating Officer did not adhere to the submissions made by the appellant and passed the impugned order in original no. 04-SMC/2017-18 dated 26.4.2017; issued on 2.6.2017, confirming the demand of service tax amounting to Rs. 45,64,083/- alongwith interest and penalty under section 78 of Chapter V of the Finance Act, 1994.
Aggrieved by the part of Order in Original (hereinafter referred as impugned order/ impugned order in original) confirming the demand of service tax, interest and penalty, the appellant preferred to file the appeal. It was finally concluded that the appellant is working as a pure agent, and so Service tax liability will not be there as per Rule 5(2) of Service Tax (Determination of Valuation) Rules, 2006.

Relevant Legal Provisions:

Section 75 of the Finance Act, 1994.
Section 78 of the Finance Act, 1994.
Clause (e.) of Section 66 E of Finance Act , 1994.
Section 73(1) of Finance Act, 1994.
Notification No. 25/2012-ST dated 20.06.2012
Section 5 of Maharashtra Ownership Flats Act,1963.
Rule 5(2) of Service Tax (Determination of Valuation) Rules ,2006.

Issue Involved: The issue Involved in this case is whether there is Service Tax liability on the amount that has been collected towards Maintenance and Repair of Complex before formation of Society.

Brief Facts:The compendious of the case is that, M/S ARIHANT SUPERSTRUCTURES LIMITED, (hereinafter referred to as the appellant) is engaged in providing taxable service namely works contract. Alongwith it, the appellant is also registered under the category of manpower supply and security, legal consultancy, GTA, etc. under reverse charge. They are having Service Tax Registration No. AABCS1848LST001.
A show cause notice ST/AUDIT-III/GR-15/ARIHANT/836/2015-16/3996 DATED 17.8.2016 was issued to the appellant alleging that they are liable to pay the service tax on the maintenance charges alongwith interest. Penalty under section 78 of the Finance Act, 1994 was also proposed to be recovered from them. The Appellant replied to the above show cause notice. Personal hearing in the case was held on 17.02.2017 which was attended by CA. Pradeep Jain and Shri Ravindra Parakh on behalf of the appellant. Adjoiner to reply to show cause notice was also filed. The learned Adjudicating Officer did not adhere to the submissions made by the appellant and passed the impugned order in original no. 04-SMC/2017-18 dated 26.4.2017; issued on 2.6.2017, confirming the demand of service tax amounting to Rs. 45,64,083/- alongwith interest and penalty under section 78 of Chapter V of the Finance Act, 1994.
Aggrieved by the part of Order in Original (hereinafter referred as impugned order/ impugned order in original) confirming the demand of service tax, interest and penalty, the appellant preferred to file the appeal.
Assessee’s Contention:

The appellant submitted that the impugned Order-In-Original passed by the learned adjudicating authority is wholly and totally erroneous in confirming the demand of service tax, interest and penalty and is liable to be set aside.

The appellant submitted that the impugned order in original is a non-speaking order as it has totally ignored the most important submission given by the appellant which makes the demand itself as baseless. In this respect, it is submitted that the impugned order has raised the demand of maintenance charges on the appellant which were actually not collected by them. The said charges were collected by the Society itself which is a different entity in itself, thus, the income of any other entity cannot be raised on the appellant. To support this contention, the appellant had submitted the financial statements being Profit and Loss Account and Balance Sheet with the adjoiner to reply to show cause notice. Also, they had submitted in that adjoiner that the receipts of maintenance charges is received in the bank account of society having number as ________________. Since nothing was collected in the name and account of appellant, the demand cannot sustain. It is the set law that one who receives the amount against a service is liable to pay the service tax on the same. Since the appellant did not receive anything, there is no liability to pay the service tax as alleged in the impugned order. These submissions were duly given in the adjoiner to reply to show cause notice and are enclosed herewith in appeal memorandum from page. However, the impugned order has not even mentioned the fact that any such adjoiner was submitted by the appellant during the proceedings. Such an order being a non speaking order, is not tenable and is liable to be set aside in view of following decision:-

