1
2
BRIEF FACTS OF THE CASE :Intelligence gathered by the Officers of the Directorate General of
Central Excise Intelligence, Ahmedabad Zonal Unit, Ahmedabad (herein after
referred to as “DGCEI” for brevity) indicated that M/s. Gujarat Powerfield Pvt.
Limited, situated at “Powerfield House”, Near Yash Motors, Narol, Ahmedabad
(hereinafter referred to as “the assessee”) is engaged in the Renting of inverters/
transformer and forklifts but had not obtained service tax registration and is not
paying service tax under “Supply of tangible goods service” as defined under
Section 65(105)(zzzzj) of the Finance Act, 1994 w.e.f 16.05.2008.
2.
The assessee’s website portrayed that they had provided services to
clients like Airtel, Aditya Birla Group, Adani Group, Amul Dairy, Apollo Tyre,
Bayer Group, Cadila Pharma, Claris Life Sciences, Coca Cola, DuPont, Essar
Group, Euro Group, GMDC, Godrej, Gannon, Gammon, Havmor Icecream, ICICI
Lombard, Ingersoll Rand, IOCL, L & T, Lake Palace Hotel, Nirma, ONGC,
Philips, Sandvik, Sanghi Cement, SBI, Shapoorji Pallonji, Suzlon, Sun Pharma,
Tata Project, Tata Tele, Vadilal Icecream. Welspun, Zydus, 3M India.
3.
In furtherance of the intelligence, the assessee was issued a summon
dated 03-03-2010 asking them to appear on 12-03-2010 for recording of statement
alongwith copies of profit and loss account for the years 2007-08 and 2008-09..
4.1
Statement of Shri Nisarga Akhani, Accountant of the assessee was
recorded on 12-03-2010, wherein he inter alia stated that he was serving in M/s
Gujarat Powerfield Pvt. Limited “Powerfield House” Narol- Sarkhej Road,
Narol, Ahmedabad- 382 406 since last 10 years and was looking after all
the taxation matters in relation to service tax and other taxes. He further
stated that he was well aware of all the activities of the company and his
statement will be binding on the company. He stated that the company was
engaged in the business of hiring of DG sets and the company had no
branch office, head office and work shop was located at the same address.
He then stated that they had taken service tax registration no.
AAACG3971ST001 from the service tax Commissionerate Ahmedabad
under the category of “ Maintenance and Repair service” and Erection and
Commissioning and Installation services, however as their turnover in those
activities was less than Rs. 8 lakhs they applied for cancellation of their
service tax registration from April, 2009.
He stated that they were not paying service tax under “Supply of tangible goods
service” as defined under section 65(105)(zzzzj), of the Finance Act, 1994 in light
of CBEC circular D.O. F. No.334/1/2008-TRU, dated 29th February, 2008 as
hiring transactions were liable to VAT. He stated that they had provided such
services to customers like ONGC, Godrej, Sanghi Cement, Gujarat
Fluorochemicals Limited, Adani Group . He stated that in some cases they had
provided such services to SEZ also, wherein the service recipient endorses their
invoices to the effect that the unit was located in SEZ. On being asked whether
they were also renting inverters or forklifts or other equipments , he stated that
they were only in business of hiring of DG sets. With regard to the procedure of
agreement with the client, he stated that it varied from customer to customer, in
some cases there was a written agreement, in some cases work order was received
and in some case they sent an offer letter which was returned duly signed by them.
He stated that they had been paying VAT prior to imposition of service tax and
there have been no change in payment of the same. He further stated that VAT
was charged separately in the bill amount and as claimed was being deposited by
them.
3
With regard to the income shown in the profit and loss account, he provided the
explanation as under:“Job- work:- The income was related to maintenance and repair of DG.
Sets belonging to client were repaired by them. They were paying service
tax on this item prior to April, 2009.
Hiring Income :- the income was related to income earned from hiring of
DG sets.
Direct Expenses:- The expenses includes repair and maintenance , D.G.
operator and D.G. handling expenses. It do not include Vat, for which VAT
account was maintained separately. The VAT details were not shown in the
profit and loss account.
Schedule 5 Fixed assets:- On being asked he stated that the amount of
Plant & machinery includes the amount of DG sets which were being
given on hire.”
4.2
They furnished their reply dated 19-03-2010 along with relevant
documents such as copies of sample bills issued to their customers after 16-052008; copies of agreements with their customers; ledger monthly summary of the
income during the year 2007-08 and 2008-09, copies of ST-3 returns filed, etc.
4.3
Further statement of Shri Nisarga Akhani, Accountant of the
assessee was recorded on 25-03-2010, wherein he inter alia stated that they have
been paying VAT from 01.04.2006. Earlier they were paying sales tax, and their
entry was falling under schedule 3A of the Gujarat Sales Tax Act, 1969. When
VAT was introduced there was no separate head, they fell under head of rate at
4%. They were not supplying DG sets on lease basis. They supplied on hire basis
for a limited period, and in each case the same were returned to them. They
supplied manpower, operator in case a clients asked and the hiring charges so
recovered included the cost of the same. These charges were shown in the ledger
under “Generator Hire charges”. He stated that the job charges were repairing
charges recovered by them. On being asked about sales account, he stated that
these were related to sale of spares parts of diesel engine of the DG sets, the same
were generally supplied to their customers who had hired DG sets from them; that
“Generator Expenses” were incurred by them on the generator given on hire. He
stated that the maintenance of the DG sets was done by them On being asked
about site expenses he stated that these were incidental expenses incurred by them
towards visit to the site where DG sets had been installed.”
4.4
DGCEI vide letter dated 26-03-2010 informed the assessee that in
the schedule of the Gujarat Value Added Tax Act, 2006, VAT is applicable on
item code No. 18060 for electrical goods falling under schedule 3 at entry No. 6
when such goods are given on lease. Since they do not provide such goods on
lease, it appeared that VAT was not applicable and the same was done for nonpayment of service tax. Further they were asked to furnish the billwise
information of hire charges collected from 16-05-2008. But they did not furnish
the bill wise information. However, copy of ledger monthly summary of the
income (generator hiring charges) of the year 2009-10 was submitted under their
letter dated 30-09-2010 in reply to the DGCEI’s letter dated 16-09-2010. They
stated that on DG set hire charges no service tax was liable to be paid under supply
of tangible goods service because they were paying VAT/CST on all their hiring
transactions.
4.5
The assessee was asked to furnish the information on the following
points vide DGCEI’s letter dated 09-07-2010: -
4
(1) Whether the right of possession is transferred to the clients, when the
DG sets are provided on hire basis, if so how?
(2) Whether right of effective control is transferred, if so how?
4.6
The assessee in their reply dated 19-08-2010 had stated as under:“1). Unlike other movable machineries as excavators, wheel loaders,
dump trucks, crawler carriers, cranes, etc referred to in the Department
Circular DOF No. 334/1/2008-TRU dated 29-02-2008, their heavy duty
D.G. set is in a sense a stationary machine which generally would not start
working before its fixed installation on a strong ground with a shelter
inside the plant of our customer and stable connection of cables made from
it to our customer’s power supply points. As such, they have to deliver the
DG set totally under the possession of their customers and they would have
to make all the aforesaid arrangements by themselves.
2).
Their customers have the absolute right to run as per their
requirements and start & stop as and when they wish to do so the DG set
installed in their premises and connected with their manufacturing
machineries. As such, for all practical purposes, effective control on the
DG set remains with their customers during the currency of the contract.”
4.7
The assessee furnished the information regarding monthwise
generator hire charges which was given in Annexure – A to the show cause notice.
It was found that they had received amount of Rs. 10,97,67,045/- during the period
from 16-05-2008 to 31-03-2010 as generator hire charges and service tax payable
worked out to Rs. 1,25,95,334/-, which included service tax of Rs. 1,22,28,479/-,
education cess of Rs. 2,44,570/- and Secondary & Higher Education cess of Rs.
1,22,285/-. The service tax not paid by them was required to be demanded and
recovered from them.
PROVISIONS OF SUPPLY OF TANGIBLE GOODS FOR USE SERVICE:
5.1
Service tax on the ‘Supply of tangible goods service” is levied with
effect from 16-05-2008.
5.2
As per as per Section 65 (105)(zzzzj) of the Finance Act, 1994, the
taxable service (supply of tangible goods service), means any service provided or
to be provided to any person, by any other person in relation to supply of tangible
goods including machinery, equipment and appliances for use, without
transferring right of possession and effective control of such machinery,
equipment and appliances. The definition of taxable service in this case has not
specifically provided that where VAT has been paid, service tax will not be
attracted.
5.3
The scope of levy of service tax under this service can be better
understood by referring to CBEC’s letter D.O.F. No. 334/1/2008-RU dated 29-022008. Para 4.4 clarifies the scope of services taxable under this category, as
follows:
“4.4. Supply of tangible goods for use:
4.4.1 Transfer of the right to use any goods is leviable to sales tax / VAT
as deemed sale of goods [Article 366 (29A)(d) of the Constitution of India].
Transfer of right to use involves transfer of both possession and control of
the goods to the user of the goods.
4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers,
compaction equipment, cranes, etc., offshore construction vessels and
barges, geo-technical vessels, tug and barge flotillas, rigs and high value
machineries are supplied for use, with no legal right of possession and
5
effective control. Transaction of allowing another person to use the goods,
without giving legal right of possession and effective control, not being
treated as sale of goods, is treated as service.
4.4.3 Proposal is to levy service tax on such services provided in relation
to supply of tangible goods, including machinery, equipment and
appliances, for use, with no legal right of possession or effective control.
Supply of tangible goods for use and leviable to VAT / sales tax as deemed
sale of goods, is not covered under the scope of the proposed service.
Whether a transaction involves transfer of possession and control is a
question of fact and is to be decided based on the terms of the contract and
other material facts. This could be ascertainable from the fact whether or
not VAT is payable or paid.”
