Pradeep Jain - Chartered Accountant

PJ/Case Laws/2010-11/01

Case Laws

Prepared by :-

CA. Pradeep Jain

CA. Ridhi Anchalia

SERVICE TAX SECTION:

Case: Commissioner of Central Excise, Indore vs. B.K. Sharma

Citation: 2010(18) S.T.R. 50 (Tri.-Del.)

Issue:- When service tax is paid voluntary and then the department informed that it was not a commercial concern, can penalty be raised by the revenue?

Brief Facts: - The assessee had applied for service tax voluntarily and paid the service tax for the services provided. Department informed the assessee that there was no liability of service tax as the assessee was not a commercial concern. The Comm. (A) found that there was no scope of allegation of suppression of fact or willful mis-statement of facts with the intent to evade duty so the penalty imposed u/s 78 was waived.

Appellant’s Contentions: - The revenue said that the assessee has made breach of law and so penalty u/s 78 was imposed on him. The Comm. (A) without any cogent reason has waived the penalty. The revenue was aggrieved. There was suppression of facts for which penalty was imposed.

Respondent’s Contentions: - The assessee has already paid service tax but for the confusion in the interpretation of law as to whether the assessee shall be a commercial concern and without any breach of law, penalty has been imposed under section 78 of the Finance Act, 1994.

Reasoning of the Judgment: - The commissioner did not find any convincing evidence except that the revenue said it was suppression of facts. The appeal does not convince us to hold that there was intention to evade service tax by the respondent.

Decision: - Appeal dismissed.

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Case: Toyota Kirloskar Motors P. Ltd. V/s Comm. Of C. Ex (LTU), Bangalore

Citation: 2009 (16) STR 643 (Tri.- Bang)

Issue:- Whether the receiver of service who is a deemed service provider in the service tax can avail the Cenvat Credit for paying the service tax liability on its output services?

Brief Facts: -Pre deposit of service tax of Rs. 3,33,03,995 under the provisions of Sec 73 of The Finance Act, 1994 was raised against the assessee on Intellectual property services, Commissioning and Installation services, Goods transport agency service and Maintenance & repair service.

Appellant’s Contentions: - The appellate argued that as far as GTA services are concerned due to the exemption notification in Rule 2 (p), the GTA services are excluded from the output services from 1.3.2008. But here the assessee is concerned with a period prior to 1.3.2008. But if GTA are specifically excluded from output services that means for all the other 3 services there is no specific exclusion from output service.

Respondent’s Contentions: - The learned commissioner raised several contentions that the mentioned services could not be considered as output services and so the Cenvat credit cannot be utilized for the payment of service tax on these services.

Reasoning of the Judgment: -If only GTA services have been excluded from the scope of output services w.e.f 1.3.2008. The appellants are having a strong case on the basis of merit. There is no revenue loss as the liability has been discharged only through the credit accumulated. Hence, full waiver of pre deposits of the amounts demanded in the impugned order.

Decision: -Pre deposit waived.

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Case: Commissioner of Central Excise, Meerut-I v/s Bandhan Palace

Citation: 2010 (18) STR 72 (Tri. –Del.)

Issue:-Whether matter relating to valuation having no evidences against the decision of the Commissioner in a single bench should go to Division bench?

Brief Facts: - The department said that the order of Adjudication suffers from legal infirmity like non recording of declaration of the clients, summons were not issued to examine the client and declarations pertains to the facts which was subsequently declared to the fact that they have paid to the mandap keeper. The Comm. found that there was no corroborative evidence calling for raising of demand. Even he found the Show Cause notice to be defective as inadmissible evidences were forming the part of the proceedings. He was having no doubt relating to average fair value of taxable service. The conclusion made by him was that the kachhi parchi shall not be the basis to compute the value of taxable services. In absence of any impeachable evidences the matter cannot be said to be valuation for the very basis of show cause notice being ill founded.