CC VS ESSAR OIL LIMITED [2010-TIOL-560-HC-AHM-CUS]:-

“CESTAT is required to pass reasoned speaking orders - while setting aside the order of the Commissioner the Tribunal has not recorded any finding as to in what manner the findings recorded by Commissioner are erroneous or as to why it was required to take a different view.
It is a matter of regret that the Tribunal still continues to ignore the same: Despite there a being plethora of precedents holding that an appellate authority is required to record facts, contentions as well as reasons for arriving at its conclusions, it is a matter of regret that the Tribunal still continues to ignore the same and pass orders like the present one without recording facts or reasons.
The analysis of above decision makes it ample clear that while deciding any case, the adjudicating authority has to consider all the submissions made by the assessee. In the instant case, the adjudicating authority has simply ignored this vital fact and have passed an order simplicitor ignoring the appellant’s submissions which is not justified. The impugned order should be quashed and the appeal should be allowed.

Without prejudice to above, it is submitted that the impugned order covers the period of 2011-12 to 2014-15. The negative list regime was introduced w.e.f. 1.7.2012. However, the show cause notice was issued by invoking the provisions of clause (e) of section 66E and section 66B of the chapter V of the Finance Act, 1994 for the entire period starting from 1.4.2011 to 31.3.2015. Out of this period in issue, the period from 1.4.2011 to 30.6.2012 did not cover any declared list concept. Therefore, when any such provision was not there for the aforesaid period, the demand pertaining to it is void ab initio and is liable to be set aside.

The appellant further submits that the impugned order in original has contradicted the contents and allegations given in the show cause notice. The impugned show cause notice has raised the entire demand under clause (e) of section 66E of the chapter V of the Finance Act, 1994. On the other hand, while giving the discussions and findings in the impugned order, the alleged services have been classified under "Repairs and maintenance services" for the period from 1.4.2011 till 30.6.2012. However, for the subsequent period, the same services have been classified under the clause (e) of section 66E of the chapter V of the Finance Act, 1995. Classification of same services under two different categories during the different period is not justified and is liable to be quashed.

In continuation to above it is submitted that the show cause notice proposed the demand only under clause (e) of section 66E of the chapter V of the Finance Act, 1995; but the impugned order made an attempt to re-classify the same under the category of repairs and maintenance service for the period upto 30.6.2012 as discussed at page no. 9 of the impugned order. By doing this reclassification, the impugned order has gone beyond the four walls of the impugned show cause notice which is not sustainable in view of the decision given in the case of JAY AR ENTERPRISES Versus COMMISSIONER OF CUSTOMS (SEA), CHENNAI [2007 (210) E.L.T. 459 (Tri. -Chennai)]. The verdicts of hon’ble Chennai Tribunal are produced as follows:-

“Order beyond show cause notice not sustainable - DEPB credit - Denial of - Show cause notice not proposed the denial hence, direction for debit of DEPB credit is beyond the scope of show cause notice, hence, not sustainable.”
The analysis of above decision makes it clear that where the order is passed on the grounds other than what are proposed in the show cause notice, it is not legally viable. Similar decision was given in the following case:-

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

In the above referred cases, it was held that the order should align with the allegations of the 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.

The appellant further submits that the impugned order is alleging at para 13.3 that any consideration received for any activity is a service. It is further alleged that a consideration given for an activity performed (read maintenance of completed projects) explicitly on the understanding that the service provider will receive the specified amount (read maintenance charges) in reciprocity for a service to be rendered by the service provider (read maintenance of building) would be a consideration for such service. Thus, maintenance charges received from any person for an act (i.e. maintenance work), is taxable service. These allegations of the impugned order are totally erroneous as the appellant had not actually received any amount as alleged in the order. A detailed discussion on this fact has already been done in the forgoing paras. When no such amount was received by the appellant, the question of levying the service tax does not arise at all. Even if it is accepted for the sake of argument also that any such amount was received, it is always received as a deposit which is handed over to the society as and when it is formed. Therefore, the amount is simply received as a security deposit which is not liable to service tax.

