Whether refund claim of service tax paid erroneously on account of confusion admissible when no service provided?

PJ/Case Study/2012-13/36

CASE STUDY

Prepared By: CA Neetu Sukhwani &
Arpita Birla

Introduction:- The assessee had deposited service tax on logistics charges collected by it from its customers on account of confusion whether VAT was payable or service tax was payable on the said charges even though the assessee had not provided any service to its customers on account of such charges collected. Thereafter, the assessee got sure of its liability under VAT on the said charges and hence filed refund claim of service tax erroneously paid as the service tax was paid by the assessee from its own pocket. But, the department rejected the refund claim of the assessee on account of unjust enrichment and contending that the assessee was liable to pay service tax on said charges under “Support Services of Business or Commerce.” The assessee was served with a Show cause notice asking him as to why the refund claim of Rs. 4,58,976/- should not be rejected on the merits as well as on grounds of doctrine of unjust enrichment. The notice was adjudicated by the impugned order rejecting the refund on the ground that the service was rightly paid by the appellant under “Support Services of Business or Commerce” as defined under Section 65(104c). Thereafter, the assessee approached Commissioner Appeals.

M/s L. M. J. SERVICES LTD. v/s Commissioner, Central Excise, Jaipur-II
[ORDER IN ORIGINAL NO. 02/2011-(ST)]

Relevant Legal Provisions:

·         Support Services of Business or Commerce defined under Section 65 (104c) of the Finance Act, 1994.

·         Rule 7B of Service Tax Rules, 1994for Revision of Return.

·         Section 11B of the Central Excise Act, 1944 regarding Refund Claim.

Issue: - Following issue was made before the Commissioner Appeals:-

Whether refund claim of service tax paid erroneously on account of confusion admissible when no service provided?

Brief Facts:- M/s L. M. J. SERVICES LIMITED(hereinafter referred to as the appellant) are authorised dealers of Maruti Ltd, Gurgaon for sale of their vehicles. The appellant are registered under the Finance Act, 1994 having Service Tax Registration No. AAACL4868QST001 for discharging service tax liability on taxable service classified, inter alia, under Section 65 (105) (zzzq) of the Finance Act, 1994. The appellant were engaged in selling vehicles and in the invoices issued to their customers they have charged “Logistic charges” on which amount, the appellant have paid service tax. Upon realizing that no service tax was payable on the said Logistics charges as they had not provided any services on account of “Logistics charges”, the appellant filed refund claim of service tax deposited by them to the Government of Rs. 4,58,976/-.The Department issued letters asking appellant to explain the admissibility of the refund claim and the assessee duly replied to the said letters justifying their admissibility of refund claim of service tax paid erroneously. The Department did not accept the reply given by the appellant and issued show cause notice proposing to reject their refund claim on the grounds mentioned therein. The appellant replied to the show cause notice but the learned Adjudicating Officer did not accept the submissions of the appellant and passed the impugned Order-in-original no. 02/2011-(ST), dated 20.05.2011 rejecting the refund claim of the appellant. Aggrieved by the impugned order in original, the appellant filed appeal to the Commissioner Appeals.

Assessee’s Contentions:-

Assessee made following submissions before the Commissioner (Appeal):-

1)            The appellant submit that the Order-In-Original passed by the learned Deputy Commissioner is wholly and totally erroneous and is liable to be set aside.

2)         The appellant submit that they are providing service as an Authorised service station and are not providing any service on account of “logistics charges”. Therefore, when no service has been provided then no service tax will be payable on the same. Appellant have erroneously paid service tax on the said charges because they have not provided any service of that kind. The appellant further submit that merely because the “logistics charges” were mentioned in the invoice of the appellant issued to their customers does not mean that the appellant would have provided the service in lieu of Logistics charges. Therefore, the service tax deposited erroneously should be refunded to the appellant.
3).        The appellant further submit that in the impugned order, the learned Deputy Commissioner has held that since the assessee had admitted that these logistics charges is a part of increase in their profit which means by charging these logistic charges they are reducing their expenditure, thus, supporting their infrastructure necessary for doing business which clearly come into the purview of support services of the business or commerce defined under Section 65 (104c) of the Finance Act, 1994.
            In this regard, the appellant submits that the definition of “support services of business or commerce” given in the Finance Act, 1994 is as under:
            (104c) “support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
Explanation.—For the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;
            This service is taxable under Section 65 (105) (zzzq) of the Finance Act, 1994 as under:
(zzzq) to any person, by any other person, in relation to support services of business or commerce, in any manner;
A perusal of the above provisions provides that a service will fall under the category of business support service when it is provided to any other person. In the impugned order, it has been held that appellant is supporting their own infrastructure necessary to do business. This finding is not tenable as supporting their infrastructure necessary to do business does not amount to providing service to any other person. The analogy of the department that increase in profit will reduce the cost is not understandable. Nobody can say that increase in profit will reduce the expenditure. Thus, the order fails to draw any logical inference. Such an order is liable to be set aside.
4).        The appellant submit that it has not been established that they have provided service for which logistics charges were collected by them from their customers. Merely because the said charges have been shown independently from the sale price in invoices raised by the appellant to their customers does not establish that the appellant have provided the said services. The fundamental principle is that the service should be provided to charge service tax from the client. Since they have not provided the service then the service tax is not applicable.
5).        It is submitted that the learned Deputy Commissioner has not considered the submission of the appellant that they had started paying VAT on the said logistics charges and that due to confusion at the initial stage they have paid the service tax from their own amount instead of VAT. That the sales tax authorities have demanded VAT from the appellant on the said charges on the ground that appellant have not provided any service. Therefore, no service tax is required to be paid.
It is submitted that the learned Deputy Commissioner in the impugned order has not considered the above contention of the appellant nor given any reasons to deny these contentions. Such a decision is not justified in the light of decision given by hon’ble Apex Court in the case of State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]. In this case it is decided as follows:-
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;
The analysis of this decision makes it clear that the order passed without giving reasons of decision is not justified in the eyes of law. In the case of appellant also, even the point was not discussed at all. Such a non speaking order is deserves to be quashed.