5.4
It can be seen from the CBEC’s clarification dated 29-02-2008 that
supply of tangible goods for use and leviable to VAT / sales tax as deemed sale of
goods is not covered under “supply of goods for use service”. Therefore, for
claiming exclusion, there must be a provision for charging VAT / sales tax. Hiring
of DG sets is not leviable to VAT / sales tax under the Gujarat Value Added Tax
Act, 2006 or the Gujarat Sales Tax Act, 1969. Further, it was observed that the
schedules of the Gujarat Value Added Tax Act, 2006 shows that VAT was
applicable on item code No. 18060 for electrical goods falling under schedule 3 at
entry No. 6, when such goods were given on lease. The term lease was generally
used for sale under installments, when all the installments were paid, the lessor
becomes the owner of the goods. In the instant case, VAT was not applicable on
their activity because the goods were returned to them. Therefore, they were
liable to pay service tax.
5.5
Another crucial factor which determines liability to service tax is to
see whether transaction involved transfer of possession and control of the goods
hired. It is set out in the CBEC’s Circular dated 28-02-2008 that to determine
whether the transaction involves transfer of possession and control of the goods
hired is a question of fact and is to be decided based on the terms of the contract
and other material facts. So agreements / contracts entered with their customers
were examined and nature of contract / agreements were understood.
5.6
The assessee furnished the copies of following orders received from
various customers for hiring of DG sets: Sr. Name & address of the customer
Date
No.
1
State Bank of India, Gandhinagar
02-12-2003
2
The Lake Palace Hotels & Motels Pvt. Ltd., Udaipur
29-03-2006
3
ICICI Lombard General Insurance Co. Ltd., Ahmedabad
16-05-2006
4
Vanasthali Textile Industries Ltd., New Delhi
16-06-2006
5
Rajdeep Buildcon Pvt. Ltd., Ahmednagar
23-01-2007
6
ICICI Lombard General Insurance Co. Ltd., Ahmedabad
19-12-2006
7
ICICI Lombard General Insurance Co. Ltd., Ahmedabad
29-12-2006
8
ICICI Lombard General Insurance Company Ltd., 08-02-2007
Ahmedabad
9
Rajan Techno Cast Pvt. Ltd., Sapar, Rajkot
21-06-2007
10 Jivanlal Joitaram Patel, Thasra, Kheda
14-10-2007
11 Soma Enterprises Ltd, Udaipur
13-01-2008
12 Phillips Carbon Black Ltd, Kolkata
19-01-2008
13 Nirma Ltd., Ahmedabad
22-01-2008
14 Tata Projects Ltd., Hyderabad
24-01-2008
15 MSK Projects India Ltd., Vadodara
28-01-2008
16 Shapoorji Pallonji & Co. Ltd., Gandhinagar
01-02-2008
17 APL India Pvt. Ltd, Mumbai
01-02-2008
6
18
19
20
21
22
23
24
25
26
Tata Communications Ltd, Mumbai
Nirani Cements Pvt. Ltd, Bangalore
Essar Steel (Hazira) Ltd., Surat
Godrej Industries Ltd., Kanerao, Bharuch
E. I. Du Pont India Pvt. Ltd, Vadodara
ONGC, Ankleshwar
Udaipur Mineral Development Syndicate Pvt. Ltd, Udaipur
ITD Cementation India Ltd., Mundra, Kutch
Gujarat Flourochemicals Ltd., Dahej, Bharuch
13-02-2008
06-03-2008
17-04-2008
19-04-2008
05-05-2008
09-06-2008
21-06-2008
08-11-2008
01-09-2008
5.7
In the above said work orders / agreements, the following terms and
conditions were common, viz.,
a) The assessee had to supply DG set with all accessories, control panel,
cooling tower, etc. to make it operational;
b) The assessee had to make arrangement of to and fro transporation of DG
sets from their ware house to their customers site and back;
c) The asseessee had to do loading and unloading of DG sets at site;
d) The assessee had to provide for the operator of DG sets;
e) Checking, storing all the materials at site, handling of the same from site
stores to their installation place at the site was also the responsibility of the
assessee;
f) The contract price was for the hiring of DG sets, to & fro transportation
from warehouse to site & back, operation and maintenance at site during
the contract period, engine oil, preventive maintenance, operators to operate
DG sets, erection, installation and commissioning and repair of all minor &
major at site.
g) In some cases, the assessee was also responsible to make arrangements for
obtaining permission on their own account from various relevant authorities
(e.g. G.E.B., Pollution Control Board, Municipal Corporation, etc. and to
fulfill all local statutory requirements [Agreement with ICICI Lombard
General Insurance Company Ltd.].
5.8
It was evident from the above information that the assessee was
himself responsible for loading, transportation, unloading, erection, installation &
commissioning, operation, maintenance and repair of the DG sets supply on hire
during the contract period. Therefore, it can be said that the possession and
control of the DG sets remained with the assessee. At no point of time during the
entire transaction / contract period transfer of possession and control is made to
their customers. Operator / technician provided by the assessee at the customers
site operates the DG sets as per their requirement.
5.9
The assessee vide their letter No. GPPL/CR/117/10-11 dated 19-082010 contended that unlike other movable machineries as excavators, wheel
loaders, dump trucks, crawler carriers, cranes, etc referred to in the Department
Circular DOF No. 334/1/2008-TRU dated 29-02-2008, their heavy duty D.G. set
was in a sense a stationary machine which generally would not start working
before it was fixed/ installed on a strong ground with a shelter inside the plant of
their customer and stable connection of cables made from it to their customer’s
power supply points. As such, they had to deliver the DG set totally under the
possession of their customers and they would have to make all the aforesaid
arrangements by themselves. Their customers had the absolute right to run as per
their requirements and start & stop as and when they wish to do so as the DG set
installed in their premises and connected with their manufacturing machineries.
As such, for all practical purposes, effective control on the DG set remains with
their customers during the currency of the contract.
7
5.10
The above contention of the assessee is contradictory to the material
facts available on records. Shri Nisarga Akhani, Accountant and authorized
person of the assessee in his statement dated 25-03-2010 had also admitted that
they supplied the manpower, operator in case clients asked and the hiring charges
so recovered included the cost of the same. These charges were shown in the
ledger accounts under “Generator Hire Charges”. Further it was seen from the
copies of agreements / work orders produced by the assessee that in all the cases
manpower / technicians to operate DG sets hired were provided by the assessee.
Therefore, the assessee’s claim that merely because DG sets were installed and
operated as per the requirement of their customers, it cannot be said that
possession and effective control of DG sets were transferred to their customers.
5.11
In view of the facts as discussed above, it appeared that amount
charged for hiring of DG sets attracted service tax under “Supply of tangible
goods Service”.
6.
Even if for the sake of argument, the assessee’s stand were to be
accepted that hiring of all type of machineries, equipment, appliances, etc. to be
considered as sale of goods and attracts VAT / sales tax, then there would have
been no necessity to notify such activities as taxable services under supply of
tangible goods for use service. It is clearly mentioned at para 4.4.2 of DOF No.
334/1/2008-TRU dated 29-02-2008 that Excavators, wheel loaders, dump trucks,
crawler carriers, compaction equipment, cranes, etc., offshore construction vessels
and barges, geo-technical vessels, tug and barge flotillas, rigs and high value
machineries are supplied for use, with no legal right of possession and effective
control. Transaction of allowing another person to use the goods, without giving
legal right of possession and effective control, not being treated as sale of goods, is
treated as service.
7.
The assessee themselves stated in their letter dated 19-08-2010 that
under the Gujarat Value Added Tax Act, 2003, there is no specified schedule for
limited specified items has been introduced. Even in the Schedule 3 of the Gujarat
Sales Tax Act, 1969, at entry No. 8 of item code No. 18080 for plant and
machinery is notified as liable to sales tax. The assessee claims that DG sets
supplied by them is included in Plant and Machinery as specified in the said
schedules. This contention is vague and to circumvent the specific provisions of
the said Act. It was amply clear that where supply of goods for use is without
transfer of possession and effective control, then in such cases service tax liability
arises and not VAT / sales tax. If the intention of Government of India was to levy
service tax only in cases VAT is not paid, provisions would have been different.
Moreover, it is not open to the tax payer to interpret the provisions of the law as
per their own convenience and pay duty as per their understanding. Statutes are to
be understood in its true spirit and to be followed by the subjects. The assessee
cannot escape from the liability of service tax merely on the ground that they have
been paying VAT / sales tax on supply of goods on hire, without transfer of
possession and effective control of DG sets. Moreover, as per the admission of the
assessee themselves, DG sets are not specified for charging VAT. Despite of this
position, they charged VAT.
8.
In view of the above, it appeared that the assessee was liable to pay
service tax on the value of hire charges charged from their customers for DG sets
under the supply of tangible goods service. From the information obtained from
the assessee, it was found that they had received amount of Rs. 10,97,67,045/during the period from 16-05-2008 to 31-03-2010 and service tax payable
worked out to Rs. 1,25,95,334/- which included service tax of Rs. 1,22,28,479/-,
Education cess of Rs. 2,44,570/- and Secondary & Higher Education cess of Rs.
8
1,22,285/-. The service tax not paid by them was required to be demanded and
recovered from them.
9.
It was found that the assessee was registered with service tax
department at Ahmedabad and held service tax registration No. AAACG3971D
ST 001 for the services of “Erection, commissioning and installation service” and
“Maintenance or repair service”. However, they had not obtained service tax
registration under “supply of tangible goods service”. The failure to obtain
registration for hiring of DG sets under “supply of tangible goods service” can be
attributed to their intention of suppression of the facts from the department and to
evade payment of service tax thereon. It was submitted that as their turnover
of “Erection, commissioning and installation service” and “Maintenance or repair
service” was less than Rs. 8 lakhs they applied for cancellation of their
service tax registration from April, 2009.
10.1
Section 68 of the Finance Act, 1994 provides that every person
providing taxable service to any person shall pay service tax at the specified rates
and in such manner and within such period as may be prescribed. Further, Rule 6
of the Service Tax Rules, 1994 stipulates that service tax shall be paid to the credit
of the Central Government, by the 5th of the month immediately following the
calendar month, in which the payments are received, towards the value of taxable
services.