Aligning with above contention, it is submitted that the newly introduced Central Goods and Services Tax, 2017 has also answered this ambiguity by specifically giving a provision at section 2(31) which reads as follows:-

"Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply"

An analysis of this proviso to definition of consideration makes it clear that even if the security deposit is accepted from the recipient of service, it will not be treated as consideration and thus no tax would be levied. Even though this is the provision under GST law, yet since GST is the advanced version of VAT, Service tax and Excise law only and the provisions of these laws have been imported into GST law; its analogy will be equally applicable on the service tax too and the impugned order is liable to be quashed.

The impugned order is further alleging that the appellant is not acting as a pure agent as he does not fulfill the conditions of a pure agent. It has also been alleged that the appellant is only custodian for the statutory dues and not for maintenance and repairs. In this regard, it is submitted that this contention is wholly and totally erroneous and has been made by incorrect interpretation of legal provisions. This is the practice followed nationwide by all the builders and the same has been upheld by a no. of judicial pronouncements as follows:-

KUMAR BEHERAY RATHI Versus COMMISSIONER OF CENTRAL EXCISE, PUNE-III [2014 (34) S.T.R. 139 (Tri. - Mumbai)]

Maintenanceor Repair service - Builders/Developers of residential flats and commercial complexes - Collection of one time deposit on account of maintenance and repairs of common areas and facilities, wages, revenue assessment, electricity and water charges, etc. - HELD : Payment on behalf of various buyers to various authorities and service providers - Payment made on cost basis and debited from deposit account - Assessee act only as trustee or pure agent - Upon formation of cooperative society, deposit account shifted to Flat Owner’s Co-operative Society in terms of Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 - Therefore, assessee not provider of Maintenance and Repair service to flat buyers - Impugned order set aside - Sections 65(64) and 65(105)(zzg) of Finance Act, 1994. [paras 6, 6.4, 7]

Thus, the amount recovered as a pure agent cannot be leviable to service tax. Similar decision has been given in the following cases:-

Raheja Universal Pvt Ltd Vs CST [2013-TIOL-1357-CESTAT-MUM]

ST - appellant sharing common expenditure with group companies - transaction does not involve any of the categories mentioned in BAS - by sharing common facilities appellant does not promote or market the services of the group companies nor the services rendered can be considered under the category of services incidental or ancillary to the marketing services - in any case appellant has been discharging ST under BSS from 01/05/2006 and department has been accepting such payment - prima facie demand is not sustainable for the period 2003-04 to 2005-06 as the services rendered do not come under the category of BAS at all - pre-deposit waived & Stay granted: CESTAT [para 5.1]
Management, Maintenance or Repair Service - Appellant collecting development and maintenance fees from flat buyers to discharge payments towards local taxes, water and electricitycharges- appellant was acting as a pure agent and was performing custodial functions - demand of ST under 'Management, maintenance or repair services' does not appear to be sustainable - pre-deposit waived & Stay granted : CESTAT [para 5.2] - Stay granted :MUMBAI CESTAT

Omega Associates Vs CST [2013-TIOL-1149-CESTAT-MUM]

ST - Appellant engaged in construction of residential flats - before handing over possession of such flats appellant collecting development and maintenance fees from flat buyers as the promoter is liable to discharge payments towards outgoing expenses which include municipal local taxes, property tax, water charges, electricitycharges, revenue assessment or any mandatory chargesunder s. 5 of Maharashtra Ownership Flat (Regulation) Act, 1963 - appellant has undertaken these activities merely in the capacity of an executor and has not rendered any service of ‘management, maintenance or repair services' - strong prima facie case in favour - unconditional waiver granted from pre-deposit of adjudged dues and recovery stayed: CESTAT [paras 3.1 & 5] -Stay granted :MUMBAI CESTAT

The above judgments were cited in the reply to show cause notice but the same have not been discussed and distinguished. The impugned order has thus proven as a non-speaking order and is liable to be set aside.

The impugned order has discussed and distinguished the exemptions available in the negative list regime and has held that the exemption available at entry no. 2 to mega exemption notification no. 25/2012-ST dated 20.6.2012 is not available to the appellant as they are commercial societies. In this regard, it is worthwhile to mention here that the entry no. 2 reads as follows:-

"Service by an unincorporated body or nonprofit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution -
(a)       ……………
(b)       ……………
(c)       upto an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex."

