Service Tax

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June 2016

CA A R Krishnan & CA Girish Raman

Territorial jurisdiction

In this case the Hon’ble High Court held that providing services by the vessels of the appellant for the purpose of prospecting mineral oil is a service consumed in the seabed of the Continental Shelf of India, and would come into tax net only w.e.f. 27.2.2010. [Greatship (India) Ltd. vs. CST (2015) 39 STR 754 (Bom.)]

Cargo Handling Services

Loading, unloading, packing, unpacking, stacking, re-stacking and shifting of sugar bags for transportation from floor of the mill to the godown and from one godown to another within the factory and not outside the factory in a public road, ships, aeroplane or trucks for onward movement to a destination would fall as transportation of goods and not included in the definition of ‘cargo handling services’ [CCE v. Manoj Kumar (2015) 40 STR 35 (All.)].

Consulting engineering services

Consulting engineering services provided by Companies are liable for service tax only w.e.f. 1.5.2006 and not prior to that date [CCE vs. Shah Technical Consultants Pvt. Ltd. (2015) 39 STR 847 (Tri-Del.)]

Franchise Services

On facts, where the assessee (‘Amway’) sold products through its distributors directly to the consumers without any sale in any shop or market and had collected certain subscription income from its distributors to sell the products identified with, the Tribunal after a detailed consideration of the relationship between the assessee and distributor and the business literature (viz., Amway Business Starter Guide, Code of Ethics, Rules of Conduct, Sales & Marketing plan, etc.) held that the distributor had been granted not merely a right to sell Amway products but a ‘representational’ right to sell its product and accordingly is liable to pay service tax on the subscription income under ‘franchise services’. [Amway India Enterprises Pvt. Ltd. v. CST (2015) 39 STR 1006 (Tri.-Del.)]

Site formation and clearance, excavation, earthmoving and demolition services

The assessee in the present case was engaged in providing services of horizontal drilling for passages of cables to various telecom companies. It contended that only such horizontal drilling as done by using machines would be covered within the ambit of service tax under the category of ‘site formation and clearance, excavation, earthmoving and demolition services’. On appeal the Tribunal negatived the above contention and held that horizontal drilling whether done with use of machines or manually both would be covered under the said category of service [CCE vs. Mittal Construction Co. (2015) 39 STR 848 (Tri-Del.)]

Works Contract Services

Section 65(105)(zzzza) w.e.f. 1.6.2007 levied service tax on 5 types of works contracts: (a) erection, commissioning and installation of plant, machinery, etc. (b) construction of a new building or civil structure or part thereof or pipeline or conduit; (c) construction of new residential complex or part thereof; (d) completion or finishing services, repair, alteration, renovation, etc. in respect of contracts in (b) and (c) above; (e) turnkey contracts including engineering, procurement and construction or commissioning projects. Rule 2A of the Service Tax (Determination of Value Rules), 2007 w.e.f. 1.6.2007 provided for valuation of such works contracts by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract. Further, a Composition Scheme was also notified in which service providers could opt to pay service tax at percentages ranging from 2 to 4% of the gross value of the works contract. The question before the Supreme court was whether service tax can be levied in respect of the 5 types of contracts referred to in section 65(105)(zzzza) prior to 1.6.2007. The Supreme Court held that service tax cannot be levied on such types of indivisible ‘works contracts’ prior to 1.6.2007, the date from which such ‘works contracts’ [section 65(105)(zzzza)] were expressly made liable for service tax. It laid down the following propositions:

(i) ‘Works contract’ is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such and has to be taxed separately [para 17].
(ii) All the services referred to in section 65(105) [definition of ‘taxable service’] are service contracts simpliciter without any other element in them, such as for example, an erection, commissioning and installation contract. This is clear from the very language of Section 65(105) which defines “taxable service” as “any service provided” and section 67, which provides that the value of a taxable service is the gross amount charged by the service provider for such “service” rendered by him. [para 24].
(iii) In case of composite indivisible ‘works contracts’, such contracts can be taxed by Parliament as well as State legislatures. Parliament can tax only the service element contained in these contracts and States can tax only the transfer of property in goods element contained in these contracts [para 16].
(iv) The service tax charging section itself must lay down with specificity that the levy of service tax can only be on ‘works contracts’, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of works contract. This not having been done prior to 1.6.2007, the charge to tax under the five heads in section 65(105)(zzzza) would only be of service contracts simplicitor and not composite works contracts [para 15].
(v) Prior to 1.6.2007, there was no charge or machinery to levy and assess service tax on indivisible composite works contracts and hence service tax cannot be levied on indivisible ‘works contracts’ prior to 1.6.2007.

[CCE & C, Kerala v. Larsen & Toubro Ltd. (2015) 39 STR 913 (SC) overruling G.D. Builders v. UoI (2013) 32 STR 673(Del.)].

