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V2(ST)269/A-IV/2011
ORDER-IN-APPEAL
M/s Jayantilal Bhogilal Chemicals Pvt. Ltd. Situated at plot No.2 Narayan Industrial
Estate, near Iyava bus stand, Sanand-Viramgam Highway, Sanand, Ahmedabad (head office
situated at Madhban-4th floor, Ellisbridge, Ahmedabad) (hereinafter referred to as “the
Appellants”), filed stay appeal along with an appeal against Order-in-Original NO.
OIO/STC/16/2010-11 dated 16.09.2011 and issued on 16.09.2011 (hereinafter referred to as
the “impugned order”) passed by the Assistant Commissioner, Central Excise & Service Tax
Nadiad, Ahmedabad-III, Ahmedabad (hereinafter referred to as the “adjudicating authority”).
2
The facts of the case are that the appellant were engaged in engaged in the
manufacturing activities of Soap/Detergent under the brand name of "Hipolin” which was
registered by them since 1970. The appellant has been allowing other soap/manufacturers to
use their brand name and receiving an amount as "Royalty" towards the usage of their Brand
name. The Royalty income receiving by them attracts Service Tax under the category of
'Intellectual Property Right Service (IPR)' as defined under Section 65 (55b) of the Finance
Act, 1994 (as amended) w.e.f 10.09.2004. However, the appellant has not paid Service Tax on
the same. The appellant has rendered taxable services under the category of 'Intellectual
Property Right Service (IPR)' for the period from 2004-05 to 2007-08. The taxable value for
calculation of Service tax is as under:Year
2004-05
From10.09.04
to 31.03.2004
2005-06
Income of royalty
Rs.700603/-
2006-07
Rs.325450/-
2007-08
Rs.539665/-
Rs.167102/-
Remark
Royalty received during the year was Rs.
1172711/-, however service Tax was
applicable from 10.09.2004.
As the appellant has crossed the exemption
limit in the previous year, no exemption
available.
Under exemption limit as per the notification
06/2005 –ST dated 01.03.2005 as the value in
the previous year was less than 4 lakhs.
Under exemption limit as per the notification
04/2007 –ST dated 01.03.2007 as the value in
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the previous year was less than 4 lakhs.
2.1
In view of the above the appellant is liable to pay service tax of Rs. 88506/- on taxable
value Rs.867705/- for the year 2004-05 and 2005-06. Thus the appellant has evaded Service
Tax of Rs. 88506/-. Accordingly, a Show Cause Notice bearing No. STC/98/Offence/JayntilalBhogilal/Div-III/09-10 dated 08.07.2009 was issued to the appellant and later the impugned
order was passed by the adjudicating Authority confirming the demands made in the SCN.
3
Being aggrieved with the impugned order the appellants filed the present appeal on
22.12.2011. The appellant has also submitted additional submission on 02.02.2012.The
appellants have submitted their arguments on various grounds based on which the demand
was confirmed. The main contentions of the appellants are as under:3.1
The appellant submitted that demand has been confirmed taking Royalty income
figures from the Profit & Loss Statement of the concerned Balance Sheet. Further they
submitted that in the Profit & Loss Statement the head ‘Income’ not only reflects amounts
received, but also accrued income,
the amount received only should be considered to
determine service Tax liabilities.
3.2
The appellant submitted that out of the Royalty income of 700603/- pertaining to the
period from 10.09.2004 to 31.03.2005 as per Profit & Loss account, Rs.131043/- was only
received during the year 2004-05 and balance of Rs. 569560/- was the closing balance of
2004-05, which is reflected in their ledger Account. Hence, SSI exemption limit during the year
2004-05 was not crossed by them and accordingly they would be eligible for SSI exemption for
the year 2005-06. Thus, Service Tax liabilities upon them would be Rs. 47706/- only instead of
Rs.88506/-, confirmed under the impugned order.
