CASE STUDY

Prepared By: CA Neetu Sukhwani &
Kavita Thanvi

 
 
 
Introduction:
 
The assessee, M/s Galaxy Data Processing Centre, was issued with show cause notice alleging that they have short paid Service Tax amounting to Rs. 20,45,682/- on the amount received during the period from 01.04.2007 to 31.03.2011 and failed to disclose the same in their ST 3 Returns in contravention of the provisions of Section 68 of the  Finance  Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. This allegation was based on the difference in the figures submitted in the ST-3 returns filed by them and that appeared in their relevant year’s Balance Sheet. It appeared that they have received amount in excess to the taxable income on which they have discharged their service tax liability. Therefore, the assessee was leveled with the charge of not paying/short paying service tax amounting to Rs. 2045682/-. The assessee replied to the above show cause notice by stating that they are primarily engaged in providing computer processing services for transmission and distribution of electricity by government run electricity departments and that services relating to transmission and distribution of electricity are exempt from the levy of service tax. Moreover, on perusal of their work orders, it is clear that there is no principal-agent relationship and so the services provided by them cannot be leviable to service tax under the category of “BAS”. Further, as most of their work is related to computer processing which is more appropriately classifiable under “Information Technology Services” which has been specifically excluded from the definition of “BAS”. The submissions made by the assessee were found to be reasonable and the order in original was passed thereby dropping the service tax demand raised vide the impugned show cause notice.
 
 

M/S GALAXY DATA PROCESSING CENTRE [SCN NO. V (ST)ADJ-II/JPR-II/401/2012/1964-65, DT. 19.10.2013]

 
Relevant Legal Provisions:
 
Section 65(19) of the Finance Act, 1994:-
“Business Auxiliary Service”means any service in relation to, —
(i)  promotion or marketing or sale of goods produced or provided by or belonging to the client; or
 (ii)  promotion or marketing of service provided by the client; or
 
[Explanation – For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of change, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;]
 
      (iii) any customer care service provided on behalf of the client; or
 
      (iv) procurement of goods or services, which are inputs for the client; or
 
[Explanation — For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;]
 
(v)  production or processing of goods for, or on behalf of the client; or
 
(vi) provision of service on behalf of the client; or
 
(vii)      a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944.
 Explanation — For the removal of doubts, it is hereby declared that for the purposes of this clause,—
 
(a)  ”Commission Agent”means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person —
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;
 
(b) “Information technology service means any service in relation to designing, (or developing of computer software) or system networking, or any other service primarily in relation to operation of computer systems.
 
Section 78 Penalty for suppressing value of taxable services-
Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of —
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded:”;...........”
 
 
 
Issue Involved:
 
The issue involved in this case before the adjudicating authority was that-
Whether difference in the value reflected in ST-3 return and that in Balance Sheet be leviable to service tax without verifying taxability of service?
 
 
Brief Facts:
 