Appellant’s Contentions: -The commissioner did not consider the definition of the Mandap keeper. If there is no cogent evidence then the finding of appellate cannot be reversed erroneously. It is a settled law that the finding of the appellate authority although is subject to scrutiny does not call for interference without evidence to the contrary. The matter was relating to valuation cannot be considered by a single member and should go to divisional bench.

Respondent’s Contentions: -The assessee was supporting the order made by the commissioner.

Reasoning of the Judgment: - There were no evidences to disturb the order of the commissioner.

Decision: -Appeal dismissed.

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Case: Federal Bank Ltd. v/s Commissioner of Central Excise, Cochin

Citation: 2010 (18) STR 62 (Tri. –Bang.)

Issue: -Whether customer care services like the collection of telephone bills, arrangement of drawing DDs, arranging payment collection services for insurance policy etc. will be classified as Business Auxiliary services or under Banking and Financial services for which the bank is registered?

Brief Facts: - The assessee was providing customer care services to its clients on commission basis. According to the intelligence enquiries made by the officers of the Service Tax Department, Cochin it was alleged that the assessee was providing business auxiliary services to its clients without registration with the department and not paying service tax and without filling the statutory returns. On the basis of this conclusion made by the revenue that the assessee has contravened the provisions of the Finance Act, 1994, Show cause notice confirming the demand and proposing to impose penalty under various sections was issued to the assessee. The Adjudicating Authority confirmed the demand and imposed penalties. The Comm. (A) disposed the order partly in favour of the assessee and partly in favour of revenue saying that upto the activity of collection of bills it is cash management services and is exempted.

Appellant’s Contentions: -The assessee was a Bank incorporated under the Banking Regulation Act and registered with the RBI. Activities like collection of phone bill payment and other collection on behalf of the insurance agencies and the customers of other bankers fall under the category of “Banking and Financial Services” and service tax liability on such services has been discharged. Now the revenue wants to impose service tax on these services in the category of Business Auxiliary Services.

Respondent’s Contention: -The earlier decision of the Tribunal has not been accepted by the department and it is being contested. They said even the order passed by the Commissioner is incorrect and the services provided by the assessee is classifiable under business auxiliary services.

Reasoning of the Judgment: - The activities performed by the assessee are in the line of banking and financial services. Even the collection of telephone bills, arrangement of drawing DDs, arranging payment collection services for insurance policy etc., would fall within the services for which assessee is registered. The assessee might be getting paid remuneration in the form of commission for these services, but it does not mean that they should be classified under business auxiliary services. The contention of the revenue that they have not accepted the final order is not a valid reason for confirming the demand.

Decision: -Assessee’s appeal accepted/ Revenue’s appeal rejected.

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Case: In RE: The Bank of Rajasthan Ltd.

Citation: 2010 (18) STR 136 (Commr. Appl.)

Issue:-Whether input service provider, providing both taxable and non taxable services and not maintaining separate accounts are eligible for 100% credit under Rule 6(5) of the Cenvat Credit Rules, 2004 in respect of specified services including maintenance service?

Brief Facts: - The appellant, holder of Service tax registration has been providing ‘banking & other financial services’ including both taxable and non taxable services but did not maintain separate accounts for consumption of input service meant for taxable as well as non taxable services. A SCN was issued to the appellant alleging that they have availed 100% Cenvat Credit under rule 6(5) of the Cenvat Credit Rules, 2004 instead of restricting to 20% credit and accordingly, the SCN said that why service tax of Rs. 52,218 should not be recovered u/s 73 of the Finance Act, interest u/s 75 and penalty u/s 76, 77 and 78 should not be imposed. The lower authority confirmed the differential amount mentioned in the SCN along with penalty u/s 76 & 78 holding that Rule 6(5) of the Cenvat Credit Rules does not make any exception to the provisions of Rule 6(3) (c) of the Cenvat Credit Rules to allow 100% utilization of Cenvat credit of Service tax paid on manufacture and repair services.