The analysis of above exemption makes it clear that it nowhere specifies the type of housing society, it simply states that it can be an unincorporated body or nonprofit entity registered under any law. Also, the clause (c) also nowhere states the type of society, it simply uses the words "a housing society" or "a residential complex". Thus, the impugned order is totally incorrect in interpretation of law and is liable to be set aside.

The impugned order has simply confirmed the invocation of extended period of limitation without discussing the submissions made by the appellant. The impugned order has simply alleged that the appellant had not exercised the due diligence before discharging their service tax liability. The appellant in their reply to show cause notice had submitted that there is statutory requirement in the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 which states that the builder is required to keep specified amounts as a security deposit and to allocate the same for the respective purpose. Section 5 of the said Act specifically states that the amounts collected from buyers of the flats are to be kept in a separate bank account for specified purposes (like formation of a company or co-operative society) and the same shall be allocated to the specified purposes. In case of amount in dispute, the same has been collected as a deposit in terms of section 5 of Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 which is to be handed over to the society as and when it is formed. Since the collection of disputed amount is in accordance with a statutory provision and all the builders are doing the same, it cannot be said to be suppressed as an Act cannot be said to be suppressed by any person. The fact that the above section 5 is being followed by all the builders is confirmed by the decisions of KUMAR BEHERAY RATHI Versus COMMISSIONER OF CENTRAL EXCISE, PUNE-III [2014 (34) S.T.R. 139 (Tri. - Mumbai)], Raheja Universal Pvt Ltd Vs CST [2013-TIOL-1357-CESTAT-MUM] and Omega Associates Vs CST [2013-TIOL-1149-CESTAT-MUM]as cited by them in the forgoing paras. Thus, a legal provision/ requirement imposed by any Act cannot be suppressed in any way by a person. Therefore, the allegation of the suppression is not tenable and is liable to be quashed.

They also submitted that to invoke the extended period, the fraud, collusion or willful misstatement should be there. It was held in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] that for invoking the extended period, two ingredients are essential – (i) Willful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This has also been held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC-CX) wherein hon’ble Supreme Court held as under:-

“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.”

Thus, in the light of above decision, extended period cannot be invoked blindly in every case. Where the assessees have been acting in the boundaries of law, the extended period cannot be invoked. Similar decision is given in the following cases:-

Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-TIOL-235-SC- CX )

“Central Excise – Demand – Suppression of facts – Words and phrases – Where facts are known to both the parties the omission by one to do what he might have done and not he must have done, does not render it suppression – Suppression of facts must be deliberate to escape from payment of duty.”

NESTLE INDIA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH [2009 (235) E.L.T. 577 (S.C.)]

Demand - Limitation - Intermixture of vitamins cleared by assessee for more than 20 years prior to issue of show cause notice - Assessee offered to demonstrate but Department not availed opportunity to find out whether manufacture was involved - Extended period invocable only when there is positive act other than mere inaction or failure on the part of manufacturer and there must be conscious or deliberate witholding of information by manufacturer as held in 1989 (43)E.L.T.195 (S.C.) and 1989 (40)E.L.T.276 (S.C.) - Tribunal order on non-sustainability of invocation of extended period, upheld - Proviso to Section 11A of Central Excise Act, 1944. [para 17]

COMMISSIONER OF C. EX., BANGALORE Versus KARNATAKA AGRO CHEMICALS [2008 (227) E.L.T. 12 (S.C.)]

Demand - Limitation - Controversy regarding classification of micronutrient fertilizers not settled though these circulars were issued by Department - Conflict of views between Ministry of Finance and Ministry of Agriculture - Extended period of limitation not invocable - Section 11A of Central Excise Act, 1944. [para 27]
Castings — Machine parts — Milling, drilling and boring carried out on rough castings — Exemption under Notification No. 223/88-C.E., dated 23-6-1988 not available (2) Demand — Limitation — Department when aware of assessee’s activities at all times — Extended period of limitation not invokable (3) Appeal — Additional evidence — Documents not placed before adjudicating authority nor necessary for passing order in the case, not admissible

Collector v. Super Electricals – 1997 (95) E.L.T. A155 (S.C)

Demand — Limitation — Extended period of five years not applicable in the absence of suppression or mis-statement of facts or fraud (2)Penalty — Retrospective amendment to Rule 9(2) not invokable for past period

ILAVIA ENTERPRISES Versus COLLECTOR OF C. EX., JAIPUR [1997 (91) E.L.T. 26 (S.C.)]

