BBRIEF FACTS OF THE CASE :M/s. Mahalaxmi Infracontract Pvt. Ltd., (formerly known as M/s. Mahalaxmi
Engineering Company) having office at B-21, Corporate House, Opp. Pakwan, S. G.
Highway, Bodakdev, Ahmedabad – 380 054 (herein after referred to as “M/s.
Mahalaxmi” for the sake of brevity) is engaged in providing services of Cargo Handling
service, Transport of Goods by Road Service, Mining Services, Work Contract Service,
Supply of Tangible Goods Service and Site Formation and Clearance, Excavation and
Earthmoving and Demolition Services and they hold Service Tax registration No.
AAGCM4615ESD001. Initially M/s. Mahalaxmi obtained serviced tax registration No.
AR/GIM/MNG-032/07-08 dated 24-01-2008 from Service Tax Office at Gandhidham.
Later on, they shifted their office from Gandhidham to B-21, Corporate House, Opp.
Pakwan-II, S.G. Highway Road, Ahmedabad and obtained centralized registration No.
AAGCM4615ESD001 dated 10-06-2010 from Service Tax Office, Ahmedabad.
2.
INTELLIGENCE GATHERED:
2.1
Intelligence gathered by the Directorate General of Central Excise
Intelligence, Ahmedabad Zonal Unit, Ahmedabad (here-in-after referred to as ‘DGCEI’
for the sake of brevity) indicated that M/s. Mahalaxmi executed works of mining as subcontractors to main contractors but they did not pay service tax in the years 2006-07 and
2007-08. In furtherance of intelligence, search was conducted in the office premises of
M/s. Mahalaxmi at B-21, Corporate House, Opp. Pakwan, S. G. Highway, Bodakdev,
Ahmedabad on 23-01-2012. Relevant documents were withdrawn under Panchnama
dated 23-01-2012 (RUD NO. 1).
2.2
Several incriminating documents such as agreements entered with main
contractors, income ledger accounts of the years 2006-07 to 2010-11, copies of invoices /
bills issued, copies of bank statements were withdrawn under panchnama dated 23-012012 for further examination.
3.
STATEMENT DATED 23-01-2012
DIRECTOR OF M/S. MAHALAXMI:
OF
SHRI
HIRALAL
DHOLU,
3.1
Statement of Shri Hiralal Dholu, Director of M/s. Mahalaxmi was recorded
on 23-01-2012 (RUD NO. 2) wherein he deposed as under: He stated that M/s. Mahalaxmi Engineering Company was started as infrastructure
service providing company in the year 1994 at Bhuj as a partnership company. He was
one of the partner. They were in the business activity of undertaking various works
relating to mining, construction of canals, hiring of equipments for mining and
construction related works, etc. In April, 2010, their company was converted in to a
private limited company and shifted their office to Ahmedabad. Name of their company
was renamed into M/s. Mahalaxmi Infracontract Pvt. Ltd since then and functioning from
B-21, Corporate Office, Opp. Pakvan, S. G. Highway, Bodakdev, Ahmedabad.
He stated that their company got registered with service tax department in Gandhidham
Service Tax Office under Mining of minerals, oil and gas service and held service tax
registration No. AR/GIM/MNG-032/2007-08 dated 24-01-2008. However, after shifting
of office to Ahmedabad, they had obtained centralized registration from Service Tax
Office at Ahmedabad and hold Service Tax registration No. AAGCM4615ESD001 dated
10-06-2010 for the services of Cargo Handling service, Transport of Goods by Road
Service, Mining Services, Work Contract Service, Supply of Tangible Goods Service.
He stated that they obtained contracts for mining activities from other main contractors
and provide services to such main contractors as sub-contractors. In these type of
activities, their role was restricted to supplying of equipment to the main contractors for
carrying out mining activities. They raised bills for hiring of equipments. In the years
F. NO. STC/4-7/O&A/DGCEI/2012-13
2006-07 and 2007-08, they had provided mining equipments such as dippers, tippers,
showels, bulldozers, etc on hire. Since the service of hiring of equipments were not
taxable to service tax in these years, they did not charge and did not pay service tax. He
submitted that in the years 2006-07 and 2007-08, their company did not executed any
mining work as a main contractor.
He stated that from 2008-09 onwards, their company was paying service tax on the
mining activities carried out as main contractor as well as sub-contractors.
He stated that in the year 2006-07 and 2007-08, they had hired mining equipments to
M/s. Ranjit Construction Co, Ahmedabad for mining activities carried out at Bikaner
Site, Rajpardi (Gujarat). Work in these sites were still in progress.
On being asked as to how they could claim that initially in the years 2006-07 and 200708, their company had only hired equipment of mining and from 2008-09, for the same
field, their company claims the activities under mining, he stated that in the year 2006-07
and 2007-08, they were not much aware about provisions of service tax on the business
activities of their company. Thus, they were showing description of hiring of equipments
in the bills. However, after knowing levy of tax on mining activity specifically, they had
come to know about the exact nomenclature of activity. Accordingly, they started paying
service tax from March, 2008 onwards.
He stated that as soon as they came to know about the levy of service tax on mining
services, they took legal opinion and as per the advice given by their consultant, they had
started paying service tax under mining services from March, 2008 onwards.
On being asked if their view were to be true, service tax on mining services was taxable
from 01-06-2007. Why did not their company pay service tax from June, 2007 onwards.
He stated that they were informed by their main contractor that they had paid service tax
on entire amount and therefore they were not required to pay service tax. Thus, they
were under bonafide belief they did not pay service tax.
On being asked that as per the provisions of the Finance Act, 1994, service tax is to be
paid by the service provider. There is no provision exempting sub-contractor from
payment of service tax. CBEC vide Circular No. 96/7/2007-ST dated 23-08-2007 has
clarified that sub-contractors are also liable to pay service tax. How could they claim
there was no service tax liability as sub-contractor. He stated that he did not have
expertise to comment on this legal issue.
He stated that he remained present during the search proceedings conducted in their
office. Panchnama was recorded in cordial manner and no untoward incident took
place.”
3.2
Shri Hiralal Dholu, Director of M/s. Mahalaxmi stated that his company
was engaged in mining activities as sub-contractor of main contractors and as main
contractors. M/s. Mahalaxmi was functioning from 102, Shanti Chambers, Near Bank of
Baroda, Station Road, Bhuj and obtained service tax registration No. AR/GIM/MNG032/2007-08 dated 24-01-2008 from Service Tax Office at Gandhidham. Their company
name was changed from M/s. Mahalaxmi Engineering Co to M/s. Mahalaxmi
Infracontract Pvt. Ltd in April, 2010. Subsequently they shirted their office from Bhuj to
Ahmedabad at B-21, Corporate House, Opp. Pakwan, S.G. Highway, Bodakdev,
Ahmedabad and obtained centralized registration No. AAGCM4615ESD001 dated 1006-2010 for the services of Cargo Handling Service, Transport of Goods by Road
Service, Mining Services, Work Contract Service and Supply of Tangible Goods Service.
On being asked as to why they did not pay service tax, he replied that they were
providing mining services which was brought under service tax net w.e.f. 01-06-2007. In
the years 2006-07 and 2007-08, they were providing mining services to main contractors.
2
F. NO. STC/4-7/O&A/DGCEI/2012-13
Besides, he also justified non-payment of service tax by saying that they had only hired
mining equipments to the contractors. Hiring of equipments has become taxable w.e.f.
16-05-2008. Further, they were informed by their main contractors that they had paid
service tax on the entire amount and therefore M/s. Mahalaxmi was not required to pay
service tax. Under this bonafide belief they did not pay service tax.
3.3
He was confronted with the CBEC Circular No. 96/7/2007-ST dated 23-082007 wherein it is clarified that sub-contractors are also liable to pay service tax. After
specifically informed about their liability to pay service tax, they agreed to pay service
tax under mining services w.e.f. 01-06-2007.
4.
FURTHER STATEMENT DATED 13-03-2012 OF SHRI HIRALAL
DHOLU, DIRECTOR OF M/S. MAHALAXMI:
4.1
Further statement of Shri Hiralal Dholu, Director of M/s. Mahalaxmi was
recorded on 13-03-2012 (RUD NO. 3). He submitted as follows :He perused his earlier statement dated 23-01-2012. He put his dated signature on it in
token of confirmation.
He submitted the following information / documents:1)
Copy of agreement dated 09-06-2006 entered with M/s. Sadbhav
Engineering Ltd, Ahmedabad for “Hiring of heavy earth moving equipment for
excavation and allied work at GHCL Lignite mine, Khadsaliya, Bhavnagar;
2)
Copy of agreement dated 21-09-2006 entered with M/s. Ranjit Construction
Co, Ahmedabad for carrying out mining work at Barsinagar Lignite Mine Project,
Rajasthan along with copies of RA bills;
3)
Copy of agreement dated 18-12-2006 entered with M/s. Ranjit Construction
Co, Ahmedabad of check-dam at Nana Bhadhia, Kutch.
He stated that their main activity was relating to mining of coal/lignite. In the years
2006-07 and 2007-08, they were working as sub-contractor of M/s. Ranjit Buildcon Ltd
and M/s. Sadbhav Engineering Ltd. The details of works undertaken by their company
was briefed as under: a)
They had entered into an agreement with M/s. Ranjit Buildcon Ltd for
mining work at Barsinagar Lignite Mine Project, Bikaner, Rajasthan as subcontractor and commenced mining works from 07-08-2006 onwards. This project
was still in progress.
b)
They had entered into agreement dated 20-09-2007 with M/s. Ranjit
Buildcon Ltd, Ahmedabad for mining of lignite at Amod Lignite Mine, Rajpardi
Project, District-Bharuch, Gujarat. They had started mining activity from
September, 2007 onwards. Initially they were of the view that as the main
contractor was paying service tax, their company was not required to pay service
tax on the activity carried out as sub-contractor. Therefore there was no mention
about service tax liability in their agreement. However, after they realized the
liability to pay service tax as sub-contractor, they had the original agreement
dated 20-09-2007 amended vide Supplementary agreement dated 01-07-2008 to
the effect that the contract value did not include service tax. That is, the main
contractor would reimburse the value of service tax paid by their company.
c)
They had undertaken mining work at Khadsalia Lignite Mines, Bhavnagar
as sub-contractor from 01-04-2006 and this project was concluded in August,
2008.
d)
They have carried out mining activity at Bina Extension OCP of M/s.
Northern Coalfield Ltd as sub-contractor of M/s. Sadbhav Engineering Ltd. This
project was started in November, 2007 and completed in November, 2010.
He further state that they had obtained service tax registration on 24-01-2008 and
started paying service tax forthwith. That is from January, 2008 onwards, they have
3
F. NO. STC/4-7/O&A/DGCEI/2012-13
been regularly paying service tax under mining services and GTA services. They were
under bonafide belief about non taxability for the past period to their company because
they were undertaking mining activity as sub-contractors. Their main contractors were
paying service on the entire value of services which included the value of services
provided by their company as sub-contractors. Therefore, they were of the view that if
they pay service tax then it would become double taxation on the same transaction.
There cannot be double taxation on any service. He produced copies of challans
evidencing service tax payment made by their main contractor viz., M/s. Ranjit Buildcon
Ltd for their Rajpardi and Bikaner sites.
It was only during officers’ visit to their office on 23-01-2012, they realized their liability
to pay service tax in the past period also. Upon taking legal opinion, they had realized
that service tax was to be paid on the income derived from mining income from 01-062007. But only for the services where their company executed work as main contractor.
He further state that their company has been paying service tax appropriately from
January, 2008 onwards. However, due to clerical error, on some bills, service tax was
not paid in the year 2008-09. The details of service tax left out was as under: (Amount in Rs.)
Sr.
RA
Amt. of
Date of bill
Issued to whom
Site
Value
No.
No.