Appellant’s Contentions: -The contention of the appellant was

(1) that the impugned order has grossly erred in holding that rule 6(5) does not make exception to the provisions of Rule 6(3) of the Cenvat Credit rules;

(2) that rule 6(5) starts with a non-obstinate clause ‘notwithstanding’ which would indicate the provisions of sub rule 6(3) are not applicable to the provisions of sub rule 6(5) of the Cenvat Credit Rules;

(3) that the words ‘notwithstanding’ means that this particular sub rule takes precedent over anything that might be contradictory. Notwithstanding is synonymous with regardless so basically this sub rule says regardless of anything contained in sub rule (1), (2) and (3)…….;

(4) that the respondent has grossly erred in imposing penalties under sections 76 and 78 and also the interest under section 75 of the Act;

(5) that the appellant is not liable to pay penalty under section 78 as per new proviso to section 78 inserted by the Finance Act, 2008 with effect from 10.5.2008 and if penalty is payable under section 78, then the provisions of Section 76 shall not apply;

(6) that without prejudice to the above, the appellant submitted that no penalty is imposable in view of Section 80 of the Finance Act, since the appellant has proved beyond any shade of doubt that the respondent has erred in not taking the right interpretation of Rule 6(5) of the Cenvat Credit Rules.

Reasoning of the Judgment: - The issue to be decided was that whether the appellant is entitled to avail Cenvat credit 100% or 20% of input service credit available under Rule 6(5). The Comm. (A) said that the Assistant Commissioner has not correctly interpreted Rule 6(3) and 6(5). Both the rules are independent of each other. Rule 6(3) deals with the situation where the service provider who has opted not to maintain separate accounts can exercise the option. While Rule 6(5) is altogether different from Rule 6(3), it extends 100% credit to the service provider when these services mentioned therein are used for providing output service. There is no dispute with regard to the services availed by the appellant which has been specifically mentioned in Rule 6(5). There is no allegation that the appellant is using the services exclusively for providing exempted services. The appellant is eligible for availing 100% credit.

Decision: -Appeal allowed.

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Case: In RE: Vishwajit Hambirrao Patil

Citation: 2010 (18) STR 139 (Commr. Appl.)

Issue: - Whether bailing, packing, loading, unloading, handling and transportation of baggase within factory were cargo handling service or man power recruitment & supply agency service?

Brief Facts: -There were two appellants, as the issue involved in both was same both the appeals were taken together. The appellants were involved in providing services of bailing, packing, loading, unloading, handling and transportation of baggase during the financial year 03-04 to 06-07 but failed to take service tax registration and pay the service tax and also failed to file the ST3 returns. SCN dated 20.9.2007 and 21.9.2007 were issued respectively to the appellants saying that why the Service tax amount of Rs.1,67,089 and Rs 2,66,961 to the first and second assessee resp. u/s 73 of the Finance Act, 1994 and even interest u/s 75 and penalties u/s 76, 77, 78 should not be imposed. The department said that the services provided by the appellants are covered under the category of “cargo handling services” and not under man power recruitment & supply agency service.

Appellant’s Contentions: - The appellants contended

(1) that the bagasse which is generated during the course of manufacture of sugar out of sugarcane cannot be treated as cargo and so the activities carried on them like bailing, handling, stacking/feeding cannot be treated as cargo handling service. The cases relied were:-

(a)Bharat Haribhau Salunke and Ors.

(b)Ashok Bhupal Patil

©Shri Yashawant H. Shinde

(2) that the Board has clarified in its letter F. No. B1/6/2005-TRU dated 27-7-2005 has clarified that supply of labours for the completion of the given task is covered under the category of man power recruitment & supply agency. The Assistant Comm. has erred in holding that the appellants activities are not covered under man power recruitment & supply agency.