Valuation

Where the assessee had a contract for repair of transformers which specified separately the rate of labour charges and the value of HV/LV Leg oil, transformer oil and supply items and the invoice issued also stated the value of the goods separately and VAT/ sales tax was paid on the value of goods, the Tribunal held that the assessee was entitled to the deduction of the value of goods supplied during repair and no service tax would be payable on the value of goods [Technocrate Transformers v. CCE (2015) 39 STR 996 (Tri- Del.)]

Limitation

Where the revenue had conducted investigation during the period August 2008 to December 2008 but had issued show cause notice after a lapse of 1¾ years in September 2010 the Tribunal held that the extended period of limitation was not invocable [Shree Alloys Industries Pvt. Ltd. vs. CCE (2015) 39 STR 869 (Tri-Del.)]

Refund

•Refund of service tax on terminal handling service cannot be denied on the ground that terminal handling service has been charged by the shipping line under Business Auxiliary Services instead of by the port operator under Port Services. [Sopariwala Exports vs. CST (2015) 39 STR 884 (Tri-Mum)]
•Where the assessee paid tax on services rendered outside India but claimed refund of it after a year (i.e. beyond the period of limitation) on the ground that the amount paid could not be considered ‘tax’ but is only a ‘deposit’ and therefore cannot be considered as barred by limitation, the Court held otherwise observing that –
(i) since the tax was paid in TR-6 challans (i.e. challans for payment of service tax) the amount paid is tax and not a deposit;
(ii) even if a payment is made under a mistake of law, the bar of limitation would apply.
[Asst. CST v. Natraj and Venkat Associates (2015) 40 STR 31 (Mad. - DB) setting aside Natraj and Venkat Associates v. Asst. CST (2010) 17 STR 3 (Mad. – SB].

Refund of credit

•In a case involving refund of credit claimed on input services used for export of services under rule 5 of the Cenvat Credit Rules, the Bangalore Bench of the Tribunal relying on CCE v. Eaton Industries P.Ltd 2011 (22) S.T.R. 223 (Tri – Mum) held that ‘relevant date’ for reckoning the due date of one year for filing the refund claim of service tax paid on input services used for export of services is the date when the assessee has received the payment for service exported and not the date of invoice. On appeal by the department, the Andhra Pradhesh High Court agreed with the decision of the CESTAT rendered on the issue though the Revenue urged that there was a contrary decision of the Mumbai Bench in 2014 but could not produce the same or cite the cause title before the Tribunal or the High Court [CCE v. Hyundai Motor India Engineering P. Ltd. 2015 (39) S.T.R. 984 (AP)]
•The appellant in the present case had not shown all the eligible credits taken by it in its ST-3 return for the period April 2008 – September 2008 but had shown the same in the cenvat credit register maintained by it and also in its subsequent returns. It had also filed a revised return for the period April 2008 to September 2008, though belatedly in July, 2010 so as to rectify its above mistake. It had filed a refund claim in respect of the unutilised cenvat credit pertaining to the above period which was denied on the grounds that the balance of unutilised credit was not disclosed in the ST-3 returns. On appeal the Tribunal held that –
(i) Refund was to be granted on the basis of balance of cenvat credit available in the cenvat account and not on the basis of the balance shown in the ST-3 return.
(ii) The mistake made in the ST-3 return was a rectifiable mistake which was made good by the assessee by filing a revised ST-3 return. Hence the refund claim was held to be admissible [Serco Global Services Pvt. Ltd. vs. CST (2015) 39 STR 892 (Tri-Del.)].

Penalty

•Where there were conflicting views on the applicability of service tax on account of which the Board had to issue a clarification specifically stating that there were certain doubts in the mind of the field formation and hence reference was made pursuant to which it has issued the clarification the Tribunal held that in such circumstances there was a reasonable cause u/s. 80 for non-imposition of penalties [CCE vs. USL Shinrai Automobiles Ltd.(2015) 39 STR 854(Tri-Mumbai)] •Where the issue regarding availability of cenvat credit on steel items was in dispute and the asseseee had reversed the credit alongwith interest the Tribunal held that imposition of penalty for wrong availment of credit was not warranted [Shree Alloys Industries Pvt. Ltd. vs. CCE (2015) 39 STR 869 (Tri-Del.)]. •Where assessee takes cenvat credit in the absence of invoices which were not found during the course of audit, but thereafter no efforts were made to produce original invoices, the Hon’ble Tribunal upheld the penalty. [CCE vs. Taurus Agile Technology Corporation P. Ltd. (2015) 39 STR 880 (Tri-Del.)]

Input service distributor Where the assessee had availed credit on various services received by 3 offices and were utilised for payment of duty liability in respect of its single manufacturing unit the Tribunal held that denial of cenvat credit on the grounds of non-registration as an Input Service Distributor (ISD) is unwarranted since as per Rule 7 of the Cenvat Credit Rules, 2004 registration of ISD is required only if there are more than one manufacturing units / service providing units. [CCE vs. Taurus Agile Technology Corporation P. Ltd. (2015) 39 STR 880 (Tri-Del.)]