Service Tax
1
21-04-2008
3
Ranjit Buildcon Ltd
Rajpardi
2,07,20,395
25,61,041
2
21-04-2008
40
Ranjit Buildcon Ltd
Bikaner
1,08,24,328
13,37,887
3
04-05-2008
4
Ranjit Buildcon Ltd
Rajpardi
1,68,57,498
20,83,587
4
12-05-2008
41
Ranjit Buildcon Ltd
Bikaner
1,29,56,974
16,01,482
5
15-05-2008
5
Ranjit Buildcon Ltd
Rajpardi
1,90,25,866
23,51,597
6
06-06-2008
42
Ranjit Buildcon Ltd
Bikaner
1,38,18,890
17,08,015
7
09-07-2008
43
Ranjit Buildcon Ltd
Bikaner
2,26,800
28,032
8
10-07-2008
44
Ranjit Buildcon Ltd
Bikaner
24,38,579
3,01,408
9,68,69,330
1,19,73,049
TOTAL
Their company has started depositing service tax as stated above and paid service tax of
Rs. 75,00,000/- through e-payment till 29-02-2012. They were committed to pay
remaining amount of service tax along with interest.
However, he reiterated that their company was not liable to pay service tax on the
income earned from mining activity before 01-06-2007. Therefore no liability lies on
their company.
On being asked to give the authority under which exemption was provided for the
services provided as sub-contractors he stated that Tribunal in various judgments held
that when main contractors pay service tax on entire value, sub-contractors needs not to
pay service tax. He produced copy of Tribunal, Ahmedabad’s order dated 26-10-2009 in
case of M/s. Urvi Construction Vs. Commissioner of Service Tax, Ahmedabad, Tribunal,
Bangalore’s order dated 26-10-2007 in the case of M/s. Evergreen Suppliers Vs. CCE
reported at 2008 12 STJ 297 CESTAT Bangalore and a copy of clarification dated 31-012006 issued by the Joint Commissioner, Service Tax, Ahmedabad regarding non
taxability of service provided by sub-contractors to the main contractors.
He stated that they were informed by their main contractors (M/s. Ranjit Buildcon Ltd)
that they had obtained clarification from the department that no service tax was payable
4
F. NO. STC/4-7/O&A/DGCEI/2012-13
by the sub-contractors because main contractors were paying service tax on the full
value. Therefore they did not pay service tax.
As abundant precaution, they had also consulted with their tax consultant regarding their
service tax liability on mining services provided by their company as a sub-contractor
after mining services is brought under service tax net. It was advised to obtain service
tax registration and pay service tax. After this, they approached their main contractors
for reimbursement of service tax separately in addition to bill value. Their company had
also obtained service tax registration in January, 2008 and since then, they have been
paying service tax on the value of taxable services provided either as sub-contractor or
main contractor.
He was asked to refer to CBEC’s Circular No. 96/7/2007-ST dated 23-08-2007 wherein it
is specifically clarified, “A sub-contractor is essentially a taxable service provider. The
fact that services provided by such sub-contractors are used by the main service provider
for completion of his work does not in any way alter the fact of provision of taxable
service by the sub-contractor. Services provided by sub-contractors are in the nature of
input services. Service tax is, therefore, leviable on any taxable services provided,
whether or not the services are provided by a person in his capacity as a sub-contractor
and whether or not such services are used as input services. The fact that a given taxable
service is intended for use as an input service by another service provider does not alter
the taxability of the service provided”. He was asked to clarify why cannot their services
be taxed to service tax. He reiterated that service tax was not payable in view of the
judgements of Tribunal as stated above.
He was asked to peruse CBEC’s Circular No.232/2/2006-CX dated 12-11-2007 wherein
it is clarified that prior to 01-06-2007 a) Excavation / drilling and removal of
overburdens are classifiable under site formation service; b) activities of coal cutting and
mineral extraction and lifting upto pit head are exempt; and c) activities handling and
transportation of coal / mineral from pit head to a specified location within the mine /
factory or for transportation out side the mines are chargeable to service tax under cargo
handling service or under transport of goods by road service. Why not activities (a) &
(c) carried out by their company not liable for service tax?
He stated that the above cited circular was applicable only for the cases where separate
contracts / agreements were executed for different activities. But in their case, they had
entered into a composite contract for carrying out mining activities with main
contractors. Their was a single contract entered and bills were also raised showing
description of “Removal of over burden of first dig (solid by hiring of HEMM such as
Excavators, dumper, drills, dozer, graders and water tankers for composite work
consisting of blast hole drilling, blasting, excavation, loading, transportation of broken
rock / soil / earth, dumping, spreading etc by mechanical means as per instruction of
Engineer Incharge at specified places”. It can be seen that in all their bills, they had
shown mining as a composite work and paid service tax accordingly. They had never
entered into contract for different activities of removal of overburden and excavation,
coal cutting and mineral extraction and lifting upto pit head and transportation of coal
from pit head to a specified location separately.
On being asked to clarify that from the description of activity such as “Removal of over
burden of first dig (solid by hiring of HEMM such as Excavators, dumper, drills, dozer,
graders and water tankers for composite work…”, their service should fall under site
formation service prior to 01-06-2007. He stated that their company carried out work of
mining of coal / minerals as per the agreements entered with the mine owners or with
main contractors. The primary objective of the activity is to extract coal from beneath
the earth’s soil. In order to extract coal/ mineral different activities such as excavation,
processing i.e., grading, sorting and related / incidental transport, loading activities etc
are all incidental to the main activity of mining. Therefore all these activities were to be
5
F. NO. STC/4-7/O&A/DGCEI/2012-13
seen as a composite work and classification of the service was accordingly determined.
Therefore, as per their view, they had provided services for mining of coal / lignite which
was appropriately classifiable under Mining of Mineral, Oil or Gas Service. Their claim
is coherent with the guidelines prescribed under Section 65A(2)(b) of the Finance Act,
1994.
He submitted that the Tribunal, Bangalore vide its order in the case of M/s.
Commissioner of Central Excise, Hyderabad V/s. M/s. Vijay Leasing Company has held
that the activity of site formation is incidental to contract of mining and the activity of
mining was not taxable prior to 01-06-2007.
On being asked to give the details of work executed relating to construction of Nana
Bhadiya
Bandhra
as
sub-contractor
of
M/s.
Ranjit
Buildcon
Ltd
He stated that they had undertaken work of construction of check dam for storage of
water for harvesting of at Nana Bhadiya. This is the scheme of Gujarat State
Government to construct check dams for the welfare of the villages and this work was
awarded by Executive Engineer, Irrigation Division, Kutch District. It was relating to
irrigation work. Therefore, no service tax is payable.
From the copies of ST-3 returns it was found that their company had taken CENVAT
credit on capital goods in the years 2007-08 and 2008-09. He was asked to give the
details of capital goods credit taken. He stated that they had taken CENVAT credit on
capital goods in the years 2007-08 and 2008-09, which included dippers and tippers.
The Commissioner of Central Excise, Rajkot had already issued show cause notice No.
V.ST/AR-GND/Commr/234/2010 dated 14-10-2010 for recovery of capital goods credit
amounting to Rs. 3,44,24,871/-. He produced a copy of the said show cause notice.
4.2
Shri Hiralal Dholu, Director of M/s. Mahalaxmi stated that activity carried
out by them was relating to mining of mineral which was liable to service tax w.e.f. 0106-2007. Prior to this date, no service tax was payable by them. Moreover, they carried
out mining activity as sub-contractor of main contractors. Their main contractors were
paying service tax on the entire value of contract, which included value of sub-contract
executed by them. Therefore, M/s. Mahalaxmi was not liable to pay service tax.
However, they had obtained service tax registration under mining services in January,
2008 and thereafter, they had been paying service tax regularly even on the value of
mining activity carried out as sub-contractor. He admitted that there was an error in
payment of service tax of Rs. 1,19,73,049/- during the period from April, 2008 to July,
2008. They agreed to pay this amount of service tax along with interest.
5.
SCRUTINY OF INFORMATION / DOCUMENTS RECEIVED FROM M/S.
MAHALAXMI:
5.1
Documents withdrawn under Panchnama dated 23-01-2012 and
information received subsequently and facts deposed under statements recorded under
Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994
were scrutinized and analysed. It was found that M/s. Mahalaxmi was mainly engaged in
business activities relating to removal of overburden by hiring of equipment such as
excavators, tippers / dumper, drills, dozer, graders and water tanker for composite work
consisting of blast hole drilling, blasting, excavation, loading, transportation of broken
rock / soil/ earth, unloading/dumping, spreading, dozing, water sprinkling and grading
etc. by mechanical means. In the years 2006-07 to 2008-09, they were executing works
as sub-contractors of M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd on
back to back basis.
5.2
From the information gathered, it was found that M/s. Mahalaxmi did not
pay service tax on the pre-text of hiring of equipments for mining activity by
misinterpreting the wording of mining contracts as “Hiring of HEMM equipments….” in
the business parlance. Hiring of equipment is covered under supply of tangible goods
6
F. NO. STC/4-7/O&A/DGCEI/2012-13
service which is brought under taxable net w.e.f. 16-05-2008. Copies of agreements and
invoices issued in the years 2006-07 and 2007-08 were also concocted showing the
activity as renting of equipments in order to camouflage their activity of removal of
overburden, extraction of mineral, transportation and dumping of soil and transportation
of mineral from pit head to the place of storage.
5.3
During the course of search conducted in their office premises situated at
B-21, Corporate House, Bodakdev, Ahmedabad, incriminating documents such as copies
of agreements entered with main contractors, RA bills issued by M/s. Mahalaxmi to main
contractors on the basis of CUM (cubic meter) of soil dug out, certificates issued by main
contractors stating the yearwise quantity and value of work executed by M/s. Mahalaxmi
were withdrawn from their office.
5.4(i)
In the years 2006-07 and 2007-08, M/s. Mahalaxmi had executed work as
sub-contractor of M/s. Ranjit Buildcon Ltd at sites of Amod Lignite Mines, Rajpardi
Projects and at Barsinagar Lignite Mines Project, Bikaner, Rajasthan and as a subcontractor of M/s. Sadbhav Engineering Ltd at Khadsalia, Bhavnagar. These facts have
come to light from the certificates issued by these main contractors which were seized as
per serial No. A-19 of Annexure – A of Panchnama dated 23-01-2012. The contents of
the certificates are briefed as under: a. Certificate Issued by M/s. Ranjit Buildcon Ltd: M/s. Ranjit Buildcon Ltd,
Ahmedabad vide certificate dated 09-02-2010 (RUD NO. 4) has certified that M/s.
Mahalaxmi had executed the work of overburden material in all kind of strata
including its drilling, blasting, excavation, loading, transportation and dumping,
spreading, dozing at specified places for the exposure of lignite at Barsinagar
Lignite Mines Project, Rajasthan as their sub-contractor during the period from
07-08-2006 to 31-01-2010. This is the ongoing project and the proposed
completion date is 20-09-2013.
b. Certificate Issued by M/s. Ranjit Buildcon Ltd: M/s. Ranjit Buildcon Ltd,
Ahmedabad vide certificate dated 05-09-2011 (RUD NO. 5) has certified that M/s.
Mahalaxmi had executed the work of “Overburden removal and lignite loading at
Amod Lignite Mines, Rajpardi Projects” as a sub-contractor during the period
from 07-08-2007 to 31-07-2011.
c. Certificate Issued by M/s. Sadbhav Engineering Ltd: M/s. Sadbhav
Engineering Ltd, Ahmedabad vide certificate dated 17-04-2008 (RUD NO. 6) has
certified that M/s. Sadbhav Engineering Ltd was awarded the work of “Hiring of
HEMM Equipments for excavation and allied works at Khadsalia Lignite Mines,
Bhavnagar vide LOI No. GHCL:LIG:BVN:505:05-06 dated 22-09-2005. This
work was executed by M/s. Mahalaxmi Engineering Company, Kutch as a subcontractor during the period from 01-02-2006 to 31-03-2008.
d. Certificate Issued by M/s. Sadbhav Engineering Ltd: M/s. Sadbhav
Engineering Ltd, Ahmedabad vide certificate dated 05-09-2011 (RUD NO. 7) has
certified that M/s. Sadbhav Engineering Ltd was awarded the work of removal of
overburden of first dig (solid) by hiring of HEMM such as excavators, dumper,
drills, dozer, graders and water tanker for composite work consisting of blast hole,
drilling, blasting, excavation, loading, transportation of broken rock / soil/ earth,
dumping, spreading etc. by mechanical means as per instruction of engineer
incharge at specified places at Bina Extension OCP of NCL was awarded vide LO
No. NCL.SGR.CMC/BINA-EXTN/AGR/OB/42 dated 21-02-2008. This work
was executed by M/s. Mahalaxmi Infracontract Pvt, Ltd, Kutch as a sub-contractor
during the period from 29-11-2007 to 28-11-2010.
e. Certificate Issued by M/s. GHCL Ltd (Service Recipient): M/s. GHCL Ltd
(Lignite Division), Bhavnagar vide letter No. GHCL:LIG:BVN:292:2008 dated
21-10-2008(RUD NO. 8) certified that the work of hiring of HEMM equipments
for excavation and allied work at Khadsalia Lignite Mines, Bhavnagar was
awarded to M/s. Sadbhav Engineering Ltd, Ahmedabad vide LOI No.