10.2
Section 69 of the Finance Act, 1994 read with Rule – 4 of the
Service Tax Rules, 1994 provides that every person liable to pay service tax
should make an application within a period of thirty days from the date on which
the service tax under Section 66 of the Finance Act, 1994 is levied.
10.3
Section 70 of the Finance Act, 1994, provides that every person
liable to pay the service tax shall himself assess the tax due on the services
provided by him and shall furnish to the Superintendent of Central Excise, a return
in such form and in such manner and at such frequency as may be prescribed. Rule
7 of the Service Tax Rules, 1994, prescribes that every assessee shall submit a
half-yearly return in Form ST-3 or ST-3A as the case may be, alongwith a copy of
the Form TR-6, in triplicate for the months covered in the half-yearly returns.
Further sub-rule [2] thereto also provides that every assessee shall submit the half
yearly return by the 25th of the month following the particular half-year.
10.4
The assessee was providing taxable services viz., 1) erection,
commissioning & installation service, 2) management, maintenance or repair
service and 3) supply of tangible goods service, but they were registered for the
services of 1) erection, commissioning & installation service and 2) management,
maintenance or repair services only with the jurisdictional service tax office.
However they did deliberately not obtain registration for hiring of DG sets under
“Supply of Tangible Goods Service” and not paid service tax on the gross amount
charged with the intention of evading the payment of Service Tax.
11.1
In view of above, it appeared that the assessee had not paid service
tax by suppression of facts and in contravention of provisions of the Finance Act,
1994 relating to levy and collection of service tax and Rules made there under
with an intent to evade the payment of service tax.
11.2
Therefore, it appeared that the proviso to sub-section [1] of Section
73 of the Finance Act, 1994 was applicable to invoke the extended period of five
years for the recovery of service tax not paid by them on hire charges of DG sets
under “Supply of tangible goods service”.
9
11.3
In view of the above, it appeared that the assessee had contravened
the provisions of:
>
Section 67 of the Finance Act, 1994 in as much as they failed to pay
appropriate service tax on the gross value amount charged by them for
service of supply of tangible goods service provided by them;
>
Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax
Rules, 1994, in-as-much as they have not paid service tax as detailed in
Annexure-A to the show cause notice to the credit of the Government of
India;
>
Section 69 of the Finance Act, 1994 read with Rule – 4 of the Service Tax
Rules, 1994 in as much as they failed to obtain service tax registration
under “supply of tangible goods services”;
>
Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax
Rules, 1994, in as much as they had not filed periodical half yearly return
in form ST-3 to the department.
11.4
The assessee had not paid the service tax under supply of tangible
goods service, therefore, it appeared that they were liable to penal action under
Section 76 of the Finance Act, 1994.
11.5
Further, it appeared that the assessee had suppressed / concealed the
value of taxable service with an intent to evade payment of service tax. They had
not paid service tax by way of suppression of facts and contravened the provisions
of Finance Act, 1994 relating to levy and collection of service tax and Rules made
there under with intent to evade payment of service tax. It therefore, appeared that
the assessee was liable to penal action under Section 78 of the Finance Act, 1994.
12.
Therefore, a show cause notice bearing F.No.DGCEI/AZU/36-112/2010-11
dated 30.11.2010 was issued to M/s. Gujarat Powerfield Pvt. Limited, situated at
“Powerfield House”, Near Yash Motors, Narol, Ahmedabad to show cause to the
Commissioner of Service Tax, Ahmedabad as to why :i.
The Service Tax amounting to Rs. 1,25,95,334/- (Rupees One Crore
Twenty Five Lakh Ninty Five Thousand Three Hundred Thirty Four only ),
(service tax of Rs. 1,22,28,479/-, education cess of Rs. 2,44,570/- and
Secondary & Higher Education cess of Rs. 1,22,285/-) not paid by them
during the period from 16-05-2008 to 31-03-2010 under “Supply of
tangible goods services” should not be demanded and recovered from them
under Section 73 of the Finance Act, 1994 by invoking extended period of
five years as per proviso to sub-section (1) of said Section;
ii.
Interest at appropriate rate should not be demanded and recovered from
them on service tax not paid as mentioned at (i) above, under the provisions
of Section 75 of the Finance Act, 1994;
iii.
Penalty under the provisions of Section 76 of the Finance Act, 1994, as
amended, should not be imposed on them for failure to pay Service Tax, as
mentioned hereinabove;
iv.
Penalty under Section 77 of the Finance Act, 1994, as amended, should not
be imposed on them for violation of provisions of Section – 67, Section –
68, Section – 69 and Section 70 of the Finance Act, 1994;
v.
Penalty under Section 78 of the Finance Act, 1994, as amended, should not
be imposed on them for suppressing material facts from the department
resulting into non-payment of Service Tax, Education Cess and Secondary
& Higher Education Cess as mentioned herein above.
10
DEFENCE REPLY & PERSONAL HEARING:13.
The said assessee did not file any reply to the show cause notice. Personal
hearings fixed for 10.1.2012 and 7.2.2012 were not attended by the assessee. Personal
hearing fixed for 22.2.2012 was attended by Shri. Rahul Patel, C.A. on behalf of the said
assessee. He gave a written submission dated 22.2.2012, explained the case in brief and
requested for a decision on merits.
14.
In the said written submission it was submitted that revenue had failed in
better appreciating facts as well as applicable law to the case. Reference was
invited to para 5.4 and para 7 of the impugned notice. It was submitted that
revenue had claimed transaction involved in the notice as exigible to service tax
because hiring of DG Sets was not subject to VAT. It was also confronted by
revenue that assessee had admitted that hiring of DG Sets was not subject to VAT,
and despite of same they have been paying VAT. It was submitted that why a
private limited company having vast experience in its line of business, would
make such a foolish decision of paying VAT despite of believe it to be not levied
and that too for years together – even prior to a date when for the first time service
tax was introduced. They strongly refuted the observation made by revenue that
assessee company had admitted that VAT was not applicable in these transactions.
Submission of the assessee company had been wrongly interpreted by revenue so
as to derive beneficial construction of the language employed in letter.
Submission of the assessee company was to say that there is no specific entry for
DG sets but it stands classified under plant and machineries likewise other cadre
of plants and machineries. It is not necessary that each and every item is
contained in the list of items taxed under Schedule to the Statute. Even if it is
desired, it is impossible to cover every item of goods available on the earth to be
included in the list of statute. Similar is the case of GVAT. Under GVAT,
Schedule II broadly specifies classes of goods taxable at a specified rate. Entry
No 47 to Schedule II to the GVAT specifically includes ‘plant and machinery’
which is nothing but a class of goods rather than being a specific item. Every
goods having nature of plant or machinery stands classified under the said entry
and accordingly taxable at the rate of 4%. Similarly DG sets stands classifiable
under plant and machinery and therefore chargeable to local VAT at the rate of
4%. It was stated that even though no goods dealt by the assessee is classifiable
under any of the specified categories, Schedule II at Entry No 87 covers all types
of goods not specified elsewhere. Entry 87 is a residual entry and therefore covers
every such goods not covered by other entry. Attention was invited to Entry No.
39 of Schedule IIA to the Gujarat Sales Tax Act, 1969 which specifically included
diesel generating sets or back pressure turbines by entry 128 of Notification u/s
49(2) w.e.f. 06.04.1981 as well as entry 151 of Notification u/s 49(2) w.e.f.
01.04.1983. Hence, it was completely wrong in saying that VAT was not
applicable only because specific nomenclature of DG sets was not specified in the
Schedule II. Without prejudice to their rights and contentions, and
irrespective of whatever said anywhere in the show cause notice or in any
other document construing to admission by assessee company as to nontaxability of VAT to transactions of hiring of DG sets, they submitted that
they contentiously believe that VAT / Sales Tax has been applicable to the
hiring of DG Sets and accordingly discharged with from time to time.
14.1 To further support their claim as to taxability under GVAT, attention was
invited to Annexure : B – VAT Assessment order issued by appropriate authority
under GVAT. It was submitted that it serves as an evidence as to taxability
considered under GVAT by administrative authorities and accordingly assessed
the turnover of assessee company.
11
14.2 Attention was invited to a decision of ld. Commissioner ( T &T ),
Department of Trade & Taxes, Government of NCT of Delhi in case of M/s Skan
Renting & Leasing vide Order No. 203/CDVAT/2008, copy of which was
submitted. Facts in the cited decision were similar and identical to the facts in the
instant case.. It was contended by the ld. Commissioner that providing of
generator by the dealer to the customer for producing electricity on rent on fixed
site and fixed duration with operator would amount to deemed sale within the
meaning of Section 2(zc)(vi) of the DVAT Act, 2004. It was an additional
evidence in support of the claim of assessee company that hiring of DG sets was a
taxable transaction under VAT Laws and therefore cannot be construed to be
taxable under Service Tax Law.
14.3 Attention was invited to para 5.7 of the impugned notice, in which revenue
had attempted to summarize terms and conditions of various orders / agreements
entered into by the assessee company with its clients. They stated at the outset
that revenue had completely misunderstood and attempted to misguide the
adjudicating authority insofar as terms of the contract are concerned. It is stated in
clause (b) of para 5.7 that assessee has to make arrangements of to and fro
transportation of DG sets from their warehouse to their customers site and back.
Fact as represented in said clause is completely false and misleading. Attention
was invited to Annexure : D as well as various work orders / agreements /
contracts produced during the course of audit, contemplating various terms and
conditions involved in different work orders / contracts with value of turnover
effected along with copies thereof. From perusal of said statement, it would be
known that facts stated in the impugned notice were materially and substantially
incorrect and leading to false perception and therefore requested to be ignored.
Statement was broadly classifying conditions of different work orders into
following broad categories.
a. Period of holding
b. Burden Diesel / Water
c. Liability of Cabling and other ancillary items required to be attached to
DG set
d. Safe custody of DG sets
e. Responsibility to Operate
From the statement prepared on the basis of given work orders / agreements, it
could be seen that in majority of the cases duties stated above are casted upon the
client and not upon the assessee company. Burden to bear cost of Diesel / Water,
liability for cabling and ancillary attachments to DG sets as per requirement within
the plant, safe custody and responsibility to maintain are key ingredients in
contending that transfer of right of possession and effective control had occurred.