M/s Galaxy Data Processing Centre, the assessees are holder of Service Tax Registration No. AAIPC0996RST001 for providing 'Business Auxiliary services' of the chapter V in the Finance Act, 1994 appears to have short paid Service Tax amounting to Rs. 20,45,682/- (including Edu. Cess & SHE Cess) on the amount received during the period from 01.04.2007 to 31.03.2011 and failed to disclose the same in their ST 3 Returns in contravention of the provisions of Section 68 of the  Finance  Act, 1994 read with Rule 6 of the Service Tax Rules, 1994.
For the purpose of conducting audit of the assessee, the Audit Branch of the Department called for copies of Balance Sheet, Trial Balance, Annual financial Statement, ST-3 returns etc. for last five years vide letter C. No. 447 / IAR / Gr.-CAAP / JP-II / 11-12 / 2332 dated 05.01.2012 (RUD-1). In compliance of the said letter, the assessee provided copies of the ST 3 Returns, P&L accounts and Balance Sheet for the year 2007-08 & 2008-09 vide letter Ref. No. GDP / CCED1 / 0302e / 2012 dated 02.03.2012 (RUD-2) and assured to submit the remaining documents for subsequent years as soon as possible and requested to postpone the audit till July, 2012. The Audit Branch again requested vide letter C. No. 447 / IAR / Gr. – CAAP / JP-II / 11-12 / 1900 dated 28.05.2012 to the assessee to furnish the documents / records for the financial years 2009 - 10 to 2011 – 12 (RUD-3). The assessee responded vide letter Ref. No. GDP / CCED1 / 0621e / 2012 dated 21.06.2012 providing copies of ST 3 returns for the year 2009-10 to 2011-12 and P & L Accounts and Balance Sheet for 2009-10 & 2010-11 and again requested for postponement of audit for another 2 to 3 months (RUD-4). Subsequently, the Proprietor of the firm namely Mrs. Suman Lata Choudhary vide letters Ref. No. GDP/CCED1/0816a/2012 dated 16.08.2012, Ref. No. GDP/CCED1/0907a/2012 dated 07.09.2012 and Ref. No. GDP/CCED1/0910a/2012 dated 10.09.2012 informed the Audit branch that she has been suffering from ill health and undergoing medical treatment. She also requested to fix some date of audit after 15.11.2012 (RUD- 5 to 7).
Finding that the assessee has not been submitting the requisite documents and trying to avoid audit on some pretext or the other, the matter was referred to the Anti Evasion Branch of the Hqrs. of Commissionerate, Jaipur – II. During the course of scrutiny of the available records / documents, it was noticed that the Balance Sheet for 2007-08, as submitted by the assessee, was un-audited without furnishing any reason of it. Further, it was noticed that the amount shown as receipts in the ST-3 returns were less than those of reflected in the Balance Sheets for the financial years 2007-08 to 2010-11. A chart has been prepared to ascertain difference in the receipts reflected in the ST – 3 Returns vis-a-vis the respective Balance Sheets (Enclosed as ‘Annexure – A’ to the notice), and it appeared that the assessee has shown less receipts in the ST-3 returns, whereon differential service tax amounting to Rs. 20,45,682/- was payable by them.
To ascertain facts and figures of the matter and obtain authentic and additional documents in the matter, the officers of the Anti Evasion branch visited the premises of the assessee at Jodhpur on 11.10.2012. At the time of visit, Shri Gajendra Tak, working as EDP in-charge with the assessee firm, was available at the said premises. Sh. Tak submitted a letter dated 11.10.2012 to the visiting team informing there-in that the Proprietor of the firm Smt. Suman Lata Choudhary was not available and gone to Jalely (Nayala) her native village, due to demise of her father-in-law on 07.10.2012 and will return only after 21 days (RUD- 8). Sh. Tak further informed that he has been dealing with only technical side of work undertaken by the firm and not aware about the accounts, finance and service tax work of the firm. All the work related to accounts / service tax is dealt by the proprietor Smt. Choudhary and she only can provide the information sought by the visiting officers. A summon vide C. No. P - 2 / AE / Misc. S. Tax / 01 / 12 / Pt. dated 11.10.2012 was also issued by the Superintendent (AE), Central Excise Division, Jodhpur to Smt. Choudhary asking her to appear and submit requisite documents on 15.10.2012 (RUD- 9). She replied vide letter No. GDP STAX / 1015 dated 15.10.2012, in compliance of the said Summon and stated that her father-in-law has expired on 07.10.2012 and their social & religious rituals will be last till 28.10.2012 (RUD-10). Therefore, date of appearance may be fixed on any day after 28.10.2012.
It appears that the assessee has received the amount in excess to the taxable income on which they have discharged their service tax liability. The said excess amount appears classifiable under ‘Business Auxiliary Services’ and they appear to have short paid service tax amount of Rs. 20,45,682/- (including Edu. Cess) during the period from 01.04.2007 to 31.03.2011 and thus, have contravened the provisions of Section 68(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994.
The facts of the case suggest that the assessee has never disclosed this fact of excess receipt w. r. t. taxable service provided by them, to the Department. This fact of suppression came to knowledge of the Department only when inquiry was initiated and documents obtained from the assessee. Despite repeated demands made by the department, the assessee did not produce material documents like service tax invoices raised; amount received under each of the contracts or from each of the service providers; Bank statements; cash book; Audited balance Sheet for the FY 2007-08 & 2011-12. Therefore, it appears that the assessee had suppressed the material facts from the Department with intent to evade payment of Service Tax. Therefore, Service Tax amounting to Rs. 20,45,682/-  short paid by the assessee appeared to be recoverable invoking extended period of demand as enshrined under proviso to the Section 73 (1) of the Finance Act – 1994.
In view of the above, it appears that the assessee has not paid/short paid service tax amounting to Rs. 20,45,682/- (including Edu. Cess) and the same is recoverable along-with interest from them under proviso to Section 73 (1) and Section 75, respectively, of the Finance Act, 1994. They also appear liable to penal action under Section 76 & 78 of the Finance Act, 1994 for the contravention of the provisions of Section 68 of the Act ibid read with Rule 6 of the Service Tax Rules, 1994. Therefore, M/s Galaxy data Processing Centre, Jodhpur and its Proprietor, Smt. Suman Lata Choudhary, were called upon to show cause that why should service tax amounting to Rs. 2045682/-, penalty under Section 76 & 78 of the Act and penalty upon Smt. Suman Lata Choudhary under Section 77 (1) (c) of the Finance Act, 1994, should not be imposed. Thereafter, the assessee replied to that Show cause notice. By considering the reply filed by the assessee, the Additional Commissioner passed this order-in-original.
 