GHCL:LIG:BVN:505:05-06 dated 22-09-2005. M/s. Mahalaxmi Engineering
7
F. NO. STC/4-7/O&A/DGCEI/2012-13
Company, Kutch was engaged by M/s. Sadbhav Engineering Ltd to work as subcontractor during the period from 01-02-2006 to 31-03-2008.
5.4(ii)
In all the above referred certificates, it was mentioned that M/s. Mahalaxmi
had provided services relating to “over burden material in all kind of strata including its
drilling, blasting, excavation, loading, transportation and dumping, spreading, dozing at
specified places for the exposure of lignite”. In these certificates, quantity of overburden
removed and value of service in rupees was depicted. This proves beyond doubt that they
provided services relating to overburden removal in the mining areas. In none of the
certificate, number of machineries deployed and number of working hours of such
machines was mentioned. This proves that M/s. Mahalaxmi claim of providing of
services of merely hiring of equipments was baseless and incorrect.
5.4(iii)
Further, M/s. Mahalaxmi has been issuing RA bills (Running Account) for
the services provided. RA bills ware issued only for those contracts where value /
quantity of contract was predetermined and to know the amount of work completed till
the date of billing. In the cases of pure hiring of equipments rate was either fixed on
number of days of operation or on number of hours worked. For example, for work at
site of Bikaner (Barsinagar) work completed upto 30-06-2008 (RA No. 44) bills were
issued for hiring of equipment and for the same site for the period from 01-07-2008
onwards (RA No. 46) bills were issued for overburden removal based on quantity
removed per CUM. Similarly, for work at site of Rajpardi work completed upto 15-052008 (RA No. 05) bills were issued for hiring of equipment and for the same site for the
period from 01-06-2008 onwards (RA No. 06) bills were issued for overburden removal
based on quantity removed per CUM (All four bills available at file mentioned at Sr. No.
9 of Annexure – A of Panchnama dated 23-01-2012). There cannot be two system of
billing for the work carried out at a single site. This was purely manipulated for
suppressing the facts with an intent to evade payment of service tax in guise of exempted
services.
5.5 (i)
As stated above, in the years 2006-07 and 2007-08, M/s. Mahalaxmi
executed work as a sub-contractor of M/s. Ranjit Buildcon Ltd, Ahmedabad and M/s.
Sadbhav Engineering Ltd, Ahmedabad. For M/s. Ranjit Buildcon Ltd, Ahmedabad, M/s.
Mahalaxmi executed works at Barsinagar Lignite Mines, Rajasthan (work at this site
commenced on 07-08-2006 and still in progress as on date) & at Rajpardi Lignite Mines,
Gujarat (work at this site commenced on 07-08-2007 and concluded on 31-03-2008).
Similarly, for M/s. Sadbhav Engineering Ltd, Ahmedabad, M/s. Mahalaxmi had executed
works as sub-contractor at Khadsalia Lignite Mines, Bhavnagar (work at this site
commenced on 01-02-2006 and terminated on 31-03-2008) & at Bina Extension OCP of
NCL (work at this site commenced on 29-11-2007 and concluded on 28-11-2010). The
scope of the work of each agreement is highlighted herein below.
5.5(ii)
Agreement dated 21-09-2006 for Barsinagar, Bikaner, Rajasthan
Project: M/s. Mahalaxmi entered into agreement dated 21-09-2006 (RUD NO. 9) with
M/s. Ranjit Construction Ltd, Ahmedabad for removal of overburden material in all kinds
of strata, blasting, excavation, loading, transportation and dumping, spreading, dozing at
specified places for the exposure of lignite at Barsinagar Lignite Mine Project, Rajasthan,
at a consideration of Rs. 45.51 per cubic metre for 2,10,00,000 Cubic Metres to carry out
the above work for the terms and conditions contained herein, which are recorded by
executing this sub-contract agreement.
5.5(iii)
Agreement dated 20-09-2007 for Rajpardi Project: M/s. Mahalaxmi
entered into agreement dated 20-09-2007 (RUD NO. 10) with M/s. Ranjit Buildcon Ltd,
Ahmedabad for hiring of heavy earthmoving machinery for overburden removal and
lignite mining at Amod Lignite Mine, Rajpardi Project, District – Bharuch as a subcontractor. M/s. Ranjit Buildcon Ltd was awarded this contract by M/s. Gujarat Mineral
8
F. NO. STC/4-7/O&A/DGCEI/2012-13
Development Corporation Ltd. The scope of the work is specified in the said contract as
under: “Scope of the work shall be as per technical and special commercial conditions of
the major contract.
The Sub-Contractor shall be and hereby required to carry out above mentioned
work under direct control and supervision of the Contractor at the place, time and
in the manner defined in said major contract and subject to terms and conditions
specifically laid down in this agreement.
The Sub-Contractor shall be required to extract and dispatch 23.5 Lacs Metric
Tonnes of Lignite of such quality and specifications as required under major
contract, during the tenure of this agreement in accordance of instructions of the
Contractor.”
5.5(iv)
Agreement dated 09-06-2006 for works at GHCL Lignite Mine,
Khadsaliya, Bhavnagar Project: M/s. Mahalaxmi entered into agreement dated 09-062006 (RUD NO. 11) with M/s. Sadbhav Engineering Ltd, Ahmedabad for hiring of
heavy earth moving equipment for excavation and allied works at GHCL Lignite Mine,
Khadsaliya, Bhavnagar. M/s. Sadbhav Engineering Ltd was awarded this contract by
M/s. Gujarat Heavy Chemical Ltd. The scope of the work is specified in the said contract
as under: “The scope of work of the contract for hiring of Heavy Earth Moving Machinery
(HEMM) equipments for excavation includes:
(a) Excavation at all depths from original ground level (OGL) to a depth of 73m, in
strata consisting of top soil, laterite and murrom, ferruginous sandstone, grey
and variegated clay of compact and impervious nature.
(b) Dumping of over burden (O. B.) and leveling at dumping yard within the
leasehold area up to 2.2. KM lead as shown by the Project authorities of GHCL
and Project Manager (SEL).
(c) Cleaning of Lignite faces and exposure of lignite by excavator of 0.9 cubic meter
bucket capacity only.
(d) Loading of lignite by excavator of 0.9 cubic meter bucket capacity, inside the pit,
in tipper / dumper, transportation and unloading of Lignite at stock yard and
leveling the same with Dozer / Grader.
(e) In-pit loading of lignite directly in transporter’s truck at stockyard located in the
mining area.
(f) Any HEMM equipment of the deputed fleet that may be required by GHCL Ltd
on hiring basis for allied works, shall have to be provided by your on chargeable
basis as per mutually agreed terms, rates and conditions.
(g) You may encounter up to three lignite seams at places having carbonaceous
shale in between. You are required to remove these carbonaceous shale
partings in the best possible manner to avoid any dilution. While it may not be
possible to separate the thin carbonaceous shale parting systematically lying in
scattered manner, however, parting of +0.40 meter thickness shall have to be
independently excavated and dumped separately. It must be ensured by you that
carbonaceous shale is not mixed with lignite purposely during extraction and
loading of Lignite.”
5.5(v)
Agreement dated 12-10-2007 for Bina Extn OCP Project: M/s.
Mahalaxmi entered into agreement dated 12-10-2007 (RUD NO. 12) with M/s. Sadbhav
Engineering Ltd, Ahmedabad for removal of overburden of first dig (solid) by hiring of
equipment such as excavators, tippers / dumper, drills, dozer, graders and water tanker
for composite work consisting of blast hole drilling, blasting, excavation, loading,
transportation of broken rock / soil/ earth, unloading/dumping, spreading, dozing, water
sprinkling and grading etc. by mechanical means as per instruction of engineer incharge
at specified places at Bina Extension OCP of NCL, as a sub-contractor. The scope of the
work is specified in the said contract as under: -
9
F. NO. STC/4-7/O&A/DGCEI/2012-13
Approxima
te Quantity
42.74
Million
BCM
Weighted Rate/BCM (Rs. & Paise) Amount (Rs.)
Average
Lead
(KM)
Figure Words
Figures
s
2.866
29.38 Rupees Twenty 125,57,00,000
nine & paise
thirty eight only
Words
Rupees one hundred
twenty five crore fifty
seven lac only.
6.CLASSIFICATION OF SERVICES PROVIDED BY M/S. MAHALAXMI:
6.1
Intelligence gathered by DGCEI were found to be factual in as much as
M/s. Mahalaxmi had not paid service tax in the years 2006-07 and 2007-08 for the work
executed as sub-contractor. Moreover, in order to evade payment of service tax, M/s.
Mahalaxmi had shown the description of service as “hiring of equipments” in the
invoices issued in the years 2006-07 (Copies of invoices available in file mentioned at Sr.
No. 7 of Annexure – A of Panchnama dated 23-01-2012) and 2007-08 (Copies of bills
available in file mentioned at Sr. No. 8 of Annexure – A of Panchnama dated 23-012012) and 2008-09 (up to 10-07-2008) (Copies of invoices available in file mentioned at
Sr. No. 9 of Annexure – A of Panchnama dated 23-01-2012). Value of income is arrived
at by multiplying rate per hour with unit of working viz., hours or trips. That is M/s.
Mahalaxmi claimed that they had given equipments on hiring. Service of hiring of
equipment was brought under service tax net w.e.f. 16-05-2008, therefore they portrayed
as if they provided hiring of equipment service in the years 2006-07 and 2007-08. To
support their claim of hiring of equipments, they also fabricated separate agreement for
this purpose to show their contention as genuine. Copies of fabricated agreements dated
21-09-2006 (RUD NO. 13) entered between M/s. Mahalaxmi Engineering Co, Bhuj and
M/s. Ranjit Construction Co., Ahmedabad showing subject as Hiring of Hydraulic
Excavators, Dozors, Dumpers, Rollers, etc equipment for mining work at Neyveli Lignite
Project, Barsinagar, Rajasthan and another agreement dated 15-11-2007 (RUD NO. 14)
entered between M/s. Mahalaxmi Engineering Co, Bhuj and M/s. Ranjit Construction
Co., Ahmedabad showing subject as Hiring of Hydraulic Excavators, Dozors, Dumpers,
Rollers, etc equipment for mining work at Amod Lignite Projects, Rajpardi were also
retrieved from the office premises of M/s. Mahalaxmi during the course of search
conducted on 23-01-2012. These above mentioned agreements were on the letter head of
M/s. Ranjit Construction Co., Ahmedabad.
6.2
Nevertheless, from the documents seized under panchnama it was found
that there was original agreement dated 20-09-2007 entered between M/s. Ranjit
Buildcon Ltd, Ahmedabad and M/s. Mahalaxmi Engineering Co, Bhuj for hiring of heavy
eathmoving machinery of over burden removal and lignite mining at Amod Lignite Mine,
Rajpardi Project, District – Bharuch. This agreement was executed on the non-judicial
stamp paper of value of Rs. 100/-.