Demand - Limitation - Manufacture of goods commenced on 1st August, 1991 but requisite declaration filed in April, 1992 - Show Cause Notice issued on 10-5-1993 for the period 1-8-1991 to 30-12-1992 - HELD : No suppression of facts on the part of the assessee, nor they have acted with any mala fide intention - Demand to be restricted to six months period preceding to the date of Show Cause Notice - Extended period of limitation not invokable - `Shikakai’ bath powder whether an Ayurvedic medicine or cosmetic - Section 11A of the Central Excise Act, 1944.

COLLECTOR OF CENTRAL EXCISE Versus H.M.M. LIMITED [1995 (76) E.L.T. 497 (S.C.)]

Demand - Limitation for extended period not invokable unless show cause notice puts assessee to notice specifically as to which of the various commissions or omissions stated in the proviso to Section 11A(1) of Central Excises & Salt Act, 1944 had been committed. [para 2]
Demand - Limitation for extended period - Non-declaration of waste/ by-product in classification list - Inference of intention to evade payment of duty not drawable automatically - Show cause notice must contain an averment to that effect pointing out specifically as to which of the various commissions or omissions stated in the proviso to Section 11A(1) of Central Excises & Salt Act, 1944 had been committed by assessee and adjudicating authority must specifically deal with assessee’s contention in rebuttal thereof. [para 2]
Penalty not imposable unless Department is able to sustain its demand show cause notice which was under challenge on the ground of limitation - Rules 9(2) and 173Q of Central Excise Rules, 1944.

COSMIC DYE CHEMICAL Versus COLLECTOR OF CENTRAL EXCISE, BOMBAY [1995 (75) E.L.T. 721 (S.C.)]

Demand - Limitation - Intent to evade duty must be proved for invoking proviso to Section 11A(1) of Central Excises & Salt Act, 1944 for extended period of limitation - Intent to evade duty built into the expressions “fraud” and “collusion” but “mis-statement” and “suppression” being qualifiedby immediately preceding words “wilful” and “contravention of any of the provisions of this Act or rules” being qualified by the immediately following words “with intent to evade payment of duty”,.
- It is, therefore, not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Mis-statement or suppression of fact must be wilful. [para 6]
Demand - Limitation - SSI manufacturer not including value of clearances of fully exempted goods in his declaration for previous financial year due to bona fide impression gained from two High Court judgments which held that fully exempted goods were not includible in the definition of “excisable goods” as defined in clause (d) of Section 2 of Central Excises & Salt Act, 1944 - Mis-statement or suppression of fact in the SSI declaration cannot be called wilful - Extended period of limitation not invokable - Proviso to Section 11A(1) ibid. [para 8]

Words and phrases - “Wilful” means intent to evade duty - Proviso to Section 11A(1) of Central Excises & Salt Act, 1944. [para 6]

Words and phrases - “Fraud” and “collusion” - Intent to evade duty is built into these very words - Proviso to Section 11A(1) of Central Excises &Salt Act, 1944. [para 6]

COMMISSIONER OF C. EX., MUMBAI Versus S. NARENDER KUMAR & CO. [2011 (267) E.L.T. 577 (S.C.)]