Assessee’s Contention: The assessee made following submissions before the adjudicating authority:-
 
It was submitted that they have obtained Service Tax Registration No.  AAIPC 0996 RST 001 under taxable services “Business Auxiliary Services” falling under Chapter-V of the Finance Act, 1994.  The noticee is engaged in IT enabled services and as some of the service provided by noticee perhaps could fall under the tax net, for abundant caution; noticee had applied registration under “Business Auxiliary Services” under the Finance Act, 1994.  It is submitted that the impugned show cause notice issued to the noticee is totally ultra vires to the provisions of service tax law and is liable to be quashed.
They submit that the impugned show cause notice has been issued to propose the demand under the category of Business Auxiliary services during the period from 01.04.2007 to 31.03.2011. During this period, the analysis of definition of Business Auxiliary services as per Section 65(19) of the Finance Act, 1994 makes it clear that the service tax would be levied under this category only if the services provided by them fall under any of the clauses of that section. This definition mainly covers the buying and selling of goods on behalf of another person or provision of service on behalf of some other person or those services which are related to marketing or promotion of the business of any person. In other words, service tax under the category of Business Auxiliary services is attracted only if the service provider is acting as an agent of the service recipient. Mainly the transactions carried on between two persons with agent-principal relationships are taxable hereunder the category of BAS. The intention of the government is to levy the service tax on the “commission” received by the agent from his principal. On the other hand, no agent-principal relationship is present in the present case. Both the parties are working independently and they are not acting as an agent of the parties allotting the contracts to them. This fact is clarified by the copies of contract through which the work orders were allotted to them which nowhere indicates that they has to act as an agent of the parties allotting the contracts. Further, the expenses incurred by them are not reimbursed by the parties allotting the work orders. They are being given remuneration at a fixed rate as per terms of the contract and all the costs and expenses thereof are to be borne by them. This does not happen in the case of agent-principal relationship which attracts service tax under the category of Business auxiliary services. In such a relationship, the agent works under the supervision of the principal and the expenses borne by him in course of executing his task are being reimbursed by the principal. Therefore, none of the criteria laid down for levying service tax under the category of BAS is being satisfied. As such, the contention of the impugned show cause notice demanding the service tax under the category of BAS is not sustainable and is liable to be set aside.
It is further submitted that most of the services provided by them during the period in show cause notice do not fall in the definition of Business Auxiliary services as already discussed in the forgoing paras.An abstract from all nine work orders executed during the period in show cause notice representing the nature of work carried on by the noticee is shown in the following table:-
 

 
The services mentioned in Table above (other than TN398 & TN11) have nothing to do with the business of the Discom nor did it relate to marketing of their products i.e. electricity, they did not fall in the scope and ambit of Business Auxiliary Services, hence not taxable. 
In light of the statutory provision, if the above work orders are analysed, it is clear that out of 9 contracts, only two work orders namely TN-398 and TN-11 which pertains to the operating of customer care center are only contracts taxable under the head of Business Auxiliary services. However, on the other hand, the noticee has already paid service tax on the six work orders including these two. The details of amounts received on account of these two work orders along with other four work orders and service tax paid thereupon are discussed hereunder in the later paras of this reply. It is worth mentioning here that the service tax is payable only on the two work orders namely TN-398 and TN-11 which pertains to the operating of customer care center under clause (iii) of the definition of the BAS. In respect of all the other work orders, no service tax is payable under the category of the BAS as in these cases, the nature of work executed does not fall in the definition of the Business Auxiliary services. However, they has paid the service tax on most of contracts simply to avoid the conflicts with the department. Therefore the contention of impugned show cause notice is not viable and is liable to be quashed.
 
Further, initially, they did not have knowledge that the service tax is also required to be paid on the amount of TDS. As soon as they came to know, they had paid the service tax amounting to Rs. 220894/- as due on the entire amount of Tax Deducted at Source during the period in audit along with interest.The service tax due on the amount of TDS stands paid on all the contracts involved in the period in show cause notice. This proves that there has been genuine law abided them and there is no default at their end. As such, the impugned show cause notice proposing the demand under the category of BAS is not sustainable and is liable to be quashed.
 