6.3
Similarly, Shri Hiralal Dholu, Director of M/s. Mahalaxmi produced copy
of original agreement dated 21-09-2006 entered between M/s. Ranjit Construction Co.,
Ahmedabad and M/s. Mahalaxmi Engineering Co., Bhuj for over burden removal in all
kinds of strata, including its drilling, blasting, excavation, loading, transport and
dumping, spreading, dozing at specified places for the exposure of lignite at Barsinagar
Lignite Mine Project, Rajasthan. This agreement was executed on the non-judicial stamp
paper of value of Rs. 100/-.
6.4
Further, Shri Hiralal Dholu, Director of M/s. Mahalaxmi produced copy of
original agreement dated 09-06-2006 entered between M/s. Sadbhav Engineering Ltd,
Ahmedabad and M/s. Mahalaxmi Engineering Co., Ahmedabad for excavation of all
depths from original ground level to a depth of 73m, dumping of overburden and leveling
10
F. NO. STC/4-7/O&A/DGCEI/2012-13
at dumping yard, cleaning of lignite faces, loading of lignite by excavator of 0.9 cubic
meter bucket capacity, inside the pit, in tipper / dumper, transportation and unloading of
lignite from stockyard in transporters truck at stock yard located in the mining area. This
agreement was executed on the non-judicial stamp paper of value of Rs. 100/-.
6.5
From the information furnished above, it was established that M/s.
Mahalaxmi was engaged in providing services which were mainly relating to removal of
overburden of first dig (solid) by hiring of equipment such as excavators, tippers /
dumper, drills, dozer, graders and water tanker for composite work consisting of blast
hole drilling, blasting, excavation, loading, transportation of broken rock / soil/ earth,
unloading/dumping, spreading, dozing, water sprinkling and grading etc. by mechanical
means as per instruction of engineer incharge at specified places. This fact was also
admitted by Shri Hiralal Dholu, Director of the company in his statements dated 23-012012 and 13-03-2012. Thus, the classification of their activities under supply of tangible
goods service is not tenable. M/s. Mahalaxmi indeed fabricated documents to escape
service tax liability projecting as if they only hired mining equipments. However, their
stand was disproved in investigation on the basis of material evidences gathered and the
same was also accepted by them.
6.6
In order to determine classification of a taxable service, one has to take
recourse to provisions of Section 65A of the Finance Act, 1994 wherein details for
classification of taxable service is prescribed. This section reads as under: 65A. Classification of taxable services – (1) For the purposes of this chapter,
classification of taxable services shall be determined according to the terms of the
sub-clauses (105) of section 65;
(2) When for any reason, a taxable service is prima facie, classifiable under two
or more sub-clauses of clause (105) of section 65, classification
shall be effected as follows :(a) the sub-clause which provides the most specific description shall be
preferred to sub-clauses providing a more general description;
(b) composite services consisting of a combination of different services which
cannot be classified in the manner specified in clause (a), shall
be classified as if they consisted of a service which gives them their essential
character, in so far as this criterion is applicable;
(c) when a service cannot be classified in the manner specified in clause (a) or
clause (b), it shall be classified under the sub-clause which
occurs first among the sub-clauses which equally merits consideration;]
6.7
In the instant case, services provided by M/s. Mahalaxmi was relating to
removal of overburden by hiring of equipment such as excavators, tippers / dumper,
drills, dozer, graders and water tanker for composite work consisting of blast hole
drilling, blasting, excavation, loading, transportation of broken rock / soil/ earth,
unloading/dumping, spreading, dozing, water sprinkling and grading etc. by mechanical
means as per instruction of engineer incharge at specified places, as exemplified in their
agreements entered for this purpose. Therefore the service provided was appropriately
classifiable under “Site formation and clearance, excavation and earthmoving and
demolition service”.
6.8(i)
To understand the nature of services covered under Site formation and
clearance, excavation and earthmoving and demolition service, it may be pertinent to
refer to the definition given in the statute. In sub-clause (97a) of Section 65 of the
Finance Act, it is defined as,
“Site formation and clearance, excavation and earthmoving and demolition”
includes,(i) Drilling, boring and core extraction services for construction, geophysical,
geological or similar purposes; or
(ii) Soil stabilization; or
11
F. NO. STC/4-7/O&A/DGCEI/2012-13
(iii) Horizontal drilling for the passage of cables or drain pipes; or
(iv) Land reclamation work; or
(v) Contaminated top soil stripping work; or
(vi) Demolition and wrecking of building, structure or road,
but does not include such services provided in relation to agriculture, irrigation,
watershed development and drilling, digging, repairing, renovating or restoring of
water sources or water bodies.
6.8(ii) Further, Section 65(105)(zzza) of Finance Act, 1994 as amended “Taxable
service” means any service provided or to be provided to any person, by any person, in
relation to site formation and clearance, excavation and earthmoving and demolition and
such other similar activities.
6.8(iii)The CBEC vide M.F.(D.R.) letter F.No.B1/6/2005-TRU dated 27-07-2005
clarified that the definition of site formation and clearance, excavation and earthmoving
and demolition is an inclusive definition and the activities specifically mentioned are
indicative and not exhaustive. Prior to construction of buildings, factory or any civil
structure, activity of mining or laying of cables or pipes, preparation services of site
formation and clearance, excavation and earth moving or levelling are normally
undertaken for a consideration who make the land suitable for such activities. Such
services include blasting and a rock removal work, clearance of under growth, drilling
and boring, overburden removel and other development and preparation services of
mineral properties and sites, and other similar excavating and earthmoving services.
Demolition of structures, buildings, street or highways is also undertaken for a
consideration as a preparatory activity for subsequent construction activity or for clearing
the site for any other purpose. All such activities fall under the scope of this service.
However, site formation and clearance, excavation and earthmoving and demolition
services when provided in relation to agriculture, irrigation, watershed development and
drilling, digging, repairing, renovating or restoring of water sources or water bodies are
specifically excluded and not within the scope of this service. Notification No.17/2005ST dated 07-06-2005 exempts this service provided in the course of construction of
roads, airports, railways, transport terminals, bridges, tunnels, dams major and minor
ports.
6.8(iv)
From the above, it is absolutely clear that the services provided by M/s.
Mahalaxmi were in the nature of blasting and a rock removal work, clearance of under
growth, drilling and boring, overburden removal and other development and preparation
services of mineral properties and sites, and other similar excavating and earthmoving
services, as explained in the above said Circular dated 27-07-2005.
6.8(v)
Further, M/s. Mahalaxmi had initially claimed that they were in the
business of hiring of equipment and to substantiate their claim, they had also concocted
documents to this effect to escape service tax payment. After being proved from the
material evidences by DGCEI that they were not in the business of hiring of equipments,
they claimed classification under mining of mineral, oil or gas service and agreed to pay
service tax from 01-06-2007. But the fact was that the services provided by M/s.
Mahalaxmi mainly relating to excavation / drilling and removal of over burden and the
same was appropriately classifiable under site formation and clearance, excavation and
earthmoving and demolition service. The CBEC vide letter F. No. 232/2/2006-CX.4
dated 12-11-2007 clarified that, the mining sector (such as the coal mines, mining of ores,
etc) mainly receive the following type of services, mostly on contract basis:(i) Excavation/ drilling and removal of the over burdens (i.e., stratum, layer of mud,
boulders, etc, that needs to be removed during or prior to extraction of coal /
minerals) – This type of activities are classifiable under Site Formation and
Clearance, Excavation and Earthmoving and Demolition Services w.e.f. 16-062005.
12
F. NO. STC/4-7/O&A/DGCEI/2012-13
(ii) Coal cutting and mineral extraction and lifting them upto pit head – This type of
activities are classifiable under “Mining of Minerals, Oil and Gas Service w.e.f.
01-06-2007.
(iii) Handling and transportation of coal / mineral from pit head to a specified location
within the mine / factory or for transportation outside the mines. This types of
activities are chargeable to service tax under “Cargo Handling Service w.e.f. 1608-2002 or under Transport of Goods by Road Service w.e.f. 01-01-2005.
6.8(vi)
From the above clarification dated 12-11-2007, it could be said that every
activity carried out within the mining areas was not classifiable under mining of mineral,
oil or gas service. Classification was to be determined based on the specific nature of
service provided. It was amply clear from the agreements that M/s. Mahalaxmi has
provided services relating to Excavation/ drilling and removal of the over burdens (i.e.,
stratum, layer of mud, boulders, etc, that needs to be removed during or prior to
extraction of coal / minerals). Therefore this type of activities are appropriately
classifiable under Site Formation and Clearance, Excavation and Earthmoving and
Demolition Services.
6.9
From the information given above, it could be seen that M/s. Mahalaxmi
had been providing services relating to Site Formation and Clearance, Excavation and
Earthmoving and Demolition Services. Work carried out relating to site formation is
taxable w.e.f. 16-06-2005. Therefore, service tax was recoverable from M/s. Mahalaxmi
under site formation service from 01-10-2006 onwards. Information compiled from the
copies of RA bills received from M/s. Mahalaxmi revealed that they had not paid service
tax amounting to Rs. 6,44,48,537/- (which includes education cess of Rs. 12,56,531/and higher & secondary cess of Rs. 3,65,457/-) on the value of services of Rs.
52,35,54,570/- received from their customers / employers from October, 2006 to July,
2008. The billwise information of value of services provided, amount of service tax,
education cess and higher and secondary education cess payable is furnished in
ANNEXURE – A enclosed to this notice.
7.
LIABILITY TO PAY SERVICE TAX BY M/S. MAHALAXMI WHERE
SERVICE PROVIDED AS SUB-CONTRACTOR:7.1
The contention of M/s. Mahalaxmi was examined to ascertain whether their
stand of non-existance of liability to pay service tax on sub-contractor when main
contractors are paying service tax on the entire value of contract.
7.2
For determining whether service provided was taxable or otherwise, one
has to resort to the definition of the service provided under Section 65 of the Finance Act,
1994. As detailed above, M/s. Mahalaxmi provided site formation and clearance,
excavation and earthmoving and demolition services to M/s. Ranjit Buildcon Ltd and
M/s. Sadbhav Engineering Ltd. Therefore M/s. Mahalaxmi was liable to pay service tax.
In Chapter V of the Finance Act, 1994, there is no category of service provider called
sub-contractor.
7.3
Besides, the CBEC vide Circular No. 96/7/2007-ST dated 23-08 2007 has
clarified the issue of taxability of service provided as sub-contractor as under: 999.03 / A taxable service provider outsources A sub-contractor is essentially a
23.08.07 a part of the work by engaging
taxable service provider. The fact that
another service provider, generally
services provided by such subknown as sub-contractor. Service tax contractors are used by the main
is paid by the service provider for the service provider for completion of his
total work. In such cases, whether
work does not in any way alter the
service tax is liable to be paid by the fact of provision of taxable service by
service provider known as subthe sub-contractor.
contractor who undertakes only part
13
F. NO. STC/4-7/O&A/DGCEI/2012-13
of the whole work.
Services provided by sub-contractors
are in the nature of input services.
Service tax is, therefore, leviable on
any taxable services provided,
whether or not the services are
provided by a person in his capacity
as a sub-contractor and whether or
not such services are used as input
services. The fact that a given taxable
service is intended for use as an input
service by another service provider
does not alter the taxability of the
service provided.
7.4
In the above clarification, it was amply clarified that taxability of service
provided by a service provider was to be determined on the basis of nature of service
provided. The fact that a given taxable service is intended for use as an input service by
another service provider does not alter the taxability of the service provided. Therefore
the contention of M/s. Mahalaxmi was not tenable.
8.
RECOVERY OF SERVICE TAX NOT PAID FROM M/S. MAHALAXMI:
8.1
Shri Hiralal Dholu, Director of M/s. Mahalaxmi in his statement dated 2301-2012 stated that the reason for not paying service tax was due to the fact that they
work as sub-contractor to their main contractors, who were paying service tax on the
entire amount of contract. M/s. Mahalaxmi’s contention was baseless and in violation of
provisions of Section 65 of the Finance Act, 1994. Every taxable service provider was
liable to pay service tax. There is no clause of service provider called sub-contractor
exists in the statute. This position is amply clarified vide the CBEC’s Circular No.