3.3
The appellant contended that ‘Royalty Income’ is liable for Service Tax under the
category of “Intellectual Property Right Service” w.e.f. 10.09.2004, onwards. They were not
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V2(ST)269/A-IV/2011
aware about the ‘Royalty Income’ and not registered the company for the same. Hence
penalty confirmed under Section 76, 77 & 78 of the Finance Act,1994, under the impugned
order are to be waived. The appellant taken the support of the following judgments:i) Velans H P Lube Solution V/s Commr. of C Ex., Salem
ii) Rrajarani Exports V/s Commr. of C Ex., Salem
iii) R.A.C. STEEL V/s Commr. of C.Ex., Salem. The gist of the case cited by the appellant is
that:“Penalty - Delay in payment of tax - Ignorance pleaded - Statements of partners showing
absence of awareness on liability - Liability known only after visit of officers - Registration obtained
and Service tax paid belatedly once the same explained by officers - Burden to establish suppression
by assessee not discharged by Revenue - Explanation on absence of intent to evade tax, acceptable Penalties set aside - Sections 76, 77, 78 and 80 of Finance Act, 1994”
4.
Personal hearing in the case was granted on 06.01.2012 wherein Shri Rakesh Kumar Jain
appeared before me and reiterated the ground of appeal. He stated that Service Tax is payable
on receipt basis. The balance sheet was prepared on accrued basis. He agreed to submit a
reconciliation Statement regarding the actual period in which the royalty was received and Service
Tax paid by them during the period of receipt. On reconciliation, if any Service Tax payable, they
agreed to pay the service Tax.
DISCUSSION AND FINDINGS
5.
I have carefully gone through the facts of the case on records, grounds of appeal in the
Appeal Memorandum, written submission as well as oral submissions made by the
respondents at the time of personal hearing.
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6.
V2(ST)269/A-IV/2011
I find that the appellant is engaged in the manufacturing activities of Detergent Powder
and Cake with their own registered brand name ‘HIPOLIN’. The brand name was registered
since 1970. The appellant has shown income in their books of accounts under the head of
‘Royalty’ which is covered under the head “Intellectual Property Right” and the same is liable
to Service Tax w.e.f. 10.09.2004. As per Section 65(55a) & (55b) of the Finance Act,1994,
(55a) "intellectual property right" means any right to intangible property, namely,
trade marks, designs, patents or any other similar intangible property, under any law for
the time being in
force, but does not include copyright.
(55b) ''intellectual property service" means, (a) transferring, l[temporarily,] or
(b) permitting the use or enjoyment of any intellectual property right;
Intellectual property refers to creations of the mind. such as invention, literary and artistic works,
symbols, names, images and designs, used in commerce.
As per Section 65(105)(zzr) of the Finance Act,1994, taxable service means any person, by
the holder of intellectual property right, in relation to intellectual property service.
7.
The service tax is liable to be paid by the holder of intellectual property right when the
said service is provided to any person. In the present case, the said service provider permitted
the use of their brand name ‘Hipolin' by other soap/detergent manufacturers. I find that the
appellant fulfills all the essential ingredients of taxability under the category of ‘Intellectual
Property Right Service’. The appellant has been rendering and rendering the ‘Intellectual
Property Service’ to the other soap and detergent manufacturers and receiving payment for
the service rendered. Thus, I hold that the applicant is liable to pay Service Tax on the taxable
Service namely ‘IPR Service’ rendering by them. I find that appellant has also not disputed the
taxability of Service under the category of ‘Intellectual Property Right Service’. They have only
dispute the quantum of Service Tax payable
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8.
V2(ST)269/A-IV/2011
The appellant contended that the department has taken the figures from the Balance
Sheet which is prepared on the accrual basis whereas service Tax is payable on receipt basis.
Out of the Royalty income of 700603/- shown in the balance sheet for the period from
10.09.2004 to 31.03.2005 the appellant claimed that Rs.131043/- was only received during the
year 2004-05 and balance amount of Rs. 569560/- was the closing balance of 2004-05, which
is reflected in their ledger Account. Hence, they contended that SSI exemption limit during the
year 2004-05 as provided in Notification 6/2005 dated 1.3.2005 was not crossed by them and
accordingly they would be eligible for SSI exemption for the next Financial year 2005-06.
Thus, Service Tax liabilities upon them would be Rs. 47706/- only instead of Rs.88506/-,
confirmed under the impugned order.
9.