There was a general apprehension or doubt in the minds of all assessees and departmental authorities as to whether such services provided by a service provider to Electricity Distribution and Transmission Companies owned by the Government would be leviable to Service Tax or not. In wake of clear provisions of law and the fact that transmission and distribution of electricity is a public utility service by the Government and not a sale with profit motive, all the service providers including them has not charged and deposited service tax.
Their stand is fortified by the fact that the Central Government has issued an Exemption Notification No. 45/2010-S.T dated 20/7/2010 with respect to such services rendered in relation to transmission and distribution of electricity. While promulgating the said Notification dated 20/7/2010, the Central Government has relied upon the prevailing practice and with a view to steer clear the confusion; has exempted the Service Tax payable on services relating to transmission and distribution of electricity provided by the service provider to the service receiver.
A perusal of the above Notification reveals that the Central Government has exempted the Service Tax relating to transmission of electricity for the period up to 26/2/2010 and relating to distribution of electricity for the period up to 21/6/2010. The Central Government was always of the opinion that generation and distribution of electricity being done with a view to provide public utilities without profit motive are not covered under the definition of ‘Business Auxiliary Service’ under Section 65(9) of the Finance Act and no service tax is leviable on such services. The Central Government was clearly of the view that they were not exigible service tax and if such burden is imposed, it would unnecessarily increase the burden on the ultimate consumer. Therefore, the Central Government issued a Notification No. 32/2010 dated 22/6/2010, whereby exempting the taxable service provided to any person by any other person by whatever name called for distribution of electricity. Similarly, another Notification No. 11/2010-ST dated 27/2/2010 was also issued in exercise of powers conferred by sub-section (i) of Section 93 of the Finance Act, 1994, whereby exempting the taxable services provided to any person by any other person for transmissions of electricity.
Work Order No. 2075 Dated 6/9/2003, Work Order No. 4987 Dated 3/11/2004 under NIT no. TN-151 and the Work Order No.  1287 under NIT no. TN-1 Dated 26/9/2005, (mentioned first 3 work order in table above) are in connection with distribution of electricity and distribution/transmission of electricity. All the above referred Work Orders have been issued by the Jodhpur Vidyut Vitran Nigam Limited, a company owned by the Government. They have received the major amount of services from Jodhpur Discom.
The services rendered by them are in relation to distribution and transmission of electric energyand hence the same are clearly exempt under the Notification No. 32/2010 dated 22/6/2010, Notification No. 11/2010 dated 27/2/2010 and Notification No. 45/2010 dated 20/7/2010. In view of the above legal and factual position, they have rightly not paid the service tax with respect to the amount vis-à-vis the Work Order No. 1287 Dated 26/9/2005, Work Order No. 2075 Dated 6/9/2003 and Work Order No. 4987 Dated 3/11/2004. In view of the above, they requested to drop the proceedings of recovery of service tax as proposed vide Notice dated 19/10/2012.
It is further submitted that under the definition of Business Auxiliary services, the information technology services are specifically excluded. In other words, if the services provided by the assessee are information technology services, service tax cannot be demanded on the same under the head of BAS. It is worthwhile to mention here that the words information technology as appearing in the above definition and the explanation containing the definition of Information technology service has been deleted w.e.f. 16.5.2008 by virtue of Finance Act, 2008. However, w.e.f. 16.5.2008, a separate category has been made for taxing the Information Technology Service under service tax law and it is taxable under that specific head. As such, there is no conceptual effect even after this amendment and if the services are of nature of Information technology, these will not be covered under the Business Auxiliary service and will be taxed under the information technology services. As already discussed in the forgoing paras, the services provided by them (as per details of work orders) fall under the definition of information technology services. The description of work orders is sufficient enough to support this claim. Also, hon’ble Tribunal has also held that the services as described in the above referred three work orders fall under the category of Information Technology services. Reliance is placed on the following decisions:-
 
·         Bellary Computers v. CCE [2008 (12) STT 261 (Bang-CESTAT)]:-
 
In this case, the appellants were providing services relating to ‘Computerized billing and revenue management to an electricity supply company. The Tribunal held that only services connected with the billing would be liable to tax under “Business Auxiliary services” and that all other services like supply of computers/printers/hardware items on hire, generation of MIS reports and data processing would squarely fall under the purview of ‘Information technology service’ which stands excluded under the definition of BAS.
 
In the instant case also, the computerized bill is not done by them, they are simply engaged in the Monthly Meter reading of HT, MIP, NDS and Mixed Load (above 25 HP) Consumption and Analysis of Meter data, Work of Feeder Meter reading through CMRI, Computing energy losses and generation of related information, updating and maintenance of meter data base and furnishing of output reports. The authenticity of these services as provided by them is clear from the copies of work orders as already enclosed herewith. Thus, their services will fall under the category of information technology services as per above decision.
 
Similar decision has been given in the following case:-
 
·         Dataware Computers v. CCE [2008 (15) STT 433 (Bang.-CESTAT)] :-
 
In this case, demand was raised on the appellants under the category of BAS who were providing the services to Andhra Pradesh State Electricity Board (APSEB). The appellants were carrying on the work of generating the MIS reports given in the contract and to develop the software for the said purposes. Based on the facts, the Tribunal held that the appellant has provided the services of information technology which were excluded from the definition of BAS. Thus, the demand raised by the department under the category of Business auxiliary services was quashed by holding that the same are information technology services.
 
The services provided by them are exactly the same as provided by M/s Dataware Computers. Thus, in the light of above decision, the impugned show cause notice proposing the demand under the category of BAS is not justified and is liable to be withdrawn.
 