In majority of the cases, it was the client’s duty to bear. Therefore if client is
assuming such responsibilities and costs, certainly it enjoys benefits of possessing
and gaining effective control over the DG sets. For very reason that consumables
such as diesel and water are born by the client, it can be said that assessee
company had simply supplied the DG sets and rest of the things became
responsibilities of the client. Contract underlying supply of DG sets, therefore,
cannot be said to be a service contract but stands a contract for supply of
equipment departing with right of possession and effective control.
14.4 It was further submitted that period of holding of DG set by client as
envisaged, signifies a fundamental fact that sets were rented out by the assessee
company for a considerably longer and continuous period. Based upon said
finding, case of the assessee company gets distinguished from a typical business of
renting DG sets on absolute temporary and occasional basis i.e. for wedding
function, funeral, party gathering, assembly etc. In such a scenario, it can be said
that effective control and possession stands retained by the supplier as purpose is
12
to provide electricity for particular point of time. While in the instant case, as
evident from the statement, DG sets were supplied for a definite but continuously
longer period where intention could be drawn as to provide and supply sets rather
than merely arranging for electricity. Therefore effective control and possession
stands transferred in favour of the client.
15.
In absence of any other specific finding explaining plausible reasons to
bring activity of hiring of DG sets as undertaken by assessee company within the
ambit of sub-clause (zzzzj), they attempted to make further submission in light of
provision of law, legislative history as emphasized and various judicious
pronouncements.
Sub-clause (zzzzj) of clause (105) of section 65 of the Act reads as under :
“to any person, by any other person in relation to supply of tangible
goods including machinery, equipment and appliances for use, without
transferring right of possession and effective control of such machinery,
equipment and appliances”
From the definition of taxable service as contemplated above, following broad
propositions could be laid as to taxability :
a) There shall be supply of tangible goods including machinery, equipment
and appliances
b) Supply shall be for use by recipient
c) Supply shall be effected without transferring right of possession and
effective control of such machinery, equipment and appliances
15.1 If all the three conditions stated above are satisfied, then and then only,
service tax was levied. It is therefore mandatory in order to bring taxability, that
transaction does not result into transfer of right of possession and effective control.
What amounts to transfer of right of possession and effective control, is nowhere
defined in the Finance Act, 1994. It was submitted that as per detailed discussion
made earlier in relation to legislative history and rationale behind introduction of
taxable service, it must be borne in mind that transfer of right of possession and
effective control are used in pari materia to transfer of right to use in goods
contemplated in Article 366(29A). To be precise in evaluation of facts, clause
(zzzzj) has used words ‘transfer of right of possession and effective control’ in
further elaboration of ‘transfer of right to use’ contemplated in article.
15.2 There are different types of rights i.e. right of possession, right of
dispossession, right of ownership, right of tenancy, right to titles etc. Here the
reference is made only to right of possession and effective control. Hence even if
possession and control are transferred permanently or temporarily without
transferring property in goods, same will tantamount to transfer and according fall
out of taxability.
15.3 In the present case, it could be seen from the statement attached as
Annexure : D that assessee company had supplied the DG sets by transferring
right of possession as well as effective control. Merely because operator was
provided or not provided does not alter the nature of transaction and therefore
cannot be construed to be a determinative factor. More important is the freedom
of the party receiving such goods for use of DG sets, whether supplier retains right
to sell, transfer or rent out said goods even during subsistence of the agreement or
not, whether etc. From the given statement, it would find following broad
proposition underlying supply of DG Sets :
a)
Supply of DG set is an absolute transaction involving dispossession
by the assessee company in favour of client
b)
Supply is irrevocable in nature during the tenure of agreement
13
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
Supply is effected by virtue of an agreement whether written or
implied, which is enforceable at law and therefore exchanging rights
and obligations by and between the parties to agreement which inter
alia involved transfer of right to use, right to possess and effective
control unless and until agreement stands terminated.
Assessee company does not retain control of usage over the
machinery during tenure of agreement
Client may use and exploit benefits of DG set in whatever manner he
wants, during the tenure of agreement. Client may operate the DG
set as per his own will, desire and requirement.
Switch on/off of the DG set is controlled by the client and not by the
assessee company
Assessee company is not entitled to transfer, sell, rent out supplied
DG set to any other person during the tenure of agreement
DG set stands supplied for a substantially longer period of time
which indicates intention of the parties as to possession and control
Cost of diesel is to be borne by client and not by the assessee
company
DG set once supplied gets attached permanently to earth with loads
of connections, cables and attachments to present setup of client’s
plant
DG set once commissioned at the client’s plant / premises, it looses
it characteristic of isolated machinery but works in synchronization
with existing plant / machinery setup of client
Client shall be responsible for obtaining approvals, licenses,
permissions if any required for generating of electricity. Helping by
assessee company in obtaining permissions does not mean that
permissions are obtained by assessee company as contemplated by
show cause notice.
In light of above propositions, there is no infirmity in saying that right of
possession and effective control is transferred to the client by assessee company in
relation to DG sets. Therefore conditions laid down in clause (zzzzj) of the Act
stands dissatisfied and accordingly not taxable under Finance Act, 1994.
15.4 As a sample verification of terms and conditions, attention was invited to
Memorandum of Understanding entered into by and between assessee company
and M/s Vanasthali Textile Industries Limited dated 16.06.2006 [ Sl No 4 at Para
5.6 of impugned notice ]. It was pertinent to note that assessee company had
charged aggregate of Rs. 2,53,63,024 during the period October, 2006 to October,
2008, being substantial revenue of assessee company. Relevant part of the terms
were reproduced hereinafter for ready reference..
“Cabling
The Vanasthali Textile Ind. Ltd shall be responsible to make the cabling
job.
Installation / Erection
The Vanashtali Textile Ind. Ltd shall be responsible for installation /
erection job like exhaust line, fuel line, water line etc.
Loading
The D.G. Set shall be loaded up to 80% of its rated capacity for standard
AC load out of which the Vanasthali Textile Ind. Ltd. Can use aprox. 40 to
60% D.C. Drive laod, if they have such type of load.
14
Permissions / Sanctions
The Vanashtali Textile Ind. Ltd shall be responsible for obtaining requisite
approvals from the State Electricity Board under the prevalent laws in the
particular state.
Temporary Shed & Safe Custody
The Vanasthali Textile Ind. Ltd shall provide Surface level flooring, proper
covered shed or room space with adequate ventilation for the smooth
operation of D.G. Sets and make adequate arrangements to protect the
same from fire, theft, dust, damages etc. The site has been checked and
approved by the M/s Gujarat Powerfields Pvt Ltd. Technical Expert Nr.
Sameer already.
…
…
The Vanashtali Textile Ind. Ltd shall hand over the said D.G. sets to the
custody of the M/s Gujarat Powerfields Pvt Ltd on the 1st day after expiry
of hiring contract period.”
From perusal of above stated terms and conditions agreed by and between the
parties, it can be reasonably inferred that :
a)
Pursuant to agreement, assessee company supplied DG set to client
b)
Client was responsible for commissioning and installation of DG set
in their plant / premises
c)
Client was to make proper arrangement for safe custody and space
for DG set
d)
Client was to adjust power requirements and utilize power generated
by DG set
e)
Client was to decide operating environment and level of activity of
DG set according to its requirements
f)
Client was to bear cost of consumables such as diesel according to
its requirements
g)
DG set was permanently attached to the premises of client by
loosing its mobility for the period of agreement
h)
Client was to hand over possession and custody of DG set back to
assessee company upon termination which signifies that during the
tenure of agreement, client was in possession and custody of the DG
set
i)
Having a written agreement, enforceable at law, between the
assessee company and client, creating legal rights and obligations on
both the side, it is said that assessee company has lawfully
transferred rights under the said agreement which inter alia includes
right of use, right of possession and effective control unto the client
and client accepted same until termination of the agreement.
15.5 It was submitted that in light of above findings and terms and conditions
laid down by a lawful agreement enforceable at law, having its evidentiary value
being contemporary agreement, copy of which was submitted to department for
perusal and impugned show cause notice had relied upon the same, it was patently
clear that assessee company transferred right of possession and effective control
over the DG set to the client and hence conditions of clause (zzzzj) were not
satisfied so as to bring the said transaction within four corners of service tax.
VAT was rightly paid by assessee company.
15.6 To provide further strength to their submission, it was felt expedient to
emphasize two key aspects underlying supply of DG sets.
a. Permission from Electrical Inspectorate of the State under respective
Electricity Act prevailing, for use of DG set
15
b. Attachment of DG set in set up of the client premises
Electricity Act prevailing in respective State, requires user of the DG set to
obtain certain permissions from appropriate authority which is Electrical
Inspectorate in Gujarat. The permission must be obtained by and in the name of
client using DG set. As a token of evidence, copy of such permission letter is
attached as Annexure : E, which was obtained by GIDC who required M/s
Hindalco, client of the assessee company to place DG set for their own use.
Permission serves evidentiary value to absoluteness and proprietary in possession
of DG set by client. Moreover a statutory permission entitles to the client for
exclusive use of the DG set which is possible only when supplier gets
dispossessed in the equipment. It is pertinent to note that only because assessee
company was required to arrange for obtaining permission does not alter the views
expressed hereinbefore. It is observed in impugned notice that in case of ICICI
Lombard, responsibility was shifted onto the assessee company to obtain.
However, it is to state in such case that responsibility as shifted onto the assessee
company was only to arrange for obtaining of permission, however permission
must have been obtained in favour of the client as no person other than the person
in possession of DG set will be able to obtain permission.