(3) In the case of second appellant the same activities are carried on for the same client and the same Assistant Commissioner has issued the SCN treating these activities as man power recruitment & supply agency and hence the department has treated the activities of the second appellant as man power recruitment & supply agency and so the present SCN covering the same period and demanding service tax under cargo handling agency service is unjust and arbitrary.

(4) that the Comm. (A) in the above cases said that bailing, handling, stacking/feeding within the factory cannot be treated as cargo handling agency service .

(5) That the appellants were in the bona fide belief that their services are not covered under cargo handling agency service and hence there cannot be any mens rea on the part of the appellants in not taking service tax registration and paying service tax. The cases relied were:-

(a)Padmini Products v. CCE

(b)Cosmic Dye Chemicals v. CCE

©NRC ltd. v. CCE

(d)CCE v. Ganpati Motors

(6)in the case of second appellant the department had knowledge of the activities in the

month, 2006 itself but the SCN was issued on 21-9-2007 and hence the SCN is time

barred. The cases referred were

(a) Lovely Food Industries v. CCE

(b) Jetex Cab v. CCE

(7)that the appellant had no guilty intention to evade payment of tax and hence the

extended period is not available to the department. The cases relied were-

(a) KK Appachan v. CCE

(b) Homa Engineering Works v. CCE

Reasoning of the Judgment: -The Assistant Commissioner has not given any findings for the definition of the cargo handling agency service available in the Act. Mere taking the dictionary meaning it cannot be concluded that the assessee was contractor and fall under the term cargo handling service. The meaning of cargo handling agency service, which was brought under the Service Tax net vide Notification No. 8/2002-ST dated 1.8.2002 w. e. f 16.8.2002, is reproduced as under

"cargo handling service” means loading, unloading, packing or unpacking of cargo and includes,—

(a) cargo handling services provided for freight in special containers or for non containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and

(b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking, but does not include, handling of export cargo or passenger baggage or mere transportation of goods.

The appellant has to deal with cargo but in these cases there is no cargo involved, the residual waste of sugarcane was used in the generation of steam. The bagasse cannot be treated as cargo for bringing them under cargo handling agency service. Since the labourers were allotted for specific specific tasks they cannot come under man power recruitment & supply agency service. But as these activities cannot be considered under cargo handling services they are rightly classified into man power recruitment & supply agency service.

In one SCN notice the department classifies it into cargo handling services and in another as man power recruitment & supply agency service. This means that the department is also not sure where it should be classified. Every omission of the assessee cannot be suppression of facts. The case referred were Padmini Products v. CCE, Cosmic Dye Chemicals v. CCE. There was no intention of the assessee to avoid tax. It was the duty of the department to serve the notice within time. The appellants were not liable to pay any tax and so no penalty or interest arises.

Decision: -Appeal allowed.

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CENTRAL EXCISE SECTION:

Case: Sri Shyam Iron Udyog Pvt. Ltd. V/s CCE, C & S.T., Bhubaneswar-II

Citation: 2010(251) E.L.T. 545 (Tri.-Kolkata)

Issue:- Whether cables used to transmit power from main grid to factory entitled for credit as capital goods?

Brief Facts: - Electric transmission cables were used to transmit power from the main grid to the factory and then distribute it to various points within the factory and to the office building. The assessee took Cenvat Credit of these cables as capital goods. The Commissioner (A) held that the appellant was entitled for credit in respect of the cables used within the factory and for credit in respect of the cables used outside the factory for supply of power for the office building.

Appellant’s Contentions: - The cable is used to draw electricity from the main grid to the factory, which is used further within the factory. Therefore the Appellant is entitled to the credit. The assessee agreed that the he was not entitled to credit of cables used for transmission in office building. The appellant relied on following decisions of tribunal:-

1. CCE, Chennai v. PepsiCo India Holdings Ltd.

2. Jaypee Bela Plant v. CCE, Bhopal

3. Indorama Cement Ltd. V. CCE, Mumbai-II

Respondent’s Contentions: - Cable is not specified goods under the definition of ‘Capital Goods’. So credit is allowed only if cable is a component of the specified goods as definition of capital goods includes components, spares and accessories of the specified goods used in the factory for the manufacture of final products but does not include any equipment or appliance used in the office. Contention was that cable is used outside the factory and is also used for supply of electricity to the office premises and other areas where no production is being carried out. Factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with these goods is being carried on or is ordinarily carried on. So, the cables used in no production or in office are not entitled for credit.