It is further submitted that the impugned show cause notice has been issued on the basis of difference between the figures of Balance Sheet and ST-3 returns submitted by them. It is alleged that they have not paid service tax on certain amount received by them which was not shown in the ST-3 return but was reflected in the Balance Sheet. The impugned show cause notice has proposed the demand on the differential amount as shown in the Balance Sheet and ST-3 return. However, while raising the demand, it is not proved that the differential amount was received on account of providing of taxable service. It has been held by Hon’ble Ahmedabad Tribunal that before raising the demand on the difference between the amounts of ST-3 return and Balance Sheet, the adjudicating authority should reconcile these figures by adopting the proper methods. This has been decided in the case of COMMISSIONER OF SERVICE TAX, AHMEDABAD VERSUS PURNI ADS. PVT. LTD. [2010 (19) S.T.R. 242 (Tri. - Ahmd.)]. This case also says that just by finding the difference in the ST-3 figures and the Balance sheet figures does not mean that the assessee has short paid service tax. Therefore the department should come up with proper evidence to this effect that the amount shown in the balance sheet is that amount on which service tax has to be paid by the assessee and they have not paid service tax on the same. In the instant case also, the demand has been proposed in the impugned show cause notice simply on the grounds that there is difference between the figures of the Balance Sheet and ST-3 return. However, it has not been proved that the said difference is on account of receipts from taxable income. Therefore, in the light of above cited decision, the show cause notice issued alleging that the service tax paid by them is short paid is totally erroneous and is liable to be set aside.
 
In continuation to above it is submitted that before raising any demand, the allegations made in the show cause notice are to be proved with the help of cogent and corroborative evidences. In this regard, it is worth mentioning here that the impugned show cause notice has not even discussed how the differential amount is classifiable under the category of Business Auxiliary services. It has simply held that it appears to be classifiable under this head, but how, this is not discussed. It is worthwhile to mention here that the impugned show cause notice has simply referred the category of service at one place only, it is not referred anywhere else. The para from the show cause notice is reproduced as follows:-
 
“5. And whereas, it appears that the assessee has received the amount in excess to the taxable income on which they have discharged their service tax liability. The said excess amount appears classifiable under ‘Business Auxiliary Services’ and they appear to have not paid / short paid service tax amount of Rs. 20, 45, 682/- (including Edu. Cess) during the period from 01.04.2007 to 31.03.2011 and thus have contravened the provisions of Section 68(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994.”
 
The above para from the entire show cause notice is referring the category of service in which the differential amount on which demand is raised is said to be classifiable. However, it has been proved nowhere how the differential receipts are classifiable under this category. Even the word “Business Auxiliary Services” has also not been used anywhere else in the impugned show cause notice. This shows that the demand has been raised mechanically without proving the allegations with cogent and corroborative evidences which is not justified in the light of the following cases:-
 
·         CC Chennai v/s M/s Flemingo (DFS) Pvt Ltd [2010-TIOL-60-HC-MAD-CUS]
·         K. Harinath Gupta vs Collector of Central Excise, Hyderabad [1994 (71) ELT 980 (Tribunal) 
·         M/s Aviat Health Care Pvt Ltd Vs CC & CE, Belapur [2008-TIOL-1924-CESTAT-MUM.]
·         Sify Technologies Ltd Vs CST, Chennai [2009-TIOL-1450-CESTAT-MAD]
In the light of above decisions, it is clear that the department cannot ask the assessee to prove the negative. If the department alleges that the additional amount shown in the Balance Sheet were taxable receipts, it should prove the same by cogent and corroborative evidences. On the other hand, in the impugned show cause notice, no such cogent and corroborative evidence has been put forth to substantiate the allegation that the differential amounts were taxable receipts. Such a demand which is merely based upon assumptions and presumptions is not justified and is liable to be set aside.
 
Without prejudice to forgoing paras, it is submitted that there are differences between the figures shown in the Balance sheet and figures shown in the ST-3 return and such differences are on account of basic accounting principles followed in preparing both of these documents. There are differences between the Balance Sheet and ST-3 return due to many reasons, some of which are illustrated as follows:-
·         The Balance Sheet is prepared on accrual basis, i.e. amount which is due, whether or not actually received, is considered while preparing it. On the other hand, ST-3 return is prepared on receipt basis, i.e. only the amount actually received is considered while calculating the service tax payable to be shown in ST-3 return.
·         The Balance Sheet is the statement of a particular financial year where all the types of assets and liabilities are included. On the other hand, the ST-3 return is the statement of only receipts from the taxable income. Any receipt which is not on account of taxable service is not considered while preparing the ST-3 return.
·         Balance Sheet considers only net profit (after deducting all the direct and indirect expenses) which is appropriated therein. On the other hand, since service tax is payable on invoice value and no direct or indirect expenses are considered while showing the values in ST-3 return.
 
Thus, there is vital difference in the basic Accounts concepts of preparing Balance Sheet and ST-3 return. As such, the figures which are shown in the Balance Sheet will always be different than those shown in the ST-3 return. The analysis of statement of the amounts shown in the Balance Sheet as pertaining to various contracts and the amount received per contract per year and service tax paid thereupon makes it clear that the total billed amount and received amount during the period in show cause notice comes as follows:-
 

 
Out of the above amount shown in receipt column, some was on account of taxable service and some was on account of non taxable service. The bifurcation of received amount is shown in the following table:-
 

 
Thus, the analysis of above table makes it clear that out of total received amount of Rs. 39962394/-, Rs. 8327558/- were received on account of taxable work orders (TN-398 and TN-11). The remaining amount of Rs. 31634836/- was received on account of non-taxable services. However, it is worthwhile to mention here that they have duly paid the service tax on these two contracts. Further, service tax has also been paid on all the contracts other than two contracts of TN-151 and one contract of TN-1. It is worth mentioning here that these three work orders were received much before the period in show cause notice. The details of amount received and service tax payment thereupon is shown in the following table:-
 
