Brain Storming Session of Service
tax
By
Shri V.S.Datey
CA. Shailendra saxena
At
Baroda Branch of WIRC of ICAI
Date 12/09/2014
1. C Ltd a company and have availed of
Cenvat credit on commission agent's
services for sale of their goods. C Ltd have
come across a recent judgment of the
Gujarat High Court in case of CCE v. Cadila
Healthcare Ltd. [2013] 32 taxmann.com 105
and Astik Dyestuff (P) Ltd .v. Commissioner
of Central Excise & Customs (Surat-II) [2014]
41 taxmann.com 397 (Gujarat),which has
disallows said credit. Please clarify the legal
position vis-à-vis the CBEC's view.
Rule 2(l) allows credit on services used for clearance of final products upto the place of
removal. Activity of sale promotion is specifically included. In view thereof, as per
CBEC's view, credit is admissible on the services of sale of dutiable goods on
commission basis - CBEC Circular No. 943/04/2011-CX, dated 29-4-2011.
It has been held in Cadila Healthcare Ltd. (supra) that commission paid to agents
causing sale of final products cannot be termed as an expenditure on sales promotion.
Further, such commission cannot be stated to be a service used directly or indirectly in
or in relation to manufacture of final products or clearance of final products from place of
removal. Hence, the CENVAT credit would not be admissible in respect of commission
paid to foreign agents.
The judgment of the Gujarat High Court did not consider the CBEC's view on the
subject. The CBEC's view was known just after the amendment to the rules w.e.f. 1-42011. Firstly, the CBEC's view represents the intention behind the definition of input
service.
In case of
COMMISSIONER OF CENTRAL EXCISE, LUDHIANA Vs. AMBIKA OVERSEAS 2012 (25) S.T.R.
348 (P & H),this issue decided in FAVOR OF ASSESSEE.
In View of Ahmedabad CESTAT Recent judgments in case of
COMMISSIONER OF CENTRAL
EXCISE AND SERVICE TAX, SURAT-II Vs M/s SHREE KAMREJ VIBHAG KHAND UDYOG SAHAKARI
MANDLI LTD. Dated 18/07/2014 in which it was held that the first appellate authority has relied upon
a chartered accountant's certificate which clearly shows the commission which has been paid by the appellant is
for promoting the sale of finished goods. Hence the judgment of the Hon'ble High Court of Gujarat in the Cadila
Healthcare Ltd (Supra) would cover the issue in favour of the assessee. Accordingly, C Ltd may
continue taking the credit of the said services.
2.M/s Sunrise Ltd are running a multiplex
theatre in a posh area of vadodara. They collect
revenue from the following sources :
(a) Receipts from Cinema shows ;
(b) Percentage-wise share towards rental from
various food shops located in the theatre ;
(c) A horror show game organized by us in our
premises ; and
(d) Various motor rides and games organized by
us in our premises.
Are all or any of the sums from aforesaid
services liable to service tax ? Please clarify.
(a) Receipts from cinema shows:
Exhibition of cinema is an entertainment
event within the meaning of section 65B(24).
Hence, receipts from exhibition of cinema are
not liable to service tax.
(b) Percentage-wise share towards
This service is more appropriately described
rental from various food shops located in as renting of immovable property, which is a
the theatre
declared service u/s 66E of the Act. Merely
because the rent is based on fixed
percentage-wise share, the service doesn't
cease to be renting of immovable property.
Hence, the said rentals are liable to service
tax.
(c) A horror show game organized in the Since this amounts to providing fun or
premises
recreation by way of games, such services
are 'amusement' services falling under section
65B(9) of the Finance Act, 1994 and,
therefore, not liable to service tax.
(d) Various motor rides and games
Since it is providing fun or recreation by way
organized in the premises.
of motor rides and games, such services
are 'amusement' services falling under section
65B(9) of the Finance Act, 1994 and,
3. M/S Z Ltd a company and are getting their
project reports printed, bound and
photocopied from an outside agency (who is
a non-corporate entity). For this purpose,
M/s Z Ltd provide only soft copy of report to
the outside agency through e-mail. The
outside agency is charging Printing, photo
coping and binding charges plus State VAT.
whether Z Ltd should pay service tax as a
service recipient under works contract
service under Section 68(2) of the Finance
Act, 1994, read with Notification No. 30/2012ST ?
In
the
Indian
context,
the
printing
and
binding
of
books/documents/reports amounts to 'manufacture of goods' and even
if it is a service, it is covered under negative list entry under Section
66D(f), read with section 65B(40) of the Finance Act, 1994.
If printing is carried out as an intermediate production process, then,
printing is exempt from service tax under Entry 30 of Notification. No.
25/2012-ST and binding would also be exempt being a part of bundle,
whose essential character is printing.