Cenvat Credit

•Cenvat Credit on rent paid for head office premises disbursed by ISD cannot be denied on the ground that services have been availed beyond the place of removal [Balakrishna Industries Ltd. vs. CCE (2015) 39 STR 861 (Tri-Del.)]
•Services rendered by consignment agent in relation to promotion of sale would fall within the expression ‘sales promotion’ as mentioned in the definition of input services and hence cenvat credit thereon would be admissible [Vishal Pipes Ltd. vs. CCE (2015) 39 STR 864 (Tri-Del.)]
•Credit of service tax paid on courier services availed for speedier delivery of final products to the customers would be admissible being an activity relating to the business of the assessee. Denial of cenvat credit as being in the nature of services in relation to outward transportation beyond the place of removal is incorrect [CCE vs. Sakata Inx India (2015) 39 STR 865 (Tri-Del)]
•Credit of service tax paid on clearing and forwarding agent services is admissible. However, credit of service tax paid on commission agent’s services is inadmissible [CCE vs. Nutrine Confectionery Co. Ltd. (2015) 39 STR 866(Tri-Bang.)]
•Construction services availed for residential colony does not have any nexus with the manufacturing activity and hence cenvat credit thereon would be inadmissible [Shree Alloys Industries Pvt. Ltd. vs. CCE (2015) 39 STR 869 (Tri-Del.)].
•Where the inputs are cleared as such under rule 3(5) of the Cenvat Credit Rules, 2004 there is no requirement to reverse the credit of service tax paid on goods transportation agency services availed for bringing of such inputs [Dadu Pipes Pvt. Ltd vs. CCE (2015) 39 STR 874 (Tri-Del.)]
•Credit of service tax paid on lending (to be read as renting) of office, maintenance charges, brokerage or commission paid for obtaining office premises, insurance of plant and machinery, security charges, housekeeping charges, medical and accident insurance of employees, being availed in the course of business of manufacturing is admissible [CCE vs. Taurus Agile Technology Corporation P. Ltd. (2015) 39 STR 880 (Tri-Del.)].
•In this case the Tribunal held that –

(i) denial of cenvat credit on the grounds that the invoices contain the previous address of the appellant is incorrect.
(ii) Availment of cenvat credit on mobile phone bills which are used by the officials of the assessee is admissible.
(iii) dismantling of plant and machinery for shifting it to new premises being an integral part of business activity, cenvat credit thereon is admissible.
(iv) Cenvat credit on Chartered accountants services availed in the course of business activity is admissible.
[Paradise Plastics Enterprises Ltd. vs. CCE (2015) 39 STR 889 (Tri-Del)]

•The assessee’s appeal against an Order-in-Original (‘OIO’) denying credit on tower material and pre-fabricated building was dismissed by the CESTAT. However, demands were confirmed only for the normal period of limitation and the demands beyond the normal period of limitation and the penalties were set aside since the issue involved a question of interpretation. Against the very same OIO the Revenue appealed before the CESTAT contending that adjudicating authority did not order confiscation of capital goods under rule 15. The CESTAT held when the extended period of limitation and penalties imposed were themselves set aside, the question of confiscation does not arise. [CST v. Idea Cellular Ltd. (2015) 39 STR 993 (Tri-Mum.)].
•Where the appellant was a port services provider, credit on the following input services was allowed as being essential input services to run its business –
(a) canteen services (outdoor catering services) [even for the period post 1.4.2011] availed by the assessee who under under the Dock Workers Regulations was required to maintain adequate canteen facilities;
(b) Garden maintenance service which was essential in terms of directions of the state pollution control board;
(c) Event management services availed for opening ceremony and ceremonial occasions;
(d) Brokerage service for finding residential accommodation for employees for ensuring availability of staff.
[Gateway Terminals (I) Pvt. Ltd. v. CCE (2015) 39 STR 1027 (Tri- Mum.)]

Remand

Where the order of the original adjudicating authority is a non – speaking order without considering the contentions of the assessee, such an order is not required to be summarily set aside without recourse to remand but is required to be set aside and remanded back to the adjudicating authority with a direction to pass a speaking order after adverting to the submissions of the assessee. [Amway India Enterprises Pvt. Ltd. v. CST (2015) 39 STR 1006 (Tri.-Del.)]

Export of Services

When FIRC was in Indian rupees the Tribunal held that the condition of realisation of exports proceeds in convertible foreign exchange as required under Rule 3(ii) of the Export of Service Rules, 2005 was complied by the assessee since-
•(i) Under the Exchange Control Manual of RBI, FIRC is issued only on receipt of foreign exchange.
•(ii) The Indian Rupees was received through the account of a bank situated in a foreign country as the payment in rupees shall be deemed to be repatriation and realization of foreign exchange in India.
[Sun-area Real Estate Pvt. Ltd. vs. CST (2015) 39 STR 897 (Tri-Mumbai)]

Precedent

It is incumbent upon the adjudicating authority to follow the decision of a Larger Bench of the Tribunal cited sby an assessee unless he distinguishes the factual situation in the assessee’s case from that of the Tribunal decision which calls for a different interpretation. [Muthoot Finance Ltd. v. UoI (2015) 40 STR 26 (Ker.)].