 

 
The analysis of above table makes it clear that they have paid the service tax of Rs. 2697185/- on receipts of Rs. 25918582/-. However, they were supposed to pay the service tax only on the work order no. TN-398 and TN-11. The total service tax payable on these two receipts comes Rs. 945702/- only. On the other hand, they have paid the service tax amounting to Rs. 2697185/-. The excess paid service tax of Rs. 1751483/- has been paid simply to avoid the conflicts. Thus, this table proves that they have paid the entire service tax due on receipt of consideration from provision of taxable service. Further, the impugned show cause notice is not justified in demanding the service tax under the category of BAS despite fact that except two, none of the work orders fall under this head. As such, the impugned show cause notice is not sustainable and is liable to be set aside.
 
It is further submitted that the payment of service tax is linked to the provision of service. In other words, if the service was exempt at the time of its provision, no service tax would be levied even if at the time of receipt that service has become taxable. Reliance is placed on the decision of M/s Reliance Industries Ltd. v/s Commissioner of Central Excise, Rajkot [2008 (10) STR 243 (Tri.-Ahmd.)]. In this decision it is held that the rate applicable as on the date of rendering of service is to be considered rather than the rate applicable at the time of billing or at the time of receipt of payment. In other words, if the service was exempt at the time of rendering, no service tax would be payable in case it becomes taxable subsequently at the time of raising of bill or receipt of consideration. This decision was affirmed by hon’ble Gujarat High Court as cited at 2010 (19) STR 807 (Guj). In the instant case also, the demand is based upon the balance sheet figures. These figures may also include the receipts pertaining to the period when no service tax was applicable on the date of rendering of service. Therefore, in the light of the above decision, these receipts should not form the part of demand. During the period in show cause notice, they have received an amount of Rs. 51031/- related to period prior to show cause notice when no service tax was payable on the same. However, these receipts have not been excluded while raising the demand in the impugned show cause notice. Therefore, the impugned show cause notice is not tenable on this ground also.
 
It is further submitted that the impugned show cause notice has proposed to impose the penalty under section 77 on the grounds that they did not supply the information to the department. In this regard, it is submitted that the information and documents as required by the department were supplied by them vide their letter Ref. no. GDP/CCED1/0302e/2012 dated 02.03.2012. By this letter which is Relied Upon Document (RUD) no. 2 to this show cause notice, they have supplied the copies of ST-3 returns, P & L accounts and Balance Sheet for the year 2007-08 & 2008-09. Further, copies of ST-3 returns for the year 2009-10 to 2011-12 and copies of Balance Sheets and P&L Accounts for the year 2009-10 and 2010-11 were provided vide their letter Ref. no. GDP/CCED1/0621e/2012 dated 21.06.2012. This letter is the RUD-4 to the impugned show cause notice. Thus, on the one hand, the impugned show cause notice is itself relying upon the documents submitted by the noticee and on the other hand it is proposing the penalty under section 77 for non submission of documents and information. Such an allegation is void ab initio as per the impugned show cause notice itself. Therefore, the impugned show cause notice is not justified in imposing the penalty under section 77 for non supply of information and is liable to be set aside.
 
It is further submitted that the impugned show cause notice is alleging that they are liable to pay penalty under Section 78 of the Finance Act, 1994. In this regard, the analysis of section 78 makes it clear that no penalty can be imposed under Section 78 of the Finance Act, 1994 if there was no willful suppression or intention to evade payment of service tax on the part of the assessee. It is pertinent to submit that they have deposited applicable service tax, on the taxable services. While maintaining that no service tax was leviable, in relation to the remaining services; it is stated that it was a bona fide dispute relating to interpretation of terms of the contract and provisions of service tax. There is no concealment, or suppression with intention to evade tax. As such no penalty can be levied in the present case.
 
It is also submitted that for imposing penalty, presence of mens-rea is a mandatory requirement and in the absence of which imposition of penalty is unjustified, as enshrined by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd v/s. State of Orissa - [1978 (2) ELT (J-159)]  and number of subsequent judgments from various judicial fora based thereupon. It is submitted that none of the acts were backed up with any ulterior motive or mala fide intention to evade duty and therefore, imposition of penalty is incorrect and uncalled for based on settled position on the issue.  It is further submitted that the Hon’ble Punjab & Haryana High Court, following the ratio of Apex Court judgment in Hindustan Steel Ltd. (supra), has held that mens-rea is a mandatory requirement for imposition of penalty, in support of which reliance is placed on the ratio of 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
In the above decisions, it was held that the penalty is imposable only if there was mala fide intention on part of the assessee, else it will not sustain. In the instant case, no mala fide intention is proved but they have proved their case that there was no ulterior motive. Therefore the impugned show cause notice is not tenable and is liable to be set aside.
 