It must be noted that in Mahim Patram (P.) Ltd. v. Union of India [2007]
7 STT 136 (SC) the assessee was engaged in printing of questions
papers for examination boards, competitive examination boards,
recruitment boards and various universities and boards. On these
facts, it was held (in para 2) that the assessee had carried on a highly
specialized and secretive work. Therefore, the said activities of the
assessee admittedly amounted to a "works contract". By analogy,
therefore, printing of reports and consequent supply of printed paper,
after binding, amounted to a 'works contract'.
4. Despite being covered under reverse
charge, P Pvt. Ltd a security company
charged and collected 100% service tax
from service receiver till 31-3-2013 and
thereafter, paid to the government.
From April, 2013, the company is
charging 25% service tax and balance
75% is being paid by service receiver.
Will there be any liability on service
receiver for the period up to March
2013. If yes, what remedial action can
be taken ?
The security services are chargeable to service tax and, hence, tax paid, if any, cannot be regarded
as paid without charge.The service tax is payable by the person who is liable to pay service tax as
per section 68 and the person so liable to pay service tax falls within the definition of an 'assessee'.
All obligations under the service tax law are to be complied with by the person liable to pay service
tax (registration, payment, returns, etc.).A person other than 'person liable to pay service tax' can
be regarded as an assessee only if such person is the agent of the person liable to pay service tax.
In CST v. Landmark Automobiles (P.) Ltd. [2013] 31 taxmann.com 168 (Ahd. - CESTAT), it was held
that in case of reverse charge service provider's defence that liability to pay service tax is on
service recipient is sufficient to set aside demand against service provider.
As per law, payment by a person other than person liable to pay service tax can be regarded as
good payment only if such person is the agent of the person liable to pay service tax, i.e.,provider
must be able to furnish proof that payment was made by you as an agent of the service recipient
and registration must be sought/returns must be filed accordingly in the name of the service
recipient.
since payment has been made wrongly by Security agency and there is no revenue loss, a
certificate from service provider to service recipient to this effect may avoid double payment,
subject to due verification by the Department.
In case of full reverse charge, it must be noted that the said service doesn't amount to an output
service as per Rule 2(p) of the CENVAT Credit Rules, 2004, for the service provider. Accordingly,
any wrong payment of service tax by service provider out of the Cenvat credit availed would be
treated as contrary to law and the Cenvat credit in relation to those services would be denied.
5.D Ltd a Company engaged in business of
exploration of oil and natural gas. They have
hired services of police department for
security of their key personnel. they hired
services of police department for security in
a publicity function organized by them. Are D
Ltd liable to pay service tax ? In D Ltd view,
police department is performing a sovereign
function and is not liable to service tax.
A.
B.
C.
Taxable -Services provided by Government, viz., police department are
excluded from the charge of service tax by virtue of section 66D(a), but
support services provided to business entities are chargeable to service
tax.
Covered with reverse charge - Security services are support services
and are liable to service tax, if provided to a business entity. As the
business entity is located in taxable territory, service tax will be
payable under reverse charge by the recipient of service, viz., D Ltd.
should take registration and discharge service tax liability.
Credit available - It appears that the said services will be 'input
services' under Rule 2(l) of the CENVAT Credit Rules, 2004 and,
accordingly, will be eligible for credit. Security is one of the items listed
in Rule 2(l) of the CENVAT Credit Rules, 2004. If D Ltd are engaged in
manufacture/provision of service and security services and have nexus
with such manufacture/provision of service, it will be an input service.
6.An Indian Company's security is listed in
Luxembourg Stock Exchange. The annual
membership fee and listing fee are paid to the
stock exchange from India. Whether the
Indian Co. is liable to pay service tax on such
fee? If yes, whether the company is eligible to
claim Cenvat credit against service tax paid
on its taxable services?
Place of provision is determined according to default Rule 3 of
POP Rule, and this case the place of provision of service
would be based on location of recipient of service. i.e., Indian
company and, therefore, the Indian company will be liable to
deposit service tax on such listing fee under reverse charge
mechanism.
The service tax so deposited will be available as Cenvat credit
to the Indian company only if there exists a nexus between
such listing in Luxembourg Stock Exchange and the output
services of the Indian company.
7.A Ltd. has procured convention services from
five star hotel for its business activities. As a part
of the package deal, the hotel provides to airport
pick and drop facility, promotion material along
with the conference hall. Hotel raises a single
invoice for all the three activities and recovers
service tax on the gross consideration. Whether A
Ltd. is eligible to claim Cenvat credit of the entire
service tax so paid or A Ltd. would need to
proportionately reduce the Cenvat credit relating
to airport transfer facility?
The provision of convention services by the hotel will be considered as
bundled service comprising of conference hall, promotion material and
cab facility.
As per section 66F of the Act, "bundled service" means a bundle of
provision of various services wherein an element of provision of one
service is combined with an element or elements of provision of any other
service or services. If such services are bundled in the ordinary course of
business, then the bundle of services is treated as consisting entirely of
such service which determines the dominant nature of such a bundle.