Another aspect where attention was drawn was attachment of the DG set in
the premises of client. It was submitted that from foregoing facts and discussion,
it must be appreciated that supply of DG sets in the present case are not of small
diesel generators used in mobility. Majority of the sets supplied by assessee
company are of heavy duty, which requires extensive installation, cabling and
commissioning at client’s premises. Unless and until DG set is decommissioned,
it gets attached permanently with the existing set up of the client. To better
appreciate, attention was invited to designs / drawing prepared in relation to
installation of one of the DG set supplied by assessee company.
16
It was submitted that from perusal of above stated design / diagram it was
very clear that DG set being supplied by the assessee company was not a movable
item and therefore had to be retained in control of the client. It is a part of
permanent structure commissioned at the client’s site and attached along with
various existing infrastructure. Upon commissioning, DG set becomes part and
17
parcel of client’s setup and assessee company looses its control, possession, access
to the DG set. Assessee company shall not be allowed to access to the DG set
unless and until client permits to do so. From given design, it leaves no doubt that
control and possession over the DG set could be enjoyed in isolation from client’s
existing setup.
16.
In support of various arguments and interpretations advanced in support of
claim as to non-taxability under Finance Act, 1994, assessee company relied upon
various judicial pronouncements referred hereinafter.
Hon’ble Supreme Court in case of Aggarwal Brothers v. State of
Haryana and Anr – AIR 1999 SC 2868, (1999) 9 SCC 182
In the case before Hon’ble Apex Court, question was whether supply of
shuttering by owner to builder amounts to deemed sale as involving transfer
of right to use and exigible to Sales Tax. Hon’ble Apex Court dismissed
the appeal of assessee by deciding that supply of shuttering to builders for
use certainly amount to transfer of right to use even though does not
involved transfer of goods and accordingly taxable as deemed sale under
Article 366(29A).
Peerless Shipping and Oil Field Service Limited and Others v. State of
Assam and Others – 2007 (8) VST 330 ( Gau )
Hon’ble High Court held that the contract in question had been made in
respect of specific movable property at the deliverable stage and those
goods had been delivered to OIL/ONGC in terms of such contracts. It was
clear from the terms of the contract that once the machinery/vehicles were
placed at the disposal of OIL/ONGC the owner lost effective control over
them. It was the absolute will and discretion of the transferee as to how or
in what manner those were to be used. The transferor was not entitled to
use the goods in any manner otherwise than as provided for in the contract
and certain fixed charges were to be paid to the petitioners even for the
period when no work was provided. Hon’ble Court held that the
transaction in question amounted to transfer of right to use goods within the
meaning of clauses (10) and (15) of section 2 of the Assam General Sales
Tax Act, 1993 and the Assam Value Added Tax Act, 2003. Accordingly
the definition of ‘dealer’ was attracted in respect of the transactions and the
petitioner’s liability under the Acts could not be denied.
Dipak Nath v. Oil and Natural Gas Corporation Limited and others –
2010 (31) VST 337 ( Gau )
The appellant entered into an agreement for lease of different vehicles like
trucks, trailers, tankers as well as cranes with ONGC. Hon’ble High Court
held that though the cranes are operated by the crew provided by the
contractor such crew while operating crane is under effective control of
ONGC. Therefore, under the contract though the normal operation is 10
hours in a day, the ONGC is entitled to deploy the cranes, if required, for
the entire period of 24 hours to perform duties, the kind of which and the
locations whereof is to be decided. The Hon’ble Court held that mere fact
that after the operator of the crane is over on any given day the crane may
come back to the owner contractor will hardly be material to decide as to
who has domain over the crane inasmuch as the crane can be recalled for
the duty by ONGC at any time. Under the contract, the crane is to be
operated for 26 days in a month and the remaining 4 days are to be treated
as maintenance off days. Though the crane is not operating in these 4 days,
even 50% operational charges are paid by ONGC. This indicates that even
in off days, the crane can be called for operation by ONGC at its sole
discretion. The Hon’ble Court accordingly held that ONGC has effective
control over cranes and therefore, the transaction of hiring the services of
18
crane was for transfer of right to use crane. The transaction was a sale liable
to tax under the provisions of the Act.
MSPL Ltd v. CCE, Belgaum – 2012 (25) STR 90 (Tri-Bang)
Wagons leased to railways are contended to be non-taxable under ‘supply
of tangible goods’ service as wagons become part of common pool of
railways and used by railway for transport of goods and assessee has not
control on those wagons. Having prima facie case in favour, Hon’ble
Tribunal waived requirement of pre-deposit and granted full stay.
In view of cited decisions, it has gone beyond any doubts that impugned
transactions were in nature of deemed sale exigible to Sales Tax / VAT and
accordingly question of service tax does not arise.
17.
It was submitted that TRU has made their view very clear at the time of
Budgetary introduction of levy of service tax on supply of tangible goods in 2008.
In circular No 334/1/2008 dated 29.02.2008, TRU clearly brought distinction
between a transaction where VAT is levied and where Service Tax is levied. It
has also confronted to the rationale discussed behind introduction of Sales Tax
under concept of deemed sale involving transfer of right to use in goods as well as
introduction of Service Tax to plug the holes. However, it is undisputedly
admitted by TRU in circular that transactions subject matter of VAT / Sales Tax,
are not taxable under said category but only those transactions not exigible to
VAT / Sales Tax are taxable under ‘supply of tangible goods’ category. Hence,
spirit of circular should be followed by revenue in broad terms and accordingly
apply to present facts before your honour for a reason that VAT has been
consistently paid by assessee company and assessed by VAT authorities too.
Moreover, it is to submit that circular of Board is mandatory in nature insofar as
revenue officers are concerned and therefore show cause notice cannot travel
beyond the scope of what circular posturize. Reference was invited to following
landmark decisions in support of their claim that Board circulars were binding in
nature to revenue officers and must be followed without any divergence.
Pannalal Binjraj vs. Union of India (1957) 31 ITR 565 (SC) :
TC69R.243
Navnit Lal C. Javeri vs. K.K. Sen, AAC (1965) 56 ITR 198 (SC) :
TC69R.265
Ellerman Lines Ltd vs. CIT (1971) 82 ITR 913 (SC) : TC69R.265A
K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR
597 (SC) : TC69R.266
CWT vs. Vasudeo V. Dempo (1993) 110 CTR (SC) 237 : (1992)
196 ITR 216 (SC) : TC65R.819
Wilh Wilhelmsen vs. CIT (1996) 134 CTR (SC) 266 : (1996) 221
ITR 244 (SC) : TC69R.266A affirming CIT vs. Wilh Wilhemsen
(1978) 115 ITR 10 (Cal) : TC69R.267
Chokshi Metal Refinery vs. CIT (1977) 107 ITR 63 (Guj) :
TC69R.268B
Pankaj Oils Mills vs. CIT 1977 CTR (Guj) (FB) 154 : (1978) 115
ITR 824 (Guj) (FB) : TC19R.445
CIT vs. T.S. Venkiteswaran (1979) 13 CTR (Ker) 373 : (1979) 120
ITR 675 (Ker) : TC28R.535
CIT vs. Ahmedabad Keiser-E-Hind Mills Co. Ltd. (1981) 128 ITR
486 (Guj) : TC69R.273A
Madhu Silica Pvt. Ltd vs. CIT (1997) 137 CTR (Guj) 492 : (1997)
227 ITR 350 (Guj)
Uco Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889
(SC).
19
Supreme Court in Navnitlal C. Javeri vs. K.K. Sen, AAC (1965)
56 ITR 198 (SC) : TC69R.265.
Supreme Court in Ellerman Lines Ltd vs. CIT (1971) 82 ITR
913 (SC) : TC69R.265A,
18.
Therefore in light of above discussion and in absence of specific finding by
revenue in the impugned notice, conditions specified in clause (zzzzj) were not
satisfied and therefore turnover of sales of hiring of machineries were not exigible
to Service Tax under Finance Act, 1994 but to VAT / Sales Tax which stands
discharged by assessee company.
19.
Without prejudice to their contentions and submissions, it was further
submitted that amount of taxable services for the period involved in impugned
notice was based upon figures of sales ( income of rental booked on accrual basis )
reflected in audited financial statements and not on the basis of actual receipts as
required to be determined in accordance with provisions of Rules. Aggregate
amount of taxable service as formed basis of taxability in impugned notice
amounted to Rs. 10,97,67,045. As a token of evidence, statements of sales were
produced hereby along with audited profit and loss account and balance sheet for
the period involved. Said documents were attached as Annexure : F. However if
amount of receipts are considered for taxability, value of taxable services shall be
Rs. 9,43,35,119 instead of RS. 10,97,67,045. Accordingly, demand of service tax
shall be reduced accordingly. For sake of quick reference , a summary statement
was prepared and attached as Annexure : G(i).
20.
Without prejudice to their contentions and submissions, they further
submitted that demand of service tax as computed in impugned show cause notice
was incorrect insofar as provision of section 67 are applicable. It was undisputed
fact that assessee company has been charging VAT on turnover of its hire charges
and therefore did not collect service tax. Accordingly, in terms of explanation to
section 67 of the Act, amount of taxable service shall be deemed to be inclusive of
element of service tax and shall be construed accordingly. Therefore demand of
service tax in impugned notice must have been calculated on cum-tax basis.
Hence, assessee company earnestly requested to reduce demand of service tax
accordingly.
20.
Without prejudice to their foregoing submission, they mentioned that
amount of turnover effected by assessee company for the period involved, to units
located in SEZ amounted to Rs. 55,98,923. Details of same were as under :
a. For the period 2008-09
o Essar Steel (Hazira) Ltd
Rs. 13,05,000
o Hazira Plate Ltd
Rs. 5,10,000
b. For the period 2009-10
o Firmenich Aromatics Production (India) Pvt Ltd
Rs. 9,06,447
o DIC Fine Chemicals Pvt Ltd
Rs. 27,89,476
o Zydus Hospira Oncology Pvt Ltd
Rs. 88,000
It was a matter of no dispute that sales to SEZ units, were exempted from
service tax and therefore sum of Rs. 55,98,923 shall be treated as exempt service
and demand of service tax may be modified to such extent.
21.