It is further submitted that the penalty can also not be imposed on the grounds that they were under bona fide belief that they are not liable to pay the service tax on the services provided by them under the category of Business Auxiliary services. This bona fide belief was caused due to judgment of hon’ble Tribunal vide its final order no. ST/112-114/2011 CU [DB] dated 18.01.2011. The highest court of India – Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY VERSUS GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)]that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bona fide belief. Therefore, penalty cannot be imposed on them as they have acted under bona fide belief based on Tribunal decision. As such, the impugned show cause notice is liable to be set aside.
 
It is further submitted that based upon above discussion it is clear that the demand proposed in the impugned show cause notice is not sustainable. However, without prejudice to above grounds, if confirmed against them, then the benefit of cum-tax price should be allowed to them. Since they have not charged the service tax from their clients, so the amount received by them should be considered as cum-tax price and by allowing the benefit of cum-tax price, the demand should be proportionately reduced. There are many cases which say that when the assessee has to pay the demand of service tax/excise duty subsequently and they had not charged the same from their customer, then the amount received by them should be treated as cum-duty/ cum-tax price and the demand should be calculated accordingly. Reliance is placed on the following decisions:-
 
Ø  Commissioner v. Maruti Udyog - 2005 (179) E.L.T. A102 (S.C.)]
Ø  Collector v. Srichakra Tyres Ltd. – 2002 (142) E.L.T. A279  (S.C)]
Ø  Commissioner v. M.K. Asokan - 2003 (151) E.L.T. A187]
Ø  MAHAVIR PLASTICS Versus COMMISSIONER OF CENTRAL EXCISE, MUMBAI [2010 (255) E.L.T. 241 (Tri. - Mumbai)]
Ø  VAPI PAPER MILLS LTD.  Versus  COLLECTOR OF CENTRAL EXCISE [1993 (67) E.L.T. 109 (Tribunal) ]
Ø  MONARCH METALS PVT. LTD. Versus COMMISSIONER OF C. EX. & CUS., RAJKOT [2002 (148) E.L.T. 826 (Tri. - Mumbai)]
Ø  NARANG SCIENTIFIC WORKS (P) LTD. Versus COMMISSIONER OF C. EX., DELHI-I [2003 (152) E.L.T. 305 (Tri. - Del.)]
Therefore all the above cases referred above says that if anyhow the contention of the department is accepted and the assessee is required to pay the service tax, the tax will be calculated by treating the amount received as a cum tax price. So, based upon above decisions, the demand should be re-calculated by treated the amount as cum tax price. 
Further, they held that they are not liable to service tax on the work orders undertaken by them under the category of “Business Auxiliary Services” as these work orders mainly comprise of computer processing work and are not related to the business or marketing of electricity of Discom. They also work independently and there is no principal-agent relationship involved so as to levy service tax under the category of “BAS”. Moreover, services related to information technology are specifically excluded from the definition given under “BAS”.The impugned show cause notice issued to them is wholly and totally erroneous and is liable to be quashed.
They further submit that they have placed reliance on the number of cases in their reply that service tax cannot be demanded on the data processing services under the category of “BAS” as it is specifically excluded from the definition of “BAS”. They hereby also wish to place reliance on the recent decision given by the Hon’ble Mumbai Tribunal in the case of TCS e- SERVE LTD. Vs CST [2013-TIOL-636-CESTAT-MUM]. They submit that the above decision also prima facie opined that the computerized data processing is specifically excluded from the scope of “BAS” and so demand cannot be confirmed under “BAS”. They submit that even though the cited case has not attained finality and is at the stay stage only but it cannot be said to have no value. In this regard, it is worthwhile to mention that the stay is granted only if the following two conditions are satisfied:-
·         The merits of the case are strongly in favour of the appellant; and
·         The insistence on pre-deposit will cause financial hardship on the appellant.
 
As there was no financial hardship involved, the stay application was allowed on merits. Thus, the merits of the case were considered while granting the stay. The stay order involves the interpretation taken by higher authority (hon’ble Tribunal) which is equally binding on the lower formations. Therefore, being a judgment of higher authority, the benefit of this decision should be extended them and the impugned show cause notice should be quashed.
 