In the present case, the intention of A Ltd. is to obtain convention services
and provision of cab facilities for travel to and from airport is naturally
bundled with the same. Hence, A Ltd., should be eligible to claim entire
Cenvat credit and there is no need to reduce the Cenvat credit in
proportion to the service tax pertaining to cab services.
8.Whether Cenvat credit on
telephone bills addressed in the
name of the company can be
claimed on the basis of the
electronic invoices received via emails or the company would
require original hard copy of
invoices for claiming the Cenvat
credit?
In terms of rule 9(1) of the Credit Rules, the provider of
output services can claim Cenvat credit on the telephone
bills addressed in the name of the company on the basis
of the 'invoice issued' by the provider of an output
service.
The eligibility of Cenvat credit is not dependent
upon the mode of receipt of the invoice. Thus, so
long as the invoice issued by the telecom company is
addressed in the name of the recipient-company and
all other conditions for claiming credit, such as nexus
with the output service, are fulfilled the service
recipient will be eligible to claim Cenvat credit.
Receipt of invoice via e-mail will not disentitle the
company from claiming the Cenvat credit.
9.Whether A Ltd. can claim
Cenvat credit on inputs or input
services or capital goods
received prior to the service tax
registration?
A Ltd. can claim Cenvat credit on inputs or input services or capital goods
received prior to obtaining service tax registration, provided eligibility
criteria/tests for qualifying as inputs, input services and capital goods are met.
Reference may be drawn to the following case laws:
In J R Herbal Care India Ltd. v. CCE 2010 (253) ELT 321 (Trib.Delhi), it was held that there is no provision, in law, that Cenvat credit is not
available to unregistered manufacturer.
In Sew Construction Ltd. v. CCE [2011] 32 STT 120/12
taxmann.com 12 (CESTAT- New Delhi), demand for the period prior to
registration was confirmed and it was held that the assessee would be
eligible for the Cenvat credit on inputs, if that is not otherwise deniable.
In CCE v. Progressive Systems [2012] 36 STT 30/22 taxmann.com
119 (Kar.), followed in Naughty Foods v. CCE [2012] 37 STT 584/27
taxmann.com 67 (Delhi - CESTAT), it was held that an SSI unit could take
the Cenvat credit of capital goods received when he was not registered. He
could utilise the credit when he was registered and started payment of
excise duty.
10.A Ltd. is engaged in the business of
manufacture of chemicals. In terms of
the guidelines issued by the pollution
control department, A Ltd. has installed
plants in 33% of the areas and engaged
B Ltd. for gardening/maintenance
services of plants. Whether A Ltd. is
eligible to claim Cenvat credit on such
maintenance fee paid to B Ltd.?
In case of certain businesses which are potentially hazardous, the manufacturing activity cannot be legally
undertaken without having the requisite gardening and maintenance of greenery in the precincts of the factory
in terms of applicable environmental laws. The question relates such a situation. In such a case, gardening
activity will be considered as an integral part of the manufacturing process and, hence, the service tax charged
by B Ltd. on maintenance/garden services will be available to A Ltd.
Reference may be had to following case laws:
In Brakes India v. CCE [2010] 29 STT 50 (CESTAT-Bang.) service tax paid on maintenance of garden was held
as an input service, since maintenance of garden was statutorily required as per consent given by the State
Pollution Control Board.
In CCE v. Nirma Ltd. 2012 (277) ELT 207 (Tri. - Ahd.) it was found that the respondent's factory, being a
chemical factory, was covered under the Pollution Control norms. Accordingly, the maintenance of garden, being
a mandatory activity under section 25 of Water (Prevention and Control of Pollution), 1981 of the Gujarat
Pollution Control Board, was held as an input service.
In JBM Auto System (P.) Ltd. v. CCE [Final Order No. 763/2011, Appeal No. E/647/2010, dated 18-7-2011] it
was held that the manpower service used for garden maintenance was required for infrastructure for
manufacture and clearance of final products and that credit was admissible.
In CCE v Voith Turbo (P.) Ltd. [Final Order Nos. 1149 & 1150/2010, dated 27-8-2010] it was held that when it
was on record that the assessee had given its consent for the manufacturing of the goods in the factory premises
subject to discharge of industrial and domestic effluents within the factory premises and was directed to maintain a
green belt, then the service was utilized by the assessee from the experts for maintaining the garden of such type
and credit could not be denied on the service tax paid on such services.
Ultratech Cement Ltd., In re [Appeal Nos. P11/PAP/102-103/2009, dated 23-4-2009] it was held that services
such as cleaning/maintenance of garden/trees, plantation, etc., were used to control the pollution created by the
industry and, thus, the same could be considered as input services which were used in relation to the manufacture
of final product, viz., cement.
THANK YOU