Without prejudice to whatever stated hereinbefore, they further submitted
that show cause notice suffered from limitation of one year as provided in section
73(1) of the Act. Period involved in the impugned notice is May, 2008 to March,
2010 while notice was issued on 30.11.2010. Accordingly, in terms of provisions
of section 73(1) of the Act, impugned notice should have been issued within one
20
year from the relevant date and therefore demand pertaining to period May, 2008
to September, 2009 stands time barred as last date for issuance of show cause
notice for period ending on September, 2009 shall be 25.10.2010.
21.1 Attention was invited to various findings of impugned notice in para 10.4,
11.1 and 11.2. The findings were the only findings made by revenue in order to
invoke larger period under proviso to section 73(1) of the Act. Stark reading of
above observations led them to believe that revenue has invoked larger period
merely based upon primary fact of non-payment of service tax by the assessee
company. Having no other observations and findings on record, suggest it to
strongly believe that apart from a reason of non-payment of service tax, revenue
could not gather any corroborative evidences and / or facts supporting to
invocation of extended period.
21.2 It was submitted that it is a settled position of law that onus of proof to
invoke larger period lies on revenue and it is the revenue who shall bring all
corroborative evidences / facts in the show cause notice. Rather than being
submissive in nature, revenue should analyse facts, intentions, reasoning and
possibility of deliberate efforts behind non-payment / short payment of tax / duty.
Mere mentioning of facts and observing to a fact of non-payment does not
automatically enable revenue to invoke larger period. They submitted that views
expressed in foregoing para gets support from a landmark decision of Hon’ble
Supreme Court in case of Pushpam Pharmaceuticals Company v. CCE, Bombay
1995 (78) ELT 401 (SC).
21.3 They submitted that it was evident from various records such as Statements
recorded and relied upon by the impugned notice, letters addressed by assessee
company to office of DGCEI and part of this submission that :
a)
Assessee company has been paying VAT / Sales Tax on hire charges
for DG Sets since beginning and even prior to levy of Service tax as
evident from VAT Return, Registration Certificate and Assessment
order submitted herewith;
b)
Service Tax on supply of tangible goods category is an alternative
tax mechanism. Substance of the levy is to bring those transactions
in net of taxation which escaped from levy of VAT / Sales Tax under
deemed sale mechanism. Plain reading of circular issued by TRU
reveals that objective was to tax those transactions not covered by
State Government under Article 366(29A) of the Constitution,
therefore first priority for classification is available to State
Government for levy, collection and assessment under List-II of the
Schedule at Entry No 54 which is specific in nature over a general
Entry of 97 of List-I of the Schedule under which Service Tax is
being levied;
c)
Assessee company having belief that VAT / Sales Tax is being paid
since beginning, leviability of VAT / Sales Tax has been accepted by
State Government / Revenue Department consistently and being
assessed therefore, service tax is not leviable;
d)
Assessee company depended upon the clarification issued by TRU
which clearly envisaged intention of law makers and contended that
where VAT is payable, service tax is not intended to be taxed;
e)
Prevalent practice to charge VAT / Sales Tax even prior to levy of
Service Tax by whole of the fraternity – peer companies involved in
identical business.
f)
Therefore, issue involves interpretation of law.
They submitted that from above facts and findings already accepted by
revenue at various stages and not disputed, it clearly appeared that none of the
21
reason as required in terms of proviso to section 73(1) could be assigned to
assessee company and with no stretch of imagination if could be confirmed that
assessee company had contravened provisions of the Finance Act, 1994 with
intention to evade payment of duty or suppressed the facts from department.
Therefore, the impugned show cause notice was barred by limitation of one year
under section 73(1) of the Act and demand may be reduced accordingly.
21.4
They relied on the following judgments:
CCE v. Chemphar Drugs & Liniments 1989 (40) ELT 276 (SC)
Padmini Products v. CCE 1989 (43) ELT 195 (SC)
Continental Foundation Jt. Venture v. CCE 2007 (216) ELT 177 ( SC)
Bharat Alluminium Co. Ltd v. CCE (2007) 8 STR 27 ( Tri-Del )
Velji P Sons & ( Agencies ) P Ltd 2007 (8) STR 236 ( Tri-Ahd )
Nexcus Computers (P) Ltd v. CCE, Pondicherry 2008 (9) STR 34 ( TriChennai )
22.
In addition to reasons attributed for limitation, it was further stated that
principles of revenue neautrality were applicable to present facts. From perusal of
facts and list of clients, it could be seen that the person to whom assessee
company had provided DG sets were either manufacturer or service provider. Had
it been charged and collected by the assessee, credit of service tax must have been
availed and utilized so as to result into revenue neutrality. Contrary to this, credit
of VAT / Sales Tax charged and paid by assessee company is not available as per
applicable laws to any person and therefore it results into sheer cost to the clients.
If at all the assessee company had reason to believe applicability of service tax
instead of VAT, it must have opted to charge same so that clients could avail
CENVAT credit of the same despite of higher rate. Hence in such circumstances,
it could not be said on part of the assesee company that by not paying service tax it
could have gained monetary benefits. Thus question of suppression or intention to
evade payment of duty by contravention of provisions of law does not arise.
22.1 Without prejudice to whatever stated above, they further stated that
findings of revenue in impugned notice are contradictory to each other. Attention
was drawn to para 11.1 in which it is observed that assessee has not paid service
tax by suppression of facts and contravention of provisions of the Act with an
intent to evade payment of tax. Similar is the observation in para 11.5. Having
careful perusal of proviso to section 73(1) reveals that there are five different
situations under which larger period could be invoked which are mutually
exclusive to each other. Reason of ‘suppression’ is contained in sub-clause (d)
while ‘contravention of any of the provisions of this Chapter or the rules made
thereunder with intent to evade payment of service tax’ are contained in sub-clause
(e). In para 11.1 and 11.5, impugned notice has seemed to have invoked both the
sub-clauses against assessee without stipulating a specific reason for which
assessee company is put to show cause. Hence in absence of specific averment as
to which of the clause is proposed to be attributed to assessee, it should be
inferred that impugned notice has arbitrarily invoked larger period without
application mind.
22.2 They further stated, without prejudice to whatever stated earlier that
assessee company has been served with another show cause notice demanding
service tax for the period April, 2010 to March, 2011. Having perused it was
observed that show cause notice has been issued on the footings of impugned
show cause notice, however extended period was not proposed to be invoked as
said notice stands within a period of one year from the relevant date. It was also
observed that notice has proposed to levy penalty u/s 76 and not u/s 78 of the Act.
Very gesture of revenue in not invoking extended period as notice stands well
22
within the limit of one year as contemplated in section 73(1) without resorting to
proviso, itself indicates that approach of revenue is casual in nature and not lawful.
Whenever, notice stands beyond normal period of limitation, revenue propose to
invoke larger period and not otherwise. Similarly in the second notice, despite
having been issued on the footings of impugned notice, no larger period is
invoked. Putting it differently, it can be said that invocation of larger period in
impugned notice is also arbitrary and casual in nature.
22.3 As regards levy of interest u/s 75, they requested to grant consequential
relief.
22.4 As regards imposition of penalties u/s 76, 77 and 78 of the Act, they
submitted that assessee company craves to submit that no penal action was
warranted as violation of provisions of law is technical in nature and flowing from
bona fide belief as to non-taxability. It was already submitted that assessee
company has been paying VAT / Sales Tax since beginning – even prior to levy of
Service Tax and been assessed by VAT authorities. It was also submitted that
entire fraternity has been following same practice and therefore assessee company
had done it in the same fashion as a man of reasonable prudence must have acted
upon. It is also submitted that assessee company relied upon clarification issued
by TRU as to non-taxability when VAT is applicable / paid. Having been paid
VAT / Sales Tax from time to time, assessee company carried a genuine,
reasonable and bona fide belief as to non-applicability of Service Tax to hiring of
DG sets, with categorical reliance placed upon the clarification issued by TRU.
Therefore, all the penalties should be waived in terms of provisions of section 80
of the Act. In light of above discussion, it would be proper and reasonable to
conclude that assessee company has a sufficient and reasonable cause in nonpayment of service tax and a technical breach of provisions of the law. Therefore
penalties u/s 76, 77 and 78 of the Act as proposed to be imposed in impugned
notice were requested for waiver under section 80 of the Act.
22.5 Without prejudice to whatever stated above, it was stated that no penalty
u/s 76 can be imposed when penalty u/s 78 is demanded in terms of proviso to
section 78 as amended from May 2008. Period involved in the impugned notice
pertains to period after amendment in section 78 and show cause notice also stands
issued thereafter, fifth proviso to section 78 is applicable. As impugned notice has
proposed to demand penalty u/s 78, no penalty u/s 76 can be imposed in terms of
proviso to section 78.
22.6 In light of given facts, circumstances and believes, it was submitted that
show cause notice suffered from limitation of one year and no reason for
invocation of extended period are attributable to the case. Factors and reasons for
invocation of extended period and imposing of penalty u/s 78 are same and
identical. Therefore, if extended period is not to be invoked, certainly penalty u/s
78 cannot be imposed.
DISCUSSION & FINDINGS:
23.
I have carefully gone through the Show Cause Notice, the defence reply
filed by the said assessee, the submissions made during the course of personal
hearing and records available with this office.
24.
The issue to be decided in this case is whether, “Diesel Generating Sets”
given on hire would amount to providing taxable service classifiable under the
taxable category of “Supply of tangible goods services” as defined under Section
65 (105)(zzzzj) of the Finance Act, 1994 and whether payment of VAT on the said
23
hire charges would be a determinative factor to take it out of the purview of
service tax.
25.1 Taxable service of “Supply of tangible goods services” has been defined
under Section 65 (105) (zzzzj) of the Finance Act, 1994 as “Taxable service”
means any service provided or to be provided to any person, by any other person
in relation to supply of tangible goods including machinery, equipment and
appliances for use, without transferring right of possession and effective control of
such machinery, equipment and appliances.