I find that appellant has not submitted any evidence such as bank statement to
substantiate their claim. They have simply claimed that Rs 569560/ was carried forward to the
next year 2005-06 to avail the exemption benefits. They have shown the said amount was
recovered/realized in the next year, without any supporting evidence. Mere claim is not
sufficient to prove that an amount of Rs. 569560/- was realized in the year 2004-05 and the
entire carried forward amount along with the total bills raised for 2005-06 was realized in 200506. In this regard, I find that appellant has not disputed the taxability of Service rendered by
them. They have only disputed the calculation method/quantum of Service Tax payable
without supporting evidence. However, I find that in their written submission the appellant
stated that they are ready to pay Service Tax as confirmed under impugned order. Hence, I
uphold the demand of Service Tax confirmed in the impugned order.
10.
With regard to the Appellants' request for condonation of penalty under section 76, I find
that investigation was carried out on the basis of intelligence received from the Headquarter
Preventive, (CCE-III) Ahmedabad, that the appellant is rendering taxable service to their clients
and not discharging their Service Tax liability. On investigation the intelligence was found to be
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true. Thus, it was established that the tax liability was not discharged by appellant. Penalty under
section 76 is imposed for delay in payment of Service Tax. In this case the appellant still has not
discharged their tax liabilities, even though they are agree to pay the same. The said penalty is
imposable whether there is any intention to evade payment of Service Tax or not. Thus, I find no
reason to interfere with the impugned order with regard to penalty imposed under Section 76 of
the Finance Act1994. Hence the Appellants' request for relief from penalty under section 76 ibid
can not be considered.
11.
The Appellant has requested for waiver of penalty under section 78 of the Finance
Act1994 I find that appellant has not paid appropriate Service Tax (till now) on their own. The
appellant had been registered with the department, however they have failed to filed the ST-3
returns and provide the correct taxable value, resulting in suppression of necessary
information to the department. This is a case of deliberate non-declaration and suppression of
vital information with willful
intention to evade
payment
of Service Tax. The penalty is
imposed U/s 78 of the Finance Act1994 when suppression is established. Hence, I uphold the
imposition of penalty U/s 78 in the impugned order.
12.
The appellant claimed that penalty cannot be imposed under both the sections 76 &
78. I find that the penalties under 76 & 78 are for difference purposes. Penalty under section
76 is imposed for failure to pay service Tax in time. In this case appellant still has not paid
Service Tax even though they are agree to pay the same. Penalty Under section78 is
imposed for suppressing the taxable value with intention to evade payment of service Tax.
As the both the condition are proved in this case, I hold that separate penalties under Section
76 & 78 of said Act can be imposed. I rely upon the judgment of Hon'ble Kerala High Court in
the case of Krishna Poduval 2006 (1) STR 185 (Ker) and the Tribunal- Delhi decision in the
case of Bajaj Travels Ltd 2009 (16) STR 183 ( Tri- DEL) in support of my view stated above.
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In view of above discussion I pass the following order :
ORDER
13.
In view of the above discussion, I uphold the impugned order passed by the
adjudicating authority and reject the appeal filed by the appellants.
Sd/- 14.02.2012
( K. ANPAZHAKAN )
COMMISSIONER (APPEAL-IV)
CENTRAL EXCISE, AHMEDABAD.
date : 14.02.2012
ATTESTED
SUPERINTENDENT (APPEAL-IV),
CENTRAL EXCISE, AHMEDABAD.
BY R.P.A.D.
M/s Jayantilal Bhogilal Chemicals Pvt. Ltd. Situated at plot No.2 Narayan Industrial Estate,
near Iyava bus stand, Sanand-Viramgam Highway, Sanand, Ahmedabad (head office situated
at Madhban-4th floor, Ellisbridge, Ahmedabad)
Copy To:1.
2.
3.
4.
5.
6.
The Chief Commissioner, Cen0tral Excise, Ahmedabad zone, Ahmedabad.
The Commissioner, Service Tax, Ahmedabad.
The Assistant Commissioner, Service Tax, Division-II, Ahmedabad.
The Assistant Commissioner, System Service Tax-Ahmedabad.
Guard File.
P.A. File.