96/7/2007-ST dated 23-08 2007.
8.2
Scrutiny of documents revealed that M/s. Mahalaxmi had not paid service
tax amounting to Rs. 6,44,48,537/- (which includes education cess of Rs. 12,56,531/and higher & secondary cess of Rs. 3,65,457/-) (Rupees six crore forty four lakh
forty eight thousand five hundred thirty seven only) during the period from October,
2006 to July, 2008 under site formation and clearance, excavation and earthmoving and
demolition services. Billwise details of service provided and service tax payable is
furnished in ANNEXURE-A enclosed to this notice.
8.3
However, on being pointed out, though they admitted the short payment of
service tax, they made payment of service tax of Rs. 1,00,00,000/ (Rupees one crore
only) vide e-payment challans as given below:
Challan No. Date
7
71
16
38
TOTAL
30-01-2012
17-02-2012
03-03-2012
20-03-2012
Amount of Service Tax(in Rs.)
Service Tax Edu. Cess HSE Cess Total
24,27,184
48,544
24,272
25,00,000
24,27,184
48,544
24,272
25,00,000
24,27,184
48,544
24,272
25,00,000
24,27,184
48,544
24,272
25,00,000
97,08,736 1,94,176
97,088 1,00,00,000
8.4
Further, they had not paid any interest on the delayed payment of service
tax. Therefore, the remaining amount of service tax was required to be recovered from
M/s. Mahalaxmi along with interest.
14
F. NO. STC/4-7/O&A/DGCEI/2012-13
9.
CONTRAVENTION OF PROVISIONS OF THE FINANCE ACT, 1994:
9.1
Section 65A of the Finance Act, 1994 lays down the procedure for the
appropriate classification of taxable services. In the instant case, M/s. Mahalaxmi
wrongly claimed classification of their services as hiring of equipment by concocting
document to this effect to hide the site formation and clearance, excavation and
earthmoving and demolition services provided by them. Thus, they had contravened
provisions of this section;
9.2
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. In the instant case, M/s.
Mahalaxmi did not pay service tax payable / short paid during the period from October,
2006 to July, 2008;
9.3
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. But M/s. Mahalaxmi had not applied for
registration under site formation and clearance, excavation and earthmoving and
demolition service in accordance with this section.
9.4
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 halfyear. M/s. Mahalaxmi had provided taxable services, however they did not file ST-3
returns during the period of 2006-07 and 2007-08 and thus it can be said that they had
deliberately failed to file ST-3 returns in order to suppress the facts regarding taxable
services provided by them with the intention of evading the payment of Service Tax.
10.
In view of above, it appeared that M/s. Mahalaxmi had not paid service tax
by way of willful mis-statement, suppression of facts and in contravention of provisions
of the Finance Act, 1994 and rules made there under relating to levy and collection of
service tax with an 'intent' to evade the payment of service tax. M/s. Mahalaxmi
intentionally did not obtain service tax registration and file ST-3 returns declaring the
information relating to services provided and service tax paid by them. 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.
11.
M/s. Mahalaxmi had not paid the service tax on the gross amount of taxable
services provided by them. It therefore, appeared that they had rendered themselves
liable to penal action under Section 76 of the Finance Act, 1994. Further, it appeared that
M/s. Mahalaxmi had mis-declared/ suppressed/concealed the value of taxable service
with an intent to evade service tax. They had not paid service tax by way of willful misstatement, suppression of facts and contravention of provisions of Finance Act, 1994 and
rules made thereunder relating to levy and collection of service tax with an 'intent' to
evade the payment of service tax. It therefore, appeared that M/s. Mahalaxmi were liable
to penal action under Section 78 of the Finance Act, 1994.
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F. NO. STC/4-7/O&A/DGCEI/2012-13
12.
Further they were also liable for penalty under Section 77 of the Finance
Act, 1994 for not obtaining service tax registration within the stipulated time, for misdeclaration of services provided and for not filing of ST-3 returns with Service Tax
department for the year 2006-07 and 2007-08.
13.
Therefore, a show cause notice bearing F.No.DGCEI/AZU/36-15/2011-12
dated 18.04.2012 was issued to M/s. Mahalaxmi Infracontract Pvt. Ltd. Ahmedabad by
the Additional Director General, DGCEI, AZU, Ahmedabad to show cause to the
Commissioner of Service Tax, Ahmedabad as to why:(i)
Service tax amounting to Rs. 6,44,48,537/- (which includes education cess of
Rs. 12,56,531/- and higher & secondary cess of Rs. 3,65,457/-) (Rupees six
crore forty four lakh forty eight thousand five hundred thirty seven only),
which was not paid by them under “Site Formation And Clearance, Excavation
And Earthmoving And Demolition Service”, 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)
Service tax of ` 1,00,00,000/- (which includes education cess of Rs. 1,94,176/and higher & secondary education cess of Rs. 97,088/-) (Rupees one crore
only) paid by them during the course of investigation, as detailed in para 8.3 of
this notice, should not be appropriated against their liability as mentioned at (i)
above;
(iii)
Interest at appropriate rate should not be demanded and recovered from them on
the amount of service tax not paid as mentioned at (i) above, under the provisions
of Section 75 of the Finance Act, 1994;
(iv)
Penalty under the provisions of Section 76 of the Finance Act, 1994, as amended,
should not be imposed upon them for failure to pay Service Tax, as mentioned
hereinabove;
(v)
Penalty under the provisions of Section 77 of the Finance Act, 1994, as amended,
should not be imposed upon them for contravention of provisions of the Finance
Act, 1994, as explained hereinabove;
(vi)
Penalty under Section 78 of the Finance Act, 1994, as amended, should not be
imposed upon them for suppressing the full value of taxable services and material
facts from the department resulting into non-payment/late payment of Service Tax
as explained herein above.
DEFENCE REPLY :
14.
M/s Mahalaxmi vide letter dated 15.01.2013 submitted their reply to the show
cause notice.
15.
15.1
They denied all the charges leveled against them and protests the same, inter alia,
on the following grounds, which are without prejudice to each other and are in
addition to the grounds those may be taken up at the time of hearing.
Activities were classifiable under “Mining of Minerals, oil Gas Services:
It has been proposed to recover service tax of Rs. 6,44,48,537 for the period
October 2006 to July 2008 under the category of “Site Formation and clearance,
Excavation and Earth Moving and demolition Services”, which was introduced
with effect from 16th May, 2006.
16
F. NO. STC/4-7/O&A/DGCEI/2012-13
15.2
Definition of “Site Formation Services” as defined under Section 65(97)(a) of the
Finance Act, 1994 (Act) reads as under:
“(97a) “Site formation and clearance, excavation and earthmoving and
demolition” includes;(i)
drilling, boring and core extraction services for construction,
geophyusical, geological or similar purposes or
(ii)
soil stabilization or
(iii) horizontal drilling for the passage or cables or drain pipes
(iv) land reclamation work
(v)
contaminated top soil stripping work
(vi) demolition and wrecking of building, structure or read
but does not include such service provided in relation to agriculture,
irrigation, watershed development and drilling, digging, repairing,
renovating or restoring of water sources of water bodies
15.3
They drew attention to Circular No. B1/6/2005-TRU, dated 27th July, 2005 and
Circular No. 231/2/2006-CX-4, dated 12th November, 2007 wherein it has been
specifically clarified that activities of Site Formation, etc., carried out prior to
beginning of construction to make the land suitable only are taxable under the
category of Site Formation Services.
It was also clarified that excavation, drilling and removal over-burden, coal
cutting, mining, extraction and lifting upto the pit-head are essentially integral part
of mining operations, which is taxable from 1st June, 2007 only.
They also drew attention to minister’s letter DOF NO. 334/1/2007 TRU Dt.
28.02.2007, wherein it has been clarified that, exploration and Mining of Minerals,
Oil or Gas are comprehensively brought under Service Tax in mining services.
15.4
They drew attention to the provisions of Section 65A of the Act, which was
reproduced hereunder:
65A. 1[Classification of taxable services]
(1) For the purposes of this Chapter, classification of taxable services shall be
determined according to the terms of the sub-clauses of clause (105) of section 65.
(2) When for any reason, a taxable service is, prima facie, classifiable under two
or more sub-clauses of clause (105) of section 65, classification shall be effected
as follows:—
(a) the sub-clause which provides the most specific description shall be
preferred to sub-clauses providing a more general description;
(b) composite services consisting of a combination of different services which
cannot be classified in the manner specified in clause (a), shall be classified as if
they consisted of a service which gives them their essential character, insofar as
this criterion is applicable;
(c) when a service cannot be classified in the manner specified in clause (a) or
clause (b), it shall be classified under the sub-clause which occurs first among
the sub-clauses which equally merit consideration.
2
[(3) The provisions of this section shall not apply with effect from such date as
the Central Government may, by notification, appoint.]
15.5
Interpretation of above Section read with above referred circulars clearly
establishes that activities carried out by them were in the nature of Mining
Services and not Site Formation Services.
15.6
They relied on the following judgments in which it has been decided that
extraction, removal of over-burden, etc., are in the nature of mining services.
(1) M. Ramkrishna Reddy Vs. CCE & Custom
(2009) 18 STT 465 (Bang. CESTAT, Tirupathy)
(2) National Mining Co. Ltd. Vs. CCE, Dibrugarh,
(2008) 12 STT 447 (CESTAT Kolkata) (2008) 10 STR 136
17
F. NO. STC/4-7/O&A/DGCEI/2012-13
(CESTAT) Kolkata
15.7
The facts of the case were identical to that of the cases quoted herein above and,
therefore, demand raised under the “Site Formation Service” cannot be sustained.
15.8
Apart from the above, they drew attention that contract with the main contractor
was continued even after completion of the disputed period and, therefore, for the
same activities under the same contract, the Assessee has paid service tax under
Mining Services and ST-3 Returns are also filed accordingly and are accepted by
the Department without disputing the classification.
15.9
Thus, in view of the above activities were classifiable under Mining Services and
not under Site Formation Services.
15.10 It is settled law that particular activities made taxable from a particular date cannot
be taxed prior to that date. They took support of following judgments:
(1) Gujarat Chem Port. Terminal Co. Ltd. Vs. CCE & C, Vadodara-II,
2008 (9) STR 386 (Tri. Ahmedabad)
(2) Geo Foundation & Structure (P) Ltd. Vs. CCE & CC
Appeal No. ST/111/2007 Dt. 02.02.09 (Bang. CESTAT)
15.11 In the facts and circumstances of the case and in law they were not at all liable to
pay service tax under the Site Formation Service
SAME ACTIVITY CAN NOT BE TAXED TWICE:
15.12 The search party had also observed and accepted that they were given back to back
contract by the main contractors.
15.13 Thus entire activities were carried out by them and has not received any amount
from Mining Company directly.
15.14 It has also been beyond doubt established that the main contractors has paid
service tax in full on entire contract value.
15.15 They were furnished by Ranjit Bunildcon Ltd. a copy of letter issued Joint
Commissioner of Service Tax, Ahmedabad guiding that sub contractors are not
liable to service tax, if entire amount of service tax was paid by Ranjit Bunildcon
Ltd. the main contractor.
15.16 In addition to above referred letter issued by Joint Commissioner of Service Tax,
Ahmedabad they also took support of circular No. B/43/4/97 TRU dt.02.07.1997
according to which sub contractors were not liable to service tax, if entire amount
of service tax is paid by the main contractor.
15.17 Relying upon the said circular, the Honourable CESTAT in the case of KochGlitsch India Ltd, has decided that sub contractors are not liable to service tax as
the same activity can not be taxed twice.
15.18 Even assuming without admitting that they were liable to pay service tax then also
liability shall arise only after 23.08.2007 the date of circular No. 96/7/2007 dt.
23.08.2007 in which it has been clarified that sub contractors are also liable to
service tax the liability from 23.08.2007 to 31.07.2008 may be worked out at Rs.
2,96,71,134/- out of which Rs. 1,00,00,000/- has already been paid.