Demand - Limitation - Extended period, invocation of - Assessee regularly filing classification list with Department and same approved over the years - SCN issued invoking extended period after issuance of Circular subsequently regarding classification of Jaljira masala - Case identical to Apex Court decision in 2005 (188)E.L.T.149 (S.C.) and 2005 (180)E.L.T.300 (S.C.) where also classifications approved by Department from time to time and where it was also held that Department could have called upon assessee to produce catalogues in case of some confusion/doubt - No infirmity in Tribunal’s order holding absence of wilful suppression - Extended period not invocable - Proviso to Section 11A(1) of Central Excise Act, 1944. [paras 6, 8]

Padmini Products v/s Collector of Central Excise– reported in 1989 (43) ELT 195 (SC)

“Demand- Limitation- Extended period of 5 years inapplicable for mare failure or negligence of the manufacturer to take out license pr pa duty when there was scope for doubt that goods were not dutiable – Dutiability of goods in doubt because to Trade notice Scope of fraud, collusion, willful mis-statement or suppression of facts or contravention of rule with intent evade duty- Rule 9(2) of the Central Excise Rules, 1994 and Section 11 S of Central Excise and Salt Act, 1994.when in view of the trade notice there is scope for believing that the goods were entitled to exemption and consequently no licence is required to be taken out, then the extended period of limitation for demand under Section 11 A is inapplicable. Mere failure or negligence on the part of the manufacturer either not to take out a licence or not pay duty in case where there was scope for doubt, does not attract the extended limitation. Unless there is evidence that the manufacturer knew that goods were liable to duty or he was required to take out of licence. For invoking extended period of five limitation duty should not had been said, short levied or short paid erroneously refunded because of either any fraud, collusion or willful mis-statement or suppression of facts of facts or contravention of any provision of the Act or Rules made there under. These ingredients postulate a positive act, therefore, failure to pay duty or take out a licence is not necessary due to fraud or collusion or willful mis-statement or suppression of facts contravention of any provisions of the Act. Likewise suppression of facts is not failure to disclose to the legal consequences of a certain provision.”

Tamil Nadu Housing Board v/s Collector of Central Excise, Madras[1994 (74) ELT 9 (SC)]

Demand – Limitation for extended period invokable only if existence of both situations (1) suppression, fraud, collusion etc. and (2) intent to evade payment of duty proved- initial burden on Department- once department discharges such burden, it shifts and then applicability of provision to Section 11A(1) of Central Excise and Salt Act, 1944 is to be construed liberally.
In the above cases, it was held that mere inaction would not be a valid ground for invoking the extended period of limitation. There should be deliberate withholding of information with an intent to evade payment of duty without which extended period is not invokable. This discussion alongwith the case laws was done in the reply to show cause notice but the same has not been adhered to while passing the impugned order. Such a non speaking order is not justified and is liable to be set aside.

The impugned order has further confirmed the demand of penalty without discussing the submissions made by the appellant. It has been alleged that the appellant has mis-stated and twisted the information with the explicit intent to evade payment of service tax. But, the allegation of mis-statement and evasion of payment of service tax has not been proved. On the other hand, appellant had proved that there was no suppression as their act is a general practice adopted by all the builders in accordance with Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963. It is a fact that anything which is written in law cannot be suppressed. Thus, the impugned order has wrongly stated that there was any suppression. In this regard, the appellant had submitted in their reply to show cause notice that the penalty under this section is imposable only if there is any suppression of facts. In other words, conditions for invoking this section are exactly same as the conditions for invoking the extended period of limitation. As already clear from the submissions made in the forgoing paras, there is no malafide intention to evade payment of tax or suppression of facts. Thus, neither extended period is invokable nor penalty under section 78 is imposable as held by hon’ble Supreme Court in the case of Hindustan Steel Vs. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. In view of Supreme Court judgment, since intention to evade payment of duty is not there, penal provisions cannot be invoked.

It was reiterated that the mens rea is an essence of invoking the penal provisions. Reliance is also placed on the following judgments:-

2010 (258) ELT 465 (SC) – Sanjiv Fabrics
2007 (207) ELT 27 (P &H) – UT Ltd
2007 (5) STR 251 (P & H) – Kamal Kapoor
2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills
2009 (238) ELT 209 (P&H) – J. R. Fabrics
2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings
2008 (228) ELT 31 (Del) – K. P. Pouches

In view of these judgments, no penalty can be imposed unless mens rea or intention to evade payment of duty is proved. All the submissions relating to penalty and case laws cited above were duly mentioned in the reply to show cause notice, but the same have not been discussed and distinguished while passing the impugned order. Such a non speaking and non-reasoned order is not viable and liable to be quashed in view of following decision:-