Reasoning of the Judgment: - The only issue to be decided was whether the cable used to transmit power from the main grid to the factory is entitled for credit as capital goods. First the matter was referred to the adjudicating authority to re- quantify the amount of credit. The cases of Jaypee Bela Plant where credit was allowed in respect of the pipeline used for drawing water from reservoir situated 5-6 kms away from factory for manufacture of finished goods within factory and Indorama Cement Ltd. where for transporting inputs conveyor belt was installed between appellant’s factory and input supplier’s factory were referred, so the matter was referred to the Adjudicating Authority to reconsider the matter.

Decision: - The order was modified to the extent and was remanded back.

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Case: Hindustan Zinc Ltd. v/s Comm. Of Central Excise, Jaipur-II

Citation:2010(18)S.T.R. 33(Tri.- Del)

Issue:- Whether input service credit can be availed on event management service in connection with celebration by employees on expansion of plant and whether it can be said as an expenditure relating to business activity?

Brief Facts: - The appellants were manufacturer of zinc, lead, sulphuric acid and copper. They availed input service credit of Rs. 5,58,961 on the basis of invoice issued by M/s. Innuenodo Communication in respect of event management service provided to them on celebration of the expansion of their Chanderia Plant. Original authority disallowed the credit and even imposed a penalty of Rs. 10000. Even the Commissioner went with the same order.

Appellant’s Contentions: - The assessee said that event management services were utilized in connection with business activity so far as it is concerned with Chanderia Plant which is covered with the definition of input service under Cenvat Credit Rules, 2004. Even the cost of this service is included in assessable value. He relied on the decisions of CCE, Mumbai-V v.GTC Industries Ltd. and ABB Ltd. V. CCE & ST. He submits that the celebration is for advertisement or sales promotion. He submitted that even it is allowed as expenditure under Sec. 37(1) of The Income Tax Act, 1961. Cases relied were

(a) Comm. Of Income Tax v. Aluminum Industries Ltd.

(b) Comm. Of Income Tax v. Merck Sharpand Dohme of India Ltd.

Respondent’s Contentions: - The revenue said that the celebration of expansion of plant was mere entertainment expense and cannot be treated as a business activity. His contention was that the appellant failed to establish that celebration was held in connection with business activity. He also submitted that the Sec. 37 of The Income Tax Act, 1961 is different from the definition of input service under Cenvat Credit Rules, 2004 therefore the cases relied upon are not applicable here.

Reasoning of the Judgment: - The dispute relates to whether the event management service would be treated as an activity relating to business. In case of Mazgaon Dock Ltd. v. Comm. Of Income Tax and Excess Profits Tax the Apex Court decided that it is a term of wide import. In the definition of Input Service activities relating to business is used, the word relating further widens the term. Activity relating to business means that activity should be related to the main or essential activities relating to the business and therefore all other activities relating to the business fall within the definition of “Input Service”. The usage of the words “such as” after the expression “activities relating to the business” in the inclusive part of the definition, therefore, further supports view that the definition of the term “input service “ would not be restricted to services specified therein. It was held in GTC Industries Ltd. that credit of tax on that taxable service would be allowed that go to form the part of the assessable value of which excise duty is charged. The cases cited by the appellant if discussed are:-

1. In the case of Amarjothi Pictures the Madras High Court held that the expenditure was carried on with the purpose of business of exhibition of films and in the celebration presentation of shields was done to the theatres, artists and others. So the object of celebration was publicity.