18
F. NO. STC/4-7/O&A/DGCEI/2012-13
15.19 However, since the entire amount of service tax is paid by the main contractors,
they be exempted from making of payment of service tax from 23.08.2007 to
31.07.2008.
15.20 If it is of the view that they were liable to service tax then also it will be a revenue
neutral and therefore there is no revenue loss and therefore a specific direction be
given allowing the main contractors a Cenvat Credit of service tax paid by them.
Extended period cannot be invoked:
15.21 It has been proposed to recover the service tax under Site Formation Service by
invoking the provisions of Extended Period on the ground that they had
suppressed the facts from the Department.
15.22 Section 73 of the Finance Act, 1994 provides for recovery of service tax not levied
or paid or short levied or short paid or erroneously refunded. According to the
provisions of section 73(1) of the Act where any service tax has not been levied or
paid or has been sort levied or short paid or erroneously refunded the Central
Excise Officer may within one year from the relevant date, serve notice on the
person chargeable with the service tax which has not been levied or paid or which
has been short levied or short paid or the person to whom such tax refund has
erroneously been made, requiring to show cause why he should not pay the
amount specified in the notice.
The limitation of period can be invoked up to five years from the relevant date by
the department by under of the proviso to section 73(1) of the Act where any
service tax has not been levied or paid or has been short levied or short paid or
erroneously refunded by reasons of –
*
fraud ; or
*
collusion; or
*
willful misstatement ; or
*
suppression of facts, or
*
contravention of any of the provisions of the service tax or of the rules
made there under with intent to evade payment of service tax.
by the person chargeable with service tax or his agent.
Extended period of limitation would be applicable only in the above circumstances.
15.23 Facts were known to the Department:
(a)
They, as stated herein above, under the guidelines issued by the Joint
Commissioner of Service Tax, Ahmedabad, vide letter No STC/4115/CLF/2006 dated 31.01.2006 did not pay service tax as a sub-contractor.
The Department was fully aware about the activities being carried out by
them, and therefore, there was no suppression of facts and that too with an
intent to evade payment of service tax.
(b)
It was submitted that there was no fact which was not known to the
Department. Departmental audit was also completed for the period
2006-2007 to 2008-09 and audit report was also served to them on
which all audit paras were settled. Further, they did not willfully
suppress the fact and there was no failure to disclose fully or truly the
material fact. The Department never asked for any information which
they failed to disclose. They had always cooperated the Department in
their proceedings and has always provided the details asked for by the
Department and never suppressed any facts from the Department. It was
submitted that the Hon’ble Supreme Court in the case of Padmini Products
Limited v CCE 1989 (43) ELT 195 (SC) held as follows in this regard:
(a) 8. Shri V. Lashmikumaran, learned Counsel for the Noticee drew our
attention to the observations of this Court in Collector of Central
19
F. NO. STC/4-7/O&A/DGCEI/2012-13
Excise, Hyderabad v. M/s. Chemphar Drugs and Liniments, Hyderabad
– 1989(40)E.L.T. 276 (S.C)- 1989 (2) SCC 127 where at page 131 of
the report, this Court observed that in order to sustain an order of the
Tribunal beyond a period of six months and upto a period of 5 years
in view of the proviso to sub-section (1) of Section 11-A of the Act, it
had to be established that the duty of excise had not been levied or
paid or short-levied or short-paid, or erroneously refunded by reasons
of either fraud or collusion or willful mis-statement or suppression of
facts or contravention of any provision of the Act or Rules made
thereunder, with intent to evade payment of duty. It was observed by
this Court that something positive other than mere inaction or failure
on the part of the manufacturer or producer or conscious or deliberate
withholding of information when the manufacturer knew otherwise, is
required before it is saddled with any liability beyond the period of six
months had to be established. Whether in a particular set of facts and
circumstances there was any fraud or collusion or willful misstatement of suppression or contravention of any provision of any Act,
is a question of fact depending upon the facts and circumstances of a
particular case”
(b) They further drew support from the judgment of the Hon’ble Supreme
Court in the case of CCE V/s Chemphar Drugs and Liniments 1989
(40) ELT 276 (SC) 1989, wherein the Hon’ble Supreme Court held as
follows:9. Aggrieved thereby, the Revenue has come up in appeal to this
Court. In our opinion, the order of the Tribunal must be
sustained. In order to make the demand for duty sustainable
beyond a period of six months and up to a period of 5 years in
view of the proviso to sub-section (1) of Section 11-A of the Act,
it has to be established that the duty of excise has not been levied
or paid or short-levied or short-paid, or erroneously refunded by
the reasons of either fraud or collusion or willful misstatement or
suppression of facts or contravention of any provision of the Act
or rules made thereunder, with intent to evade payment of duty.
Something positive other than mere inaction or failure on the
part of the manufacturer or producer or conscious or deliberate
withholding of information when the manufacturer knew
otherwise, is required before it is saddled with any liability,
before (six beyond) the period of six months. Whether in a
particular set of facts and circumstances there was any fraud or
collusion or willful misstatement or suppression or contravention
of any provision of any Act, is a question of fact depending upon
the facts and circumstances of a particular case. The Tribunal
came to the conclusion that the facts referred to hereinbefore
does not warrant any inference of fraud. The assessee declared
the goods on the basis of their belief of interpretation of the
provisions of the law that the exempted goods were not required
to be included and these did not include the value of the
exempted goods which they manufactured at the relevant time.
The Tribunal found that explanation was plausible, and also
noted that the department had full knowledge of the facts about
manufacture of all the goods manufactured by the respondent
when the declaration was filed by the respondent. The
respondent did not include the value of the product other than
those falling under T.I. 14-E manufactured by the respondent and
this was in the knowledge, according to the Tribunal of the
authorities. These findings of the Tribunal have not been
20
F. NO. STC/4-7/O&A/DGCEI/2012-13
challenged before us or before the Tribunal itself as being based
on no evidence.
They submitted that the charges leveled on them were liable to be dropped on this
ground of limitation alone.
15.24) Noticee was under bona fide belief about non-taxability:
(a)
They were under bona fide belief that activities carried out by it were not
taxable under Site Formation Services and was not liable to pay service tax
also as a sub-contractor. The bona fides of the Noticee was on the basis of
facts and circumstances mentioned herein below. They took support of
following case:
(1)
Catalyst Capital Service (P) Ltd. Vs. CCE
(2005) 1 STT 241 (Mumbai CESTAT)
(2)
Marketforce Chennai (P) Ltd. Vs. CCE
(2007) 8 STR 175 (Tri. Chennai)
(b)
On the same set of facts in the following cases it has been decided that such
activities were not taxable under Site Formation Services:
(1)
M. Ramkrishna Reddy Vs. CCE & Custom
(2009) 18 STT 465 (Bang. CESTAT, Tiraputhy)
(2)
National Mining Co. Ltd. Vs. CCE, Dibragarh,
(2008) 12 STT 447 (CESTAT Kolkata)
(c)
They took support of the case law wherein it has been decided that when
there is a Tribunal judgment in favour of the Assessee and it did not
pay service tax, then suppression cannot be alleged and Extended
Period cannot be invoked.
Diamond Cement Ltd V/s CCE, Bhopal
2012 (283) ELT 226 (Tri-Del);
(d)
They took support of following decisions:
Decision
Ratio of judgment
(a) (1) M. Ramkrishna Reddy Vs. CCE &
Activities are not site
Custom, Tirapathy
(2009) formation. But fall under
18 STT 465 (Bang. CESTAT)
mining services.
(2)
National Mining Co. Ltd. Vs. CCE,
Dibrugarh,
(2008) 12 STT 447 (CESTAT Kolkata)
(b)(1) Koch – Glitsch India Ltd. Vs. CCE & Sub-contractors are
Custom, Vadodara-1, 2009 (13) STR 636 (Tri. liable to service tax.
Ahmedabad
(2) Urvi Construction Vs. CST Ahmedabad
2010 (17) STR 302 (Tri, Ahmedabad)
(c)Circular No. B/43/4/97 TRU Dt. 02.07.1997 Sub-contractors are
liable to service tax.
15.25
not
not
(a) It has been alleged that they executed an agreement with the main
contractor and raised the bills under wrong description.
(b) As stated earlier and also confirmed by the Department in Show Cause
Notice that they were given back-to-back contract by the main contractor.
The entire work was carried out by them and, therefore, the agreement of
sub-contract was executed on the same lines of agreement with the main
contractor and the mining company.
21
F. NO. STC/4-7/O&A/DGCEI/2012-13
(c) The Department has never disputed the activities and the nature of work
carried out by them. And, looking to the activities, the same were not
taxable under Site Formation Services, and therefore, such allegation that
they had not paid service tax by giving wrong description with an intent to
evade payment of service tax is not tenable.
No Penalty can be imposed:
15.26 It has been proposed to charge interest u/s. 75 and to impose penalties u/s. 76, 77
and 78 of the Act.
15.27 The penal provisions are only a tool to safeguard against contravention of the rules.
They submitted that they had always been under the bonafide belief that credit
taken by them was legally available to it as mentioned in Show Cause Notice.
Such bonafide belief was based on the grounds given above. There was no
intention to evade payment of service tax as mentioned in the ground above.
Therefore, no penalty was imposable in the present case.
15.28 In support of the above view, reliance was placed on the decision of the Hon’ble
Supreme Court in the case of Hindustan Steel Ltd., v. The State of Orissa reported
in AIR 1970 (SC) 252. The above decision of the Apex Court, was followed by
the Tribunal in the case of Kellner Pharmaceuticals Ltd., Vs. CCE, reported in
1985 (20) ELT 80, and it was held that proceedings under Rule 173Q are quasicriminal in nature and as there was no intention on the part of the Noticee to evade
payment of duty the imposition of penalty cannot be justified. The ratio of these
decisions squarely applies in all force to the present case. In the present case, there
was neither any malafide intention nor any intention to evade payment of tax. In
view of the foregoing, no penalty is imposable.
15.29 It was submitted that penalty under section 78 of the Act can be imposed only for
willful suppression with an intent to evade payment of service tax. They submitted
that it has not suppressed any value/fact and that too with an intention to evade
payment of service tax. Therefore, penalty under Section 78 of the Act cannot be
imposed in the present case. Reliance was placed on the judgment of the Hon’ble
Supreme Court in the case of Akbar Badruddin Jiwani V/s Collector of Customs,
1990 (047) ELT 061 SC, wherein the Hon’ble Supreme Court has held follows:
57. Before we conclude it is relevant to mention in this connection that even
if it is taken for arguments sake that the imported article is marble falling
within Entry 62 of Appendix 2, the burden lies on the Customs Department
to show that the Noticee has acted dishonestly or contumaciously or with
the deliberated or distinct object of breaching the law.
[Emphasis supplied]
15.30 There is no mens rea or contumacious conduct on the part of the assessee to evade
service tax. The non payment of service tax and failure to follow the other
formalities occurred not due to assessee’s intention to evade the payment of tax.
15.31 They submitted that even if any contravention of provision is alleged it was solely
on account of their bonafide belief as discussed above. Such bonafide belief was
based on the reasons stated above. The contravention, if any, was not with the
intention to willfully evade payment of service tax. Reliance is placed on the
judgment of Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals
Company V. CCE 1995 (78) ELT 401(SC) wherein it was held as follows:4.
Section 11A empowers the Department to re-open proceedings if the
levy has been short levied or not levied within six months from the
relevant date. But the proviso carves out an exception and permits the
22
F. NO. STC/4-7/O&A/DGCEI/2012-13
authority to exercise this power within five years from the relevant date
in the circumstances mentioned in the proviso, one of it being
suppressions of facts. The meaning of the word both in law and even
otherwise is well known. In normal understanding it is not different
then what is explained in various dictionaries unless of course the
context in which it has been used indicates otherwise. A perusal of the
proviso indicates that it has been used in company of such strong
words as fraud, collusion or willful default. In fact, it is the mildest
expression used in the proviso. Yet the surroundings in which it has
been used it has to be construed strictly. It does not mean any
omission. The act must be deliberate. In taxation, it can have only one
meaning that the correct information was not disclosed deliberately to
escape from payment of duty. Where facts are known to both the
parties the omission by one to do what he might have done and not that
he must have done, does not render it suppression.