25.2 On plain reading of the above definition, I find that a service would become
taxable under the said category when the following ingredients are satisfied:
a) The service is provided in relation to supply of tangible goods.
b) The supply is without transferring right of possession and effective
control of goods.
c) The service may be provided by any person to any other person.
25.3 Accordingly, I proceed to decide whether, the above ingredients are fully
satisfied or otherwise in the case before me.
25.4 I find that the demand in the show cause notice has been based on two
charges:
i)
Hiring of D.G. Sets is not leviable to VAT/Sales Tax under the Gujarat
Value Added Tax Act, 2006 or the Gujarat Sales Tax Act, 1969 as VAT is
applicable on item code No. 18060 for electrical goods falling under schedule 3 at
entry No. 6, when such goods are given on lease. Whereas, in the instant case,
VAT was not applicable because the D.G Sets were given on hire which were
returned to them.
ii)
On the basis of the various work-orders/agreements submitted by the
assessee, it was alleged that the assessee himself was responsible for loading,
transportation, unloading, erection, installation & commissioning, operation,
maintenance and repair of the D.G.Sets. It was also alleged that the assessee
provided operators/technicians to operate the D.G.Sets. All this meant that
possession and control of the D.G.Sets remained with the assessee.
25.5 I find that there is no dispute to the fact that the said assessee is paying
VAT/Sales Tax on the D.G.Sets hiring charges and is being assessed by the
concerned authorities. I have no authority to adjudicate on the applicability or non
applicability of VAT either when the D.G.Sets are given on lease or hire. I find
that the said assessee has relied on the instruction letter F.No.334/1/2008-TRU
dated 29.2.2008 to contend that supply of tangible goods for use and leviable to
VAT/Sales tax as deemed sale of goods, is not covered under the scope of the
“Supply of tangible goods services”. I find that the definition of taxable service as
per section 65 (105)(zzzzj) of the Finance Act, 1994 does not specifically provide
that where VAT has been paid, service tax will not be attracted. I further find that
at para 4.4.3 of the said letter it is clearly mentioned that whether a transaction
involves transfer of possession and control is a question of fact and is to be
decided based on the terms of the contract and other material facts.
25.6 I have also perused the work-orders/agreements submitted by the assessee
and I find that the following two conditions mentioned in various workorders/agreements are very crucial and support the allegations made in the show
cause notice.
a)
An operator is to be provided by the said assessee along with the D.G.Set.
b)
Maintenance of the D.G.Set is the responsibility of the said assessee.
24
25.7 Relevant extracts from some of the work-orders/agreements are reproduced
as under:
Purchase Orders dated 25.5.2006, 14.3.2007, 8.2.2007 issued by M/s ICICI
Lombard to the said assessee
Annexure-1
3.
A full time operator will be provided with the DG Set.
4.
DG Set will be maintained by the vendor at their own cost.
MOU between M/s VANASTHALI Textile Ltd and M/s Gujarat Powerfields
Pvt Ltd
Temporary Shed & Safe Custody
The Vanasthali Textile Ind. Ltd shall provide surface level flooring, proper
covered shed or room space with adequate ventilation for the smooth operation of
D.G.Sets and make adequate arrangements to protect the same from fire, theft,
dust, damages etc. The site has been checked and approved by the M/s Gujarat
Powerfields Pvt. Ltd. Technical Expert Mr. Sameer already.
The Vanasthali Textile Ind. Ltd. shall not shift, move, remove the D.G.Sets / any
component, sub- assembly or part thereof to any other location without prior
written permission from the authorized officials of the M/s Gujarat Powerfields P.
Ltd.
Location has been inspected by Mr. Sameer, M/s Gujarat Powerfields P. Ltd.
engineer who has approved the site condition in all respects.
Operation
D.G.Sets to be started and maintained by the M/s Gujarat Powerfields Pvt. Ltd.
operators, Log book in the prescribed format shall be maintained by the M/s
Gujarat Powerfields Pvt. Ltd Operator and copy of Log Book shall be given to the
Vanasthali Textile Ind. Ltd. as and when required. Boarding arrangement shall be
provided by the Vanasthali Textile Ind. Ltd. at their cost. M/s Gujarat Powerfields
Pvt. Ltd. shall manage their lodging arrangement.
M/s Gujarat Powerfields Pvt. Ltd. will station at least one Technician with
complete knowledge of D.G.Set operation and maintenance to take care of the
mechanical / electrical problems of generator set, he should be competent enough
to manage uninterrupted generation / supply of power.
M/s Gujarat Powerfields Pvt. Ltd. will keep adequate stocks of lube oil and filters
so that the preventive maintenance schedules are handled without any delay.
Maintenance
M/s Gujarat Powerfields Pvt. Ltd. confirms to carry out the necessary A-B-C-D-E
checks after a lapse of scheduled hours during the period of this agreement. The
necessary shut down of the D.G.Set for required repairs and maintenance will be
allowed by Vanasthali Textile Ind. Ltd. Scheduled “B” check service will require
to be attended on every 300 working hours, which will require a shut down of
approx. 6 hours. M/s Gujarat Powerfields Pvt. Ltd. shall ensure availability of lube
oil, filters for ABCDE checks and maintain stock to avoid any avoidable stoppage
due to non availability of the above. M/s Gujarat Powerfields Pvt. Ltd. shall keep
stocks of consumables spares to avoid mechanical stoppages.
Work-order dated 21.6.2007 issued by M/s Gujarat Powerfield Pvt Ltd to M/s
Rajan Techno Cast Pvt Ltd
9.
This D.G.Set shall be run by the existing operators of our 500 KVA Set.
11.
We will manage for routine maintenance and Minor/Major breakdown
repairs with it’s required spares and oil at our own cost.
25
Work-order dated 14.10.2007 issued by M/s Gujarat Powerfield Pvt Ltd to
M/s Jivanlal Joitaram Patel
8.
We will provide 1-D.G.Operator to run the set.
11.
We will manage for routine maintenance and Minor/Major breakdown
repairs with it’s required spares and oil at our own cost.
25.8 In view of the above, it is explicitly clear that in the present case effective
control is not parted with by the said assessee. I further find that with regard to
hiring of D.G.Sets, the other criteria for a service to be taxable as supply of
tangible goods service is that the supply should be without transferring the right of
possession. In the case before me there is no dispute to the fact that the said
assessee has not transferred the right of possession. Thus it satisfies both the
essential criteria of the definition of taxable service of “Supply of tangible goods
services” under Section 65 (105)(zzzzj) of the Finance Act, 1994. The situation is
analogous to the chartering of aircraft. I place reliance on the CBEC Circular
Dy.No 20/Comm (ST)/2009 dated 2.9.2009 where in it has been clarified that
where the crew is also provided by the owners of the aircraft as in a wet lease of
aircraft effective control is not transferred. Thus supply of tangible goods is
without transferring right of possession and effective control of said goods.
25.9 I observe that Circulars issued by the Board are binding on the
departmental officers as has been held by the Hon’ble Supreme Court in the case
of Ranadey Micronutrients Vs 1996(87)ELT19(SC) and Paper Products Ltd Vs
CCE 1996(112)ELT 765(SC).
25.10 I observe that goods in question in the case before me are the “Diesel
Generating Sets (D.G. Sets) ” and there cannot be any argument that the same are
not tangible goods. The term “tangible goods” has not been defined under the
Finance Act and therefore, I refer other sources for the same. The term “Goods”
has been defined in section 65(50) of Finance Act, 1994 to mean the same as in
section 2(7) of Sale of Goods Act, 1930. “Goods” has been defined under the Sale
of Goods Act to mean every kind of movable property other than actionable
claims and money. As per Random House Webster’s Unabridged Dictionary,
tangible means capable of being touched or discernible by the touch. The goods
being supplied should be tangible goods i.e. having physical existence and form,
in order to attract liability under this category. In the case before me the goods are
tangible in nature.
25.11 This service category envisages use of goods by the recipient of service and
the expression “use” would mean the physical exploitation of the said goods by
the recipient of service who has become capable of exploitation of the said goods,
but without having legal rights of possession and effective control. Therefore, I
conclude that service is provided in relation to supply of tangible goods.
25.12.
The above said service is provided by any person i.e. the said
assessee to any other person i.e it’s various customers.
25.13.
In view of the above, I find that all the three ingredients of the
taxable service of “Supply of tangible goods services” as defined under Section 65
(105) (zzzzj) of the Finance Act, 1994 are fully satisfied. I also place reliance on
the judgment in the case of Indian National Ship Owner’s Association v. Union of
India (2009) 14 STR 289 (Bombay), wherein, it was held that providing vessels on
time charter basis without giving effective control was covered under Section
65(105)(zzzzj) of the Act.
26
25.14 In view of the above discussions, I find that an amount of Rs.
10,97,67,045/- received by the said assessee from various customers as Generator
hiring charges as detailed in Annexure-A to the show cause notice, is the taxable
value under the category of “Supply of tangible goods services” as defined under
Section 65 (105) (zzzzj) of the Finance Act, 1994 and service tax of Rs.
1,25,95,334/- on the said taxable value is recoverable from them under proviso to
Section 73(1) of the Finance Act, 1994 along with interest under Section 75 ibid.
26.
I agree with the contention of the said assessee that the service tax libility is
on the amount received and not on the income shown in the audited financial
statements. However, I find that the calculations made by the said assessee to
arrive at the amount received are not convincing. The demand in the show cause
notice has been worked out on the basis of Generator Hire Charges and not on the
entire income shown in the Balance sheet/Profit & Loss Account whereas, in the
calculations made by the assessee, amount of ‘closing debtors as on 31.3.2010’
(wrongly mentioned in the annexure-G as 31.03.2011) is taken from the balance
sheet and does not exclusively pertain to the debtors who had hired the D.G.Sets. I
further find that the amount of ‘opening debtors on 16.5.2008’ is not supported by
the ledger accounts. In view of this I accept the taxable value as Rs. 10,97,87,045/as given in the show cause notice and reject the net receipt of Rs.
9,43,35,119/- as worked out by the said assessee.
27.
Now, I look into the said assesseee’s contention that in case service tax is to
be levied, it should be levied on cum tax value of the services and not on the entire
value.