2. In the case of Merck Sharp and Dohme of India Ltd. the Bombay High Court affirmed the decision by saying that the expenditure was incurred in connection with foundation –stone laying ceremony, was allowed as business expenditure.

3. In the case of Aluminum Industries Ltd., the expenditure was held in respect of inauguration ceremony on commission of new project, the Chief Minister was invited and press conferences were held and it bought out a newspaper supplement, the Kerala High Court allowed it as revenue expenditure.

From the above decisions it is evident that the assessee produced the evidences that the expenditure were incurred for the purpose of business, so it would include claiming of advertisement benefit under the Income Tax. Similarly service tax is a tax on value addition by rendering service. The assessee has to establish that the service was rendered relating to business activity which he failed to produce any evidence that the event was organized in order to sales promotion or advertisement.

Decision: - Appeal rejected.

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Case: ECE Industries Ltd. v/s Commissioner of Central Excise, New Delhi

Citation: 2004 (164) ELT 236 (SC)

Issue:- Whether subsequent proceedings can invoke extended period of limitation on the same subject where matter is pending/ decided?

Brief Facts: -The appellants were using parts in respect of which they availed Cenvat Credit. Even though they did not pay the duty they did not reverse the Cenvat credit. The department issued two Show cause notices one on 28 May, 93 and other on 4 Nov, 93 asking them why not duty and penalty levied on them for not reversing the Cenvat credit. Thereafter the concerned Show cause notice was issued on 27 May, 1994.

Reasoning of the Judgment: - The issue of subsequent show cause notice do not make the arrival of such circumstances that there was any willful suppression or misrepresentation and extended period under section 11A was not available. As there was no suppression of facts no penalty can be imposed. The case was decided considering the facts of case of P&B Pharmaceutical (P) Ltd.

Decision: - Appeal was disposed off.

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CUSTOMS:

Case: Jaipur Golden Transport Co. Pvt Ltd. v/s Commr. Of Cus. (Adj.), Mumbai

Citation: 2010 (251) ELT 562 (Tri. - Mumbai)

Issue: -Whether the order passed by the former Comm. or the latter Comm. will prevail if same SCN is assigned for adjudication to 2 Commissioners by different orders of the Board?

Brief Facts: -Same SCN were assigned to 2 commissioners, one to Commissioner of Customs (Adjudication) Mumbai vide order dated 2.8.2005 to adjudicate Show Cause Notice dated 29.11.2004 and for the same purpose, under Notification no. 112/05- Cus. (NT), dated 28-12-2005, Commissioner of Customs (Import) Nava Sheva was also appointed. The former Commissioner passed order in original on 31-12-2007 while the latter passed order in original on 18-3-2008.

Reasoning of the Judgment: - The case referred to was of Shri Rajesh Totla v. Commissioner of Customs Mumbai -2001 (138) ELT 398 (Tri. –Mumbai), where there was similar question and out of the two orders of adjudication passed in the given case at different points of time, the second one was non est.

The Board may appoint such persons as it thinks fit to the Officers of Customs u/s 4(1) of the Act. The Board can even impose and stipulate conditions and limitations u/s 5 of the Act that are to be observed while exercising the powers and discharging the duties conferred/ imposed on them. Both the Notifications were issued under Section 4(1) of the Act. The assignment dated 28-12-2005 superseded the earlier assignment dated 2-8-2005. So it can be said that after 28-12-2005 the Commissioner of Customs (Adjudication) Mumbai had no jurisdiction to adjudicate the show cause notice that is the jurisdiction to adjudicate remains with Commissioner of Customs (Import) Nava Sheva appointed by the Board. The order dated 31-12-2007 passed by the Commissioner of Customs (Adjudication) Mumbai in adjudication of the subject Show Cause Notice is without jurisdiction and requires to be set aside for want of jurisdiction.

Decision: -Appeals allowed on ground of jurisdictional infirmity.

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