15.32 Similar was the view of the Hon’ble Supreme Court in the case of CCE Vs.
Chemphar Drugs and Liniments 1989 (4) ELT 276 (SC), (Supra).
15.33 It is settled law that penalties are not automatic.
CST Vs. Motor World (2012) 36 STT 48 (Karnataka. H. C.)
It is also settled law that both the penalties u/s. 76 and 78 cannot be imposed
for single fault. They took support of following judgment:
CST Vs. Motor World (2012) 36 STT 48 (Karnataka. H. C.)
In the said decision it has been concluded as under:
(1)
The imposition of penalty under the Act is not automatic. The
ingredients mentioned, in the section should exist. In respect of section 76,77
and 78 of the Act, not only the ingredients of those sections should exist, but
also there should be absence of reasonable cause for the said failure.
(2)
Section 76 and 78 are mutually exclusive. it penalty is payable under
section 78, section 76 is not attracted. Therefore,. no penalty can be imposed for
the same failure under both the provisions.
(3)
Even if the ingredients stipulated in section 76 and 78 of the Act are
established, if the assessee shows reasonable cause fore such failure, then the
authority has not power to impose penalty in view of section 80 of the Act.
15.34 Further, without prejudice to above, it is a settled principle of law that if a dispute
is arising out of interpretation of the provisions of statute or exemption
notification, no penalty can be levied. If at all it is held that the service tax is
payable, then also it be said that it is dispute arising out of interpretation of the
provisions of the law and not because of any intentional avoidance of tax. They
placed reliance on the following case laws in this regard:
(a)
Bharat Wagon & Engg. Co. Ltd. Vs. Commissioner of C. Ex. Patna,
(146) ELT 118 (Tri. Kolkata)
(b)
Goenka Woollen Mills Ltd. V/s. Commissioner of C. Ex. Shillong
2001 (135) ELT 873 (Tri-Kolakata)
(c)
Bhilwara Spinners Ltd. V/s. Commissioner of C. Ex. Jaipur,
2001 (129) ELT 458 (Tri. Del)
15.35 Noticee was under Bonafide Belief about non taxability:
They were under bona fide belief that activities carried out by them were not
taxable under Site Formation Services and was not liable to pay service tax also as
a sub-contractor. The bona fides of the Noticee was on the basis of facts and
circumstances mentioned herein below. They took support of following case:
(1)
Catalyst Capital Service (P) Ltd. Vs. CCE
23
F. NO. STC/4-7/O&A/DGCEI/2012-13
(2005) 1 STT 241 (Mumbai CESTAT)
(2)
Marketforce Chennai (P) Ltd. Vs. CCE
(2007) 8 STR 175 (Tri. Chennai)
15.36 Benefit of Section 80 of the Act.
Looking to the facts and circumstance of the case, they had reasonable cause for
not making payment of Service tax and therefore taking in to the consideration a
ratio of judgement rendered by Honourable H. C. in the case of:
CST Vs. Motor world (2012) 36 STT 48 (Kar) H.C.
provisions of section 80 of the Act are squarely applicable to their case. And no
penalty can be imposed on them.
In the case of CCE Calcutta, Vs. Calcutta Spinning Mills it has been decided that
when goods are classifiable under two headings, benefit of section 80 of the Act
may be given.
CCE Calcutta, Vs. Calcutta Spinning Mills 2008 (229) ELT 161
15.37. Interest u/s. 75:
For the reasons discussed hereinabove, when service tax is not at all payable,
charging of interest u/s. 75 does not arise.
Under the facts and circumstances of the case, they prayed that:
(a)
(b)
(c)
all the charges leveled on them may be dropped;
if at all a different view is taken, liability of service tax may be restricted to Rs.
2,96,71,134/- (23.08.2007 to 31.07.2008) subject to availability of Cenvat Credit
to main contractors;
interest u/s. 75 and penalties proposed to be imposed u/s. 76, 77 & 78 of the Act
may please be dropped.
16.
M/s Mahalaxmi vide their further letter dated 17.01.2013 submitted that, in
their reply dated 15.01.2013 at Para 5.18 on page No.13, they had mentioned the figure
of Rs.2,96,71,134/-. However, on detailed working it was noticed that correct figures was
Rs.2,72,68,592/-. They enclosed a detailed worksheet.
17.
They requested to consider the new figure of Rs.2,72,68,592/-. Also as Para
(b) of prayer the new figure of Rs.2,72,68,592/- be considered.
PERSONAL HEARING
18.
Personal hearing in the case was fixed on 07.12.2012, 21.12.2012,
08.01.13. Nobody appeared for hearing on 07.12.2012 and 21.12.2012. For the hearing
fixed for 08.01.13, they requested for adjournment vide letter dated 07.01.13. Another
date was fixed for 15.01.13. They submitted written submission on 15.01.2013. Another
date was fixed for 24.01.13. Shri Dinesh Bhavsar appeared on behalf of M/s Mahalaxmi
and reiterated submissions made in their reply dated 15.01.13 and also gave case laws
and boards clarification dated 23.08.07 in their favour. He also gave ST-3 returns to show
that they were registered under Mining Services. They had nothing more to add.
24
F. NO. STC/4-7/O&A/DGCEI/2012-13
18.1
M/s Mahalaxmi vide letter dated 12.02.13 furnished ST-3 returns of Ranjit
Buildcon Ltd for the period 2006-07 to 2008-09 in justification of service tax amount in
full paid by them in respect of work carried out by M/s Mahalaxmi as a sub contractor.
DISCUSSION AND FINDINGS
19.
I have carefully gone through the entire case records, SCN issued, defence put
forth in writing as well as contentions made during the course of personal hearing. I find
that the issues to be decided in the present case are –
i) whether the services provided by M/s Mahalaxmi are classifiable under the category
of ‘Site formation and clearance, excavation and earthmoving and demolition service’
defined in sub-clause (97a) of Section 65 of the Finance Act, and taxable under
Section 65(105)(zzza) of Finance Act, 1994?
ii) whether M/s Mahalaxmi is liable to pay service tax under ‘Site formation and
clearance, excavation and earthmoving and demolition service’, when they were
acting as sub-contractors of the main contractors, M/s. Ranjit Construction Ltd now
known as M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd.
20.
I have carefully gone through the contents of the certificates issued by the main
contractors M/s. Ranjit Construction Ltd now known as M/s. Ranjit Buildcon Ltd and
M/s. Sadbhav Engineering Ltd. which are briefed at para 5.4(i) of the show cause notice
and I find that the work executed by M/s Mahalaxmi is removal of over burden material
in all kinds of strata including its drilling, blasting, excavation, loading, transportation
and dumping, spreading, dozing at specified places for the exposure of lignite. I also find
that in these certificates, quantity of overburden removed and value of service in rupees is
detailed. In none of the certificates, number of machineries deployed and number of
working hours of such machines is mentioned. This conclusively proves that M/s
Mahalaxmi provided services relating to overburden removal in the mining areas and the
payments received by them under the said contracts was for the afore said work done of
overburden removal. Therefore, their contention of providing of services of merely hiring
of equipments is baseless and incorrect.
20.1. I observe that as per the provisions of Section 65 (97a ) of the Finance Act, 1994,
as amended from time to time, the term “Site formation and clearance, excavation and
earthmoving and demolition” were brought into the net of Service Tax with effect
from 16.06.2005 and the definition thereof includes:(i)
drilling, boring and core extraction services for construction,
geophysical, geological or similar purposes; or
(ii)
soil stabilization; or
(iii) horizontal drilling for the passage of cables or drain pipes; or
(iv) land reclamation work; or
(v)
contaminated top soil stripping work; or
(vi) demolition and wrecking of building, structure or road.
but does not include such services provided in relation to agriculture, irrigation,
watershed development and drilling, digging, repairing, renovating or restoring of
water sources or water bodies.”
20.2.
On plain reading of the above definition, I find that “Removal of
Overburden” is not specifically included in the above definition. However, the above
definition is an inclusive definition and the activities specifically mentioned are
indicative and not exhaustive.
25
F. NO. STC/4-7/O&A/DGCEI/2012-13
20.3.
I find it relevant to reproduce para 6.2 of the CBEC Instruction letter F.No.
B1/6/2005-TRU, dated 27-7-2005 which pertains to “Site formation and clearance,
excavation and earthmoving and demolition services”:
“The definition of site formation and clearance, excavation and earth-moving and
demolition service is an inclusive definition and the activities specifically
mentioned are indicative and not exhaustive. Prior to construction of buildings,
factory or any civil structure, activity of mining or laying of cables or pipes,
preparation services of site formation and clearance, excavation and earth moving
or levelling are normally undertaken for a consideration to make the land suitable
for such activities. Such services include blasting and rock removal work,
clearance of underground, drilling and boring, overburden removal and other
development and preparation services of mineral properties and site, and other
similar excavating and earth-moving services. Demolition of structures, buildings,
streets or highways is also undertaken for a consideration as a preparatory
activity for subsequent construction activity or for clearing the site for any other
purpose. All such activities fall within the scope of this service”.
20.4.
I further find it relevant to reproduce para 1 and 3 of the CBEC Instruction
letter F.No. 232/2/2006-CX.4, dated 12-11-2007.
“Applicability of service tax on activities undertaken at mines prior to
enactment of the Finance Bill, 2007
It may be recalled that vide appropriate entry in the Finance Act, 2007,
“service provided by any person to any other person in relation to mining
of minerals, oil or gas” has been comprehensively brought under the ambit
of service tax with effect from 01.6.2007.”
1. “Excavation/drilling and removal of the overburdens:
These activities are essentially in the nature of site formation, clearance,
excavation and earth-moving. As clarified earlier vide circular B1/6/2005-TRU,
dated 27-7-2005 (para 6.2), the definition of site formation and clearance,
excavation and earth-moving and demolition service is an inclusive definition and
activities specifically mentioned are indicative and not exhaustive. Prior to
construction of buildings, factory or any civil structure, activity of mining or
clearance, excavation and earth moving or levelling are normally undertaken for
a consideration to make the land suitable for such activities. Such services include
blasting and rock removal work, clearance of underground, drilling and boring,
overburden removal and other development and preparation services of mineral
properties and site, and other similar excavating and earth-moving services.
Hence, these activities are taxable under the category of site formation and
clearance, excavation and earth-moving and demolition service w.e.f. 16-62005”.
20.5.
On bare perusal of the above clarifications issued by the CBEC, the matter
stands amply clarified that the activity of “Overburden Removal” is covered under the
service category of “site formation and clearance, excavation and earth-moving and
demolition service” and is taxable w.e.f. 16-6-2005.
20.6.
M/s Mahalaxmi has relied on the judgment in the case of M.
RAMAKRISHNA REDDY vs. COMMR. OF C. EX. & CUS., TIRUPATHI reported at
(2009) 18 STT 465 (Bang. CESTAT, Tiraputhy)/ 2009 (13) S.T.R. 661 (Tri. - Bang.) in
this regard. I find that the facts of the cited case are different from the facts of the case
before me, as in the cited case the service provider was awarded with the work of mining
Baryte ore by Andhra Pradesh Mineral Development Corporation Ltd and while
providing the mining services he was doing incidental work of overburden removal.
CESTAT held that the services rendered amounted to mining services taxable w.e.f
1.6.2007 and as the contract was a comprehensive one for mining, it could not be
26
F. NO. STC/4-7/O&A/DGCEI/2012-13
vivisected for levying service tax on that portion of the activity relating to “site
formation”. In the case before me the said service provider, M/s Mahalaxmi is not
providing mining service under a composite contract at the Lignite mines. They have
been specifically awarded the contract for execution of overburden removal and have
been paid for the said work. I find that in the case before me, the work and the amount to
be received for the accomplishment of the said work are clearly known to both the parties
right from the date of Tender and the agreement. There is no question of vivisecting of
the contract in this case. Hence, the ratio of the cited case law can not be applied in the
case before me. I find that the said service provider has also relied on judgment in the
case of National Mining Co. Ltd. Vs. CCE, Dibrugarh, (2008) 12 STT 447 (CESTAT
Kolkata) (2008) 10 STR 136 (CESTAT) Kolkata. I find that in the said case, the payment
of service tax was not in dispute which had been paid by the appellants, the Hon’ble
CESTAT has decided on the invocation of Section 80 of the Act. Hence, the ratio of the
cited case law cannot be applied in the case before me.