COMMISSIONER OF CENTRAL EXCISE, BANGALORE VERSUS SRIKUMAR AGENCIES [2008 (232) E.L.T. 577 (S.C.)]:-

“Appellate Tribunal’s order - Non-speaking order - Facts not analysed in detail in impugned order by Tribunal - Disposal of appeals by mere reference to decisions not proper way to deal with appeals - Applicability of decision cited by Revenue not considered - Appeals involving different goods - CESTAT ought to have examined cases individually and articles involved - Manner of disposal not proper - Impugned order set aside - Question referred to Larger Bench of Supreme Court not answered as matter remitted to CESTAT for fresh decision by appropriate Bench - Section 35C of Central Excise Act, 1944. - By clubbing all the cases together and without analyzing the special features of each case disposing of the appeals in the manner done was not proper. [para 6]”

Thus, the hon’ble Supreme Court has held that before confirming the demand, the adjudicating authority is supposed to analyze each and every decision cited by the appellant. An order passed simply by referring the decisions is not proper manner of disposing the case. In the instant case, the adjudicating authority has not discussed and distinguished the decisions cited by the appellant; thus, the impugned order being a non-speaking order is not tenable and is liable to be quashed.

Aligning with above, it is submitted that besides the above referred submissions and decisions, there were couple of other submissions given in reply to show cause notice which have not been discussed and distinguished while passing the order. These submissions are produced verbatim as follows:-

In continuation to above, it is submitted that the impugned show cause notice is further alleging that the collection of maintenance charges is a declared service under clause (e) of section 66E of the Finance Act, 1994. In this regard, the said clause (e) is reproduced as follows:-

“(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;”

The analysis of above clause makes it clear that it covers the consideration received against promise to perform any act. The impugned show cause notice has alleged that since the amount so received is against promise to perform repairs and maintenance work of completed projects; it will come under purview of above clause of the declared list and accordingly will be liable to tax. In this regard, it is submitted that this contention of impugned show cause notice is weird. Even if it is accepted for the sake of argument also, then it will mean that any amount received in advance will fall under this category irrespective of the fact that the said amount has been received against a non-taxable or exempted service. It is worthwhile to mention here that the service tax is leviable on all the activities falling under declared list. If the contention of impugned show cause notice is accepted, every advance (which is received against promise to perform any act in future) will come in purview of this clause. Taking an example, if a hotel receives advance of Rs. 10,000/- for booking an accommodation, the service tax is being paid after taking benefit of abatement. In this case, the service tax paid by that hotel (after availing benefit of abatement @ 40%) comes Rs. 900/- [being 10000*60%*15%]. If the contention of impugned show cause notice is accepted, the advance shall be deemed as received against performing any act (providing room on rental basis) in future; accordingly, the said advance will come under purview of clause (e) of section 66E. Therefore, as per show cause notice, the service tax would be leviable on full value @ 15%. Thus, the service tax will come Rs. 1500/- instead of Rs. 900/- in the case of accommodation services. Thus, the allegation of impugned show cause notice that the amount received against promise to perform any act in future will come in declared list, is not tenable as it will lead to absurd position which is not desirable.

In continuation to above, it is submitted that if the allegation of the impugned show cause notice is accepted; all the amounts which are being received to perform any act in future will come in purview of declared list. Thus, in view of this interpretation, the service tax would be levied on all the advances irrespective of the fact whether the said amount has been received against provision of any taxable service and whether or not any exemption is available to said activity. Also, the benefit of abatements (if applicable) shall not be allowed on the amount of advances which is not intended. If there was any such intention, the abatement notification no. 26/2012-ST would have specifically provided for the same. These situations are not desirable and not the intention of law makers. Thus, the interpretation taken by the impugned show cause notice is going beyond the intention of law makers which is not sustainable in view of following decisions:-
BALWANT SINGH Versus JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)]:-

Interpretation of statutes - Legislative intention - Provisions of statute including every word to be given full effect keeping legislative intent in mind to ensure achieving projected object - No provision treatable as enacted purposelessly - Court not to give interpretation to provisions to render them ineffective or odious. [para 14]