 
Reasoning adopted by the adjudicating authority: -
The learned Additional Commissioner observed that in the reply, the assessee has contended that the impugned services are largely not covered under the category of 'Business Auxiliary services' among others averments. Before examining the issues involved, it is essential to discuss the activities under taken by the assessee. It is apparent from the work orders received by the assessee that  the assessee is engaged in  providing services in relation to transmission and distribution of electricity to the service receiver i.e. Jodhpur Vidyut Vitran Nigam Limited  as well as  in relation to transmission and distribution of water to the another service receiver i.e PHED in the form of Feeder Meter reading through CMRI, Computing energy losses and generation of related information, updating and maintenance of meter data base, furnishing of output reports, Monthly Meter reading of HT, MIP, NDS and Mixed Load (above 25 HP) Consumption and Analysis of Meter data and load survey and providing and operating IT enabled, fully dedicated consumer service centre for handling consumer’s ‘No Current’ Complaints, Consumer Helpline and ‘Fault Management’ among other services as enumerated in their work orders during the period covered under the impugned show cause notice. From the definition  of  Business Auxiliary Services provided under Section 65(19) of the Finance Act, 1994 and the activity undertaken by the assessee, they find that assessee is providing services in terms of 9 work orders awarded to them by the service receivers out of which 2 work orders( namely TN398 and TN11 for the period 4/2006 to 3/2010 and 4/2010 to 8/2012 respectively) relates to the work of providing and operating IT enabled, fully dedicated consumer service centre for handling consumer’s ‘No Current’ Complaints, Consumer Helpline and ‘Fault Management’ at different District Headquarters under the geographical domain of Jodhpur Discom  are covered under  clause (iii) of the definition of Business Auxiliary Services which covered  all services relating to  customer care service provided on behalf of the client i.e. Jodhpur Vidyut Vitran Nigam Limited, a company owned by the Government and the consideration received on this account is liable for service tax which the assessee has also not contested in their averments. Further, they also find that out of remaining 07 work orders, 06 work orders awarded to them by the service receiver i.e. Jodhpur Vidyut Vitran Nigam Limited relates to the work of Feeder Meter reading through CMRI, Computing energy losses and generation of related information, updating and maintenance of meter data base, furnishing of output reports, Monthly Meter reading of HT, MIP, NDS and Mixed Load (above 25 HP) Consumption and Analysis of Meter data and load survey among other similar services at different District Headquarters under the geographical domain of Jodhpur Vidyut Vitran Nigam Limited and 01 work orders awarded to them by the service receiver (namely PHED)  relates to the work of computerization of water revenue bills and related information (MIS, ledger, etc.) in Jodhpur city which also includes study of existing system of billing along with input and output formats and providing all the MIS with water bills printed which are used by the service receivers  as inputs for their data base to be used for efficient  transmission and distribution of their products to the ultimate consumers which are not covered under any of the clauses of the definition of Business Auxiliary Services as these services provided by the assessee in the form of data collection and analysis thereof along with their inferences directly to the service receivers and no services of any sort under these work orders are provided to the ultimate consumer of the clients namely Jodhpur Vidyut Vitran Nigam Limited & PHED. Thus, they are of the view that the services provided by the assessee in respect of these 07 work orders are not covered under any of the clauses of the definition of Business Auxiliary Services and the consideration received on these account is not liable for service tax.
They further observe that the show cause notice has calculated the demand of the service tax on the differential amount of Rs 1,74,02,371/- arising out of the total consideration of Rs 4,21,94,589 /- received by the assessee as per their Balance  Sheet and the total consideration of Rs 2,47,92,218/- shown in their ST-3 Returns of the period covered under the impugned show cause notice. They find that the amount of Rs 4,21,94,589 /- was, in fact, billed and  actual amount received was Rs 3,99,62,394/- out of which an amount of Rs 83,27,558 /- received on account of services provided in respect of 2 work orders( namely TN398 and TN11) on which service tax amounting to Rs 9,45,702/- was recoverable under the category of 'Business Auxiliary services' and remaining amount of  Rs 3,16,34,836 /- received on account of services provided in respect of remaining 7 work orders on which no service tax was recoverable under the category of 'Business Auxiliary services'. Further, they also find that the assessee had deposited service tax amounting of Rs 26,97,185/- against the recoverable amount of  Rs 9,45,702/-  on the services provided in respect of total no. of  9 work orders executed during the period covered under the impugned show cause notice as such  paid an additional amount of service tax of  Rs 17,51,483 /- due to the facts that the assessee had charged the cum service tax price in some of these 07 work orders from their clients  namely Jodhpur Vidyut Vitran Nigam Limited & PHED during the period covered under the impugned show cause notice. They also find that the assessee had undertake vide letter dated 06-11-2013 that they would not claim any refund claim of the  additional amount of service tax of  Rs 17,51,483 /-  paid as they had charged the same from their clients  namely Jodhpur Vidyut Vitran Nigam Limited & PHED in the form of  cum service tax price.
In the light of the discussion made in foregoing paras, they observe that the Show Cause Notice issued in the instant case is not sustainable and the same deserves to be dropped. Since the show cause notice is not found sustainable, therefore, the interest and the penalty provisions in the instant Show Cause Notice are not attracted.
 
Decision:-Show cause notice was dropped.
 
Conclusion:- The basic theme of this case is that mere difference in the values shown in the ST-3 returns and the Balance Sheet cannot be attributable as short reflection of taxable value and thereby short payment of service tax as the difference arises on account of accounting policies followed and due to the fact that not all figures shown in the balance sheet are taxable to service tax. Moreover, as the assessee in the present case was providing the data processing services to Electricity Distribution Board and Water Distribution Board, the same falls in the category of “Information Technology Services” that stands excluded from the definition of “Business Auxiliary Service”. Accordingly, no service tax was leviable under the category of “BAS”. This also indicates that raising demand under wrong category of service also proves to be beneficial to the assessee.
 
 
 

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