6)         It is submitted that as VAT is being paid on the logistics charges by the appellant then service tax will not be payable on the same. It is well settled rule that the service tax is not payable on taxable event on which sales tax/VAT has been paid. A transaction can either be sales or a service. Reliance is placed on following case laws to support our contention:-
·         M/s LSG Sky Chefs (India) Pvt Ltd v/s CC, CCE & ST, Hyderabad [2010-TIOL-56-CESTAT-BANG]:- It was held that

·         M/s Daspalla Hotels Ltd v/s CCE, Visakhapatnam [2010-TIOL-219-CESTAT-BANG]:-

·         Grand Ashok v/s CST, Bangalore [2009 (92) RLT 73 (CESTAT-Ban)]:-

·         JR COMMUNICATIONS & POWER CONTROLS Versus COMMR. OF C. EX., TRICHY [2009 (14) STR 379]

·         KARAKKATTU COMMUNICATIONS Versus COMMISSIONER OF C. EX., COCHIN [2007(8) STR 164]

·         HUTCHISON MAX TELECOM PVT. LTD. Versus COMMISSIONER OF C. EX., MUMBAI [2008(12)STR 373]

·         VALLAMATTAM COMMUNICATIONS Versus COMMISSIONER OF C. EX., COCHIN [2008(12) STR 267]

·         IDEA MOBILE COMMUNICATIONS LTD. Versus COMMR. OF C. EX., TRIVANDRUM [ 2006(4)STR(132)]

·         GERB VIBRATION CONTROL SYSTEMS (P) LTD. Versus COMMR. OF S.T., BANGALORE [2007(7) STR 403]

From the analogy of above decisions, it is clear that the service tax cannot be charged when the service has been provided. Since the appellant is paying sales tax on logistic charges then the service tax cannot be imposed on the same. Following this analogy the appellant submit that the appeal should be allowed.

On the basis of these submissions made by the appellant it is crystal clear the impugned Order is not viable and it should be quashed and the appeal should be allowed.

Reasoning of the Commissioner (Appeals):-

Commissioner has carefully gone through the case records and submission made during the personal hearing. The issue involved in this case is the leviability of service tax on the logistics charges billed by the appellant during the sale of cars, under the category of “Support Services of Business or Commerce” as defined under Section 65(104c).

It is seen that while disposing of the refund claim, the adjudicating authority has held that the appellant has been collecting logistic charges without any agreement with the M/s Maruti Udhyog Ltd. (MUL) and these charges were shown separately in their invoices issued to their customers. Thus this logistics charges are not part of sale price inclusive of commission.

It was also noticed that the claim of logistics charges in the invoice of the customers was done in order to increase the profit of the appellant, and thus supporting their infrastructure necessary for doing business falls under the purview of support service of business or commerce defined under Section 65(104c) of the Finance Act 1994.On the other hand the appellant contended that they charged the impugned amount under the head of logistics charges from their customers and shown separately in the invoices issued to their customer and they paid service tax erroneously on the said amount which was not payable. Hence they filed a refund under Section 11B of the Central Excise Act 1994. Commissioner have examined the invoices and a letter from sales tax department written by Commercial Taxation Officer to the appellant for the payment of sales tax on the logistics charges, being part of the sales of the cars. In this regard it is found that for any activity to be called a service, existence of two entities is essential i.e. a service provided to the buyer of the car. It was also observed that neither in the show cause notice nor in the impugned order has it been concluded that the amount of logistic charges received from the customers were a kind of service provided to their customers. In absence of any discernible nexus between service providers and service receivers, no services could be said to have been provided and no service tax could be charged. Hence on merit, the amount paid by the appellant as service tax, is refundable to the appellant.

Further if the appellant had created or developed any logistics support to increase or enhance sale of car and charging any amount from their customers under the head of logistics charges, the same would amount to providing of service to self. Hence no service tax could be charged. Therefore any service tax paid under the mistake of law has to be refunded. The issue is not maintainable on merit, the other aspects of the case are not considered.

Decision:- The appeal is allowed.

Conclusion:- The analogy drawn from this case is that service tax cannot be levied when no service has been provided and for a service to be rendered there must be two persons/entities. It has also been held that service tax is not payable when liability of VAT is confirmed because either an activity can be termed as sales leviable to sales tax or service leviable to service tax. Both taxes are not leviable under any circumstances. Therefore, the appellant was rightly eligible for the refund of service tax erroneously paid.

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PJ/CASE STUDY/ 2012-13/36
22 December 2012

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PJ/CASE STUDY/ 2012-13/36 22 December 2012

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PJ/CASE STUDY/ 2012-13/36
22 December 2012