27.1 I observe that in the case before me it was the assessee’s belief that no
service tax was leviable on such payments, therefore, he could not have included
the service tax in the gross amount of the invoices raised to it’s customers who had
hired the D.G.Sets. Thus, the said assessee was in no position to collect any
service tax from it’s customers nor is there any evidence on record to show that
the invoices specifically indicate that the gross amount charged included the
amount of service tax.
27.2 I place reliance on the judgment of M/s Shakti Motors reported at 2008(12)
STR 710(Tri. Ahmd.) wherein, it has been observed as under:
“I am unable to agree with the advocate that the amount realized has to be
treated as cum-tax value in view of the provision of Section 67(2) of
Finance Act, 1994, which is reproduced below for ready reference:“Section 67(2). Where the gross amount charged by a service provider,
for the service provided or to be provided is inclusive of service tax
payable, the value of such taxable service shall be such amount as, with
the addition of tax payable, is equal to the gross amount charged”.
In terms of the above provision if the invoice does not specifically say that
the gross amount charged includes service tax, it cannot be treated as cumservice tax price. Therefore, in the absence of any evidence to show that
invoices had indeed been prepared in this manner, cun-tax value benefit
cannot be extended.”
27.3 Accordingly, I find that claim made by the said assessee in this regard is
not correct and hold that benefit of Cum-Tax value is not allowable to the
assessee.
27
28.
It has also been contended by the said assessee that sales to SEZ units are
exempted from service tax and therefore amount of Rs. 55,98,923/- should be
treated as exempt service and demand may be reduced to that extent. I find that the
said assessee has not given any documentary evidence to establish their
contention. In absence of such documentary evidence, the said contention has no
merit and is therefore not accepted.
29.
It is also the contention of the said assessee that principles of revenue
neautrality were applicable to present facts as the persons to whom they had
provided DG sets were either manufacturer or service provider. Had the service
tax been charged and collected by the assessee, credit of service tax must have
been availed and utilized so as to result into revenue neutrality. I find that the said
contention is not only misplaced but highly hypothetical and premature in the
nature. It is like putting the cart before the horse. In order for a service recipient to
take cenvat credit, the service provider has to first pay service tax which has not
been done in the present case. I observe that in the impugned show cause notice it
is the question of non payment of service tax under the category of “supply of
tangible goods” category. The said service tax was required to be paid by them in
the manner prescribed in the Finance Act, 1994 and Rules made there under
followed by the act of claiming Cenvat Credit under Cenvat Credit Rules, 2004
subject to fulfillment of other conditions of the Cenvat Credit Rules, 2004.
29.1 In view of the above discussion, I do not find any merit in the plea of
revenue neutrality raised by the said assessee. I place reliance on the judgment of
Jay Yushin Ltd v/s Commissioner of Central Excise, New Delhi reported at
2000(119) E.L.T. 718 (Tribunal-LB).
30.
I observe that so far as ‘suppression of facts’ is concerned, the phrase
implies that withholding of information is suppression of facts. P. Ramanatha
Aiyar’s Concise Law Dictionary [1997 Edition Reprint 2003 – page 822] defines
the phrase lucidly and accurately as – Where there is an obligation to speak, a
failure to speak will constitute the “suppression of fact” but where there is no
obligation to speak, silence cannot be termed “suppression”. It is manifestly clear
from this that intention to evade payment of duty is implied in the suppression of
facts. Since the said assessee was liable to self assess the liability to pay service
tax, they had an obligation to furnish the correct and complete information and the
value of services whether taxable or otherwise.
30.1 It is needless to recapitulate that the present show cause notice has arisen
out of the investigation conducted by the Ahmedabad Zonal unit of the Directorate
General of Central Excise Intellegence. Had they not taken up investigations in the
case, the evasion of service tax would have remained unnoticed. Therefore, this is
a case of improper assessment amounting to deliberate non-declaration and
suppression of vital information with a willful intention to evade payment of
service tax. Accordingly, the invoking of extended period under proviso to Section
73(1) of the Act in the case before me is fully justified.
30.2 I find that in the present system of self-assessment, documents like invoices
and other transaction details are not supplied to the Department. Moreover, the
said assessee did not furnish the required details of receipt and payment of “Hiring
charges of the D.G.Sets” either in the ST-3 returns or in any other way to the
Department. Since, they even did not consult the Department in case of any doubt,
the intention will have to be believed as that of evasion. Once the details are not
submitted to the Department, mis-declaration or suppression is rightly invoked. I,
therefore, conclude that the element of suppression with intent to evade payment
of service tax is conspicuous by the peculiar facts and circumstances of the case as
discussed above and, therefore, the extended period of limitation under Section
28
73(1) of the Finance Act, 1994 is rightly invokable for recovery of service tax
demanded in the impugned show cause notice. In view of the above discussion and
findings, the ratio of cases relied upon by the said assessee can not be applied in
the case before me.
31.
I now take up the issue of imposition of penalty under section 76, 77
and 78 of the Act.
31.1
In view of the above, I hold that the said assessee have suppressed
the facts with intention to evade payment of service tax. Thus penalty under
Section 78 is mandatorily imposable as has been held by the Apex court in the
case of Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC) and Rajasthan
Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC). Therefore, penalty is
imposable on the said assessee under Section 78 of the Finance Act, 1994. In view
of the above discussion the ratio of the judgments relied upon by the said assessee
can not be applied in this case.
31.2
As regards the issue of imposition of penalty under Section 76 of the
Finance Act, 1994, I observe that penalty under Section 76 and 78 of the Finance
Act, 1994 are mutually exclusive w.e.f 10.5.2008 and once penalty under Section
78 is imposed, no penalty under Section 76 can be imposed in terms of the proviso
inserted in Section 78 w.e.f 10.5.2008 in this regard. Therefore, no penalty under
Section 76 is imposable for the period from 10.5.2008 onwards. In the case before
me, the demand of service tax is for the period from 16.5.2008 to 31.3.2010.
Therefore, I hold that penalty under Section 76 of the said Act is not imposable on
the said assessee.
31.3
As regards imposition of penalty under section 77 of the Finance
Act, 1994, I observe that as discussed above the said assessee were liable to pay
service tax under the category of “Supply of tangible goods services” under
Section 65 (105)(zzzzj) of the Finance Act, 1994 as provider of service, but they
failed to obtain registration as required under section 69 of the Finance Act, 1994
read with Rule 4 of the Service Tax Rules, 1994. The said assessee had provided
“Supply of tangible goods services” prior to obtaining the service tax registration
in the said category. The said contraventions have made the said assessee liable to
penalty under section 77(1) (a) of the Finance Act, 1994.
31.4
As regards their contention for invoking Section 80 of the Finance
Act, 1994 for waiver of penalty, I find that the said assessee have not produced
any reasonable cause for the failure to pay service tax except that it was their
bonafide belief that service tax was not payable by them and it was an
interpretational issue. I have already discussed the issue of classification and
taxability under the category of “Supply of tangible goods services”. I observe that
if the said assessee had any doubt with regard to classification or taxability, then
they should have approached the service tax authorities for clarification of doubt
to ascertain the taxability of the service provided by them and their liability to pay
service tax. Therefore, I consider it appropriate to hold the said assessee liable to
penalty under Section 77 and 78 of the Finance Act, 1994. In view of the above
discussion and findings, the ratio of cases relied upon by the said assessee can not
be applied in the case before me.
32.
In view of the foregoing discussion, I pass the following order:
ORDER
(i)
I confirm the demand of service tax of Rs. 1,25,95,334/- (Rupees One
crore twenty five lakh ninety five thousand three hundred and thirty four
29
only ), (service tax of Rs. 1,22,28,479/-, education cess of Rs. 2,44,570/and Secondary & Higher Education cess of Rs. 1,22,285/-) for the
period from 16.5.2008 to 31.3.2010 as detailed in Annexure – A to the
show cause notice under the category of “Supply of tangible goods
services” under Section 73(2) of the Finance Act, 1994 and order to
recover the same from the said assessee;
(ii)
I order to recover interest on the above confirmed demand of Rs.
1,25,95,334/- (Rupees One crore twenty five lakh ninety five thousand
three hundred and thirty four only ) at the prescribed rate from the said
assessee under Section 75 of the Finance Act, 1994;
(iii)
I impose penalty of Rs. 1,25,95,334/- (Rupees One crore twenty five
lakh ninety five thousand three hundred and thirty four only ) on the
said assessee under section 78 of the Finance Act, 1994. In the event of
the said assessee opting to pay the amount of service tax along with all
other dues as confirmed and ordered to be recovered, within thirty days
from the date of communication of this order, the amount of penalty
liable to be paid by them under Section 78 of the Finance Act, 1994
shall be 25% of the said amount. However, the benefit of reduced
penalty shall be available only if the amount of penalty is also paid
within the period of thirty days from the communication of this order,
otherwise full penalty shall be paid as imposed in the above order;
(iv)
I impose penalty under section 77(1)(a) on the said assessee who shall
be liable to pay a penalty of five thousand rupees or two hundred rupees
for every day during which such failure continues, whichever is higher,
starting with the first day after the due date, till the date of actual
compliance as required under section 69 of the Finance Act, 1994 read
with Rule 4 of the Service Tax Rules, 1994.
-SD/- 29.2.2012
( A.K.Gupta )
Commissioner,
Service Tax,
Ahmedabad
BY SPEEDPOST
F. No.STC/4-109/DGCEI-O&A/10-11
Date: 29-02-2012
To
M/s. Gujarat Powerfield Pvt. Ltd,
“Powerfield House”,
Near Yash Motors, Narol,
Ahmedabad – 382 405.
Copy to:
1. The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone,
Ahmedabad.
2.
The Additional Director General, DGCEI, AZU, 1st Floor Preema Chambers, Near
Mithakhali Six Roads, Ahmedabad.
3. The Asst. Commissioner, Service Tax, Division-II, Ahmedabad.
4. The Superintendent of Service Tax, Range-VI, Division-II, Ahmedabad.
5. Guard File.