COMMISSIONER OF CENTRAL EXCISE, LUDHIANA Versus RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]

Interpretation of statute - Question whether a statutory provision is mandatory or directory depends upon intent of Legislature, and not language in which the intent is couched - Literal construction which makes a particular provision manifestly absurd or leads to anomalous results, to be avoided. [para 9]
The analysis of above decisions of hon’ble Supreme Court and High Court makes it clear that the intention of the law makers is to be kept in mind while interpreting any provision.If any interpretation defeats the intention of the law makers, it should be avoided. In our case also, the interpretation taken by the impugned show cause notice is defeating the intention of law makers that amount received for each and every act to be performed in future cannot be taken in purview of declared list. This intention is clarified by the discussion done in the forgoing paras. Therefore, the impugned show cause notice should be quashed and the proceedings initiated against us should be dumped.

We submit that the impugned show cause notice has been issued by invoking the extended period of limitation by alleging that we have suppressed the facts with an intention to evade payment of service tax. It has been alleged that we did not declared that we have been receiving the said amount and have not paid the service tax on the same. It has also been alleged that we did not disclose these facts to the department on our own violation in any manner or at any point of time and also did not had any correspondence with the department over the said issue. In this regard, it is submitted that there is no statutory requirement in the service tax law which states that each and every act and procedure followed by the assessee should be intimated to department and that too suo motu as alleged in the impugned show cause notice. Thus, we were not supposed to suo motu inform the department that we are collecting the said amount from the buyers of the flats. It has been held by hon’ble Gujarat High Court in the case of APEX ELECTRICALS PVT. LTD. Versus UNION OF INDIA [1992 (61) E.L.T. 413 (Guj.)]that non-furnishing of the information not required under law does not amount to suppression. The verdicts of hon’ble High Court are given as follows:-

“Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”
Similar decision was given in the following cases:-

Gufic Pharma Vs. CCE - 1996 (85) ELT 67 (T) [Affirmed by Supreme Court at 1997 (93) ELT A186]
Prolite Engineering Co. Vs Union Of India [1995 (75) ELT 257 (GUJ.)]
Unique Resin Industries Vs. CCE - 1995 (75) ELT 861 (T)

In all the above cases, it was held that the information not required to be submitted under law, if not submitted, will not amount to suppression of facts. Thus the impugned show cause notice invoking the extended period of limitation on the grounds of non-furnishing of information (that was not required to be submitted under law), is not sustainable and is liable to be set aside.
The above are the submissions given by the appellant in the entire proceedings on which the impugned order has remained silent. Thus, the order has proved to be a non- speaking and non-reasoned order which is not sustainable in the light of following decision of Supreme Court:-

STATE OF HIMACHAL PRADESH VS SARDARA SINGH [2008-TIOL-160-SC-NDPS]:-

Even High Courts are required to pass speaking reasoned orders - The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance. The manner in which appeal against acquittal has been dealt with by the High Court leaves much to be desired. Reasons introduce clarity in an order. On plainest consideration of justice, the High Court ought to have set forth its reasons, howsoever brief, in its order indicative of an application of its mind, all the more when its order is amenable to further avenue of challenge. The absence of reasons has rendered the High Court order not sustainable. The requirement of indicating reasons in such cases has been judicially recognized as imperative. Judicial discipline to abide by declaration of law by this Court, cannot be forsaken, under any pretext by any authority or Court, be it even the Highest Court in a State, oblivious to Article 141 of the Constitution of India. Reasons are live links between the mind of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the "inscrutable face of the sphinx", it can, by its silence, render it virtually impossible for the Courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking out. The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance: SUPREME COURT.

Decision: Decision allowed.

Conclusion:- On the basis of above pretentions it can be concluded that, the appellant should be treated as a pure agent. Since appellant is working as a pure agent, service tax liability will not be there as per Rule 5(2) of Service Tax (DETERMINATION OF Valuation) Rules,2006.

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PJ/Case Study/2018-19/133
20 October 2018

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PJ/Case Study/2018-19/133 20 October 2018

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PJ/Case Study/2018-19/133
20 October 2018