20.7.
As regards, the Rule of classification of service, I observe that the taxability
of a service does not at all depend on the utility and purpose of the final service for which
it is done. A service is taxable depending on its very nature and its being covered under
the definitions of taxable service given under Section 65 of the Finance Act,1994.
20.8.
The service provider’s reliance on various case laws to contend that it is
also a well settled principle of law that when no tax is payable under a specific entry,
revenue can not discard the specific entry and bring the services under a general entry is
also misplaced as in the case before me the service of overburden removal is
appropriately classified under the category of “Site formation and clearance, excavation
and earthmoving and demolition services” as discussed in the foregoing paras. The
question of taxing the same activity twice just doesnot arises. The ratio of the cited
judgments is therefore not applicable in the case before me.
20.9. As regards, service provider’s reliance on various case laws to submit that the
Board’s circulars are binding on the department, I find that the said argument holds no
ground, as it is amply clarified by the Board that the service of overburden removal is
appropriately classified under the category of “Site formation and clearance, excavation
and earthmoving and demolition services” w.e.f 16.6.2005 as discussed in the foregoing
paras, which is contrary to the contention of the said service provider for classification
under ‘mining services’ taxable w.e.f 1.6.2007. The ratio of the cited judgments is not
applicable in the case before me as my findings are consistent with the circulars issued by
the CBEC.
20.10. The said service provider, M/s Mahalaxmi has also placed reliance on various case
laws to support their contention. However, the case laws relied upon by the said service
provider are distinguishable from the one before me as discussed in the foregoing paras.
Therefore, the ratio of the said cases is not found applicable in the present case. Hence,
the question of breach of judicial discipline would not arise.
20.11.
Thus, from the foregoing discussion, I conclude that the services as
discussed above provided by M/s Mahalaxmi would appropriately fall under the service
category of “Site formation and clearance, excavation and earth moving and demolition
services” which is taxable w.e.f. 16.6.2005. For the period after 1.6.2007 with the
introduction of mining service, there remains no doubt with regard to classification of
service, in view of CBEC Instruction letter F.No. 232/2/2006-CX.4, dated 12-11-2007 as
reproduced in the foregoing paras.
21.
Now, I come to the second issue. It is contended by M/s Mahalaxmi that since the
main contractors, M/s. Ranjit Construction Ltd now known as M/s. Ranjit Buildcon Ltd
and M/s. Sadbhav Engineering Ltd have paid service tax on entire value of contract
which includes value of sub-contract also, they are not liable to pay service tax. They
27
F. NO. STC/4-7/O&A/DGCEI/2012-13
relied upon the CBEC Circular No. B/43/4/97 TRU Dt. 02.07.1997 to contend that being
sub-contractor, they were not liable to pay service tax. They relied on the following
judgments of the Tribunal citing the said Circular.
(1) Koch – Glitsch India Ltd. Vs. CCE & Custom, Vadodara-1, 2009 (13) STR 636 (Tri.
Ahmedabad)
(2) Urvi Construction Vs. CST Ahmedabad
2010 (17) STR 302 (Tri, Ahmedabad)
21.1 I have carefully gone through both the cited case laws and observe that in the
second judgment the Hon’ble Tribunal has relied on the above referred Koch – Glitsch
India judgment. The first para of the Koch – Glitsch India judgment is reproduced
hereunder for understanding the Board’s Circular F.No. B/43/4/97 TRU dated 02.07.1997
cited by the assessee.
“A short issue involved in this appeal. The appellant took service tax credit of Rs.
5,16,431/- paid by their sub-contractor, who were involved in installation and
commissioning services after 1.7.2003. The ground taken by the Revenue for
rejection is clarification issued by the Board vide letter F.No. B/43/4/97 TRU
dated 02.07.1997, wherein it was clarified that where the services has been
provided by the sub-contractors, such sub-contractors are not liable to pay service
tax and the service tax liability is on the main contractor”.
I find that the judgment in both the above cases is against the Revenue. In the above
referred Urvi Construction Vs. CST Ahmedabad judgment, the Hon’ble Tribunal has
observed that “Taking note of the fact of the contention that main contractor has paid the
service tax and charging service tax on the sub-contractor again would amount to taxing
the same service twice and also taking note of the circular cited by the learned advocate
and the decision of the Tribunal cited, I find that if the appellant is required to pay the
service tax it would amount to taxing the same service twice and the circular and the
Tribunal’s decision are squarely applicable to the facts of this case and accordingly
appeal is allowed with consequential relief to the appellant”.
21.2 CBEC vide Circular No.96/7/2007-ST dated 23.8.2007 clarified that subcontractors are liable to pay service tax, the relevant portion of which is reproduced
below. This circular supersedes all circulars, clarifications and communications, other
than Orders issued under section 37B of the Central Excise Act, 1944 (as made
applicable to service tax by section 83 of the Finance Act, 1994), issued from time to
time by the CBEC, DG (Service Tax) and various field formations on all technical issues
including the scope and classification of taxable services, valuation of taxable services,
export of services, services received from outside India, scope of exemptions and all
other matters on levy of service tax. With the issue of this circular, all earlier
clarifications issued on technical issues relating to service tax stand withdrawn.
999.03 / A taxable service provider outsources
23.08.07 a part of the work by engaging
another service provider, generally
known as sub-contractor. Service tax
is paid by the service provider for the
total work. In such cases, whether
service tax is liable to be paid by the
service provider known as subcontractor who undertakes only part
of the whole work.
28
A sub-contractor is essentially a
taxable service provider. The fact that
services provided by such subcontractors are used by the main
service provider for completion of his
work does not in any way alter the
fact of provision of taxable service by
the sub-contractor.
Services provided by sub-contractors
are in the nature of input services.
Service tax is, therefore, leviable on
F. NO. STC/4-7/O&A/DGCEI/2012-13
any taxable services provided,
whether or not the services are
provided by a person in his capacity
as a sub-contractor and whether or
not such services are used as input
services. The fact that a given taxable
service is intended for use as an input
service by another service provider
does not alter the taxability of the
service provided.
Thus, the Board’s Clarification F.No. B/43/4/97 TRU dated 02.07.1997 cited by the
assessee was in force till the issuance of the Circular No.96/7/2007-ST dated 23.8.2007.
In the case before me, the period of demand is from 15.10.2006 to 10.7.2008. Therefore,
the said assessee being the sub-contractor of the main/Principal contractors is liable to
pay service tax for the period from 23.8.2007 onwards. I find that the above cited
judgments of the Hon’ble Tribunal are squarely applicable in the case before me and the
said two judgments have been accepted by the department and no further contrary view is
available. I also observe that the aforesaid clarification issued by the Board is binding and
meant for adoption for the purposes of bringing uniformity as held by the judgments of
Hon'ble the Supreme Court in the cases of Ranadey Micronutrients v. Collector of
Central Excise - 1996 (87) E.L.T. 19 (S.C.) and Paper Products Ltd. v. Commissioner of
Central Excise - 1999 (112) E.L.T. 765 (S.C.).
21.3 I observe that the investigation has not examined the issue in light of the above
said Board’s clarification and the applicability of the above decisions of the Hon’ble
CESTAT.
21.4 Now, the limited issue now before me is whether for the period prior to 23.8.2007,
the principal contractors have paid service tax on the entire amount of contract which
includes the amount paid to the sub-contractor, M/s Mahalaxmi by the Principal
contractors. Therefore, as a measure of abundant precaution to safeguard the Government
revenue, I proceed to verify the service tax payment made by the Principal contractors
under the said agreements in question.
21.5 I find that the Principal contractors are registered with the Service Tax department.
In this regard, I have also gone through the R.A Bills raised by M/s Ranjit Construction
Ltd, worksheet indicating challan numbers and date evidencing payment of service tax of
the
said
bills
by
M/s
Ranjit
Construction,
agreement
No.053289/0003J/RP/Cont.Mines/OBR/06 dated 14.09.2006 entered by them with the
mining company Neyveli Lignite Corporation Ltd for Barsinagar, Bikaner site and
agreement dated 13.9.2007 and LOI No. GMDC/LP/12410/07-08 dated 10.9.2007 with
GMDC at Rajpardi site vis-à-vis subcontract agreement dated 21.9.2006 and 20.9.2007/
supplementary agreement dated 1.6.2008 entered by Ranjit Construction with M/s
Mahalaxmi. I find from the agreement dated 21.9.2006 entered between M/s Ranjit
Construction and Mahalaxmi that M/s Mahalaxmi has undertaken the work allotted to
M/s Ranjit Construction vide Contract No.053289/0003J/RP/Cont.Mines/OBR/06 dated
14.09.2006 by the mining company Neyveli Lignite Corporation Ltd for Barsinagar,
Bikaner site. Similarly, I find from the agreement dated 20.9.2007 entered between M/s
Ranjit Construction and Mahalaxmi that M/s Mahalaxmi has undertaken the work
allotted to M/s Ranjit Construction vide Contract dated 13.09.2007 by GMDC for
Rajpardi site. The R.A.Bills issued by M/s Ranjit Construction Ltd clearly indicates the
description and details of the said contracts. Thus, scrutiny of the aforesaid documents
satisfactorily indicates that M/s Ranjit Construction Ltd has discharged service tax on the
invoices raised to Neyvelii Lignites and GMDC. M/s Ranjit Construction Ltd who is the
Principal contractors received payment from M/s Neyveli Lignite and GMDC, after
29
F. NO. STC/4-7/O&A/DGCEI/2012-13
which M/s Ranjit Construction Ltd made payment to the sub-contractor M/s Mahalaxmi.
As held above, M/s Mahalaxmi is not required to pay service tax in the capacity of a subcontractor for the period prior to 23.8.2007 in case of R.A Bills raised to M/s Ranjit
Construction under the agreement in question as the Principal contractor M/s Ranjit
Construction has discharged the service tax liability.
21.6 However, the said assessee could not produce evidence regarding payment of
service tax by the other Principal contractor M/s Sadbhav Engineering Ltd as done in the
case of M/s Ranjit Construction Ltd. Therefore, I find that service tax is recoverable from
the said sub-contractor, M/s Mahalaxmi in case of R.A Bills raised to the Principal
contractor, M/s Sadbhav Engineering Ltd for the period from 15.10.2006 to 22.8.2007.
21.7 Therefore, out of the total demand of Rs. 6,44,48,537/- as detailed in Annexure-A
to the show cause notice, the demand of service tax of Rs. 1,65,56,563/- as detailed in the
below given Table-1, pertaining to the R.A. Bills raised by M/s Mahalaxmi to the
Principal M/s Ranjit Construction for the period from 15.10.2006 to 22.8.2007 does not
survive:
Table-1
Bills prior to 23.08.2007 ( raised to Ranjit Construction.)
Sr
No.
Sr. No.As
per
Annexure
A
Date of
bill
RA
No.
Issued to
whom
Site
1
10/15/2006
A-25
Ranjit
Construction
Co
Rajpardi
2,159,320
259,118
5,182
0
264,301
3
11/7/2006
3
Ranjit
Construction
Co
Bikaner
5,467,220
656,066
13,121
0
669,188
5
11/20/2006
4
Ranjit
Construction
Co
Bikaner
3,159,195
379,103
7,582
0
386,685
7
11/29/2006
5
Ranjit
Construction
Co
Bikaner
8,113,781
973,654
19,473
0
993,127
10
12/22/2006
6
Bikaner
7,600,417
912,050
18,241
0
930,291
11
1/1/2007
7
Bikaner
5,215,004
625,800
12,516
0
638,316
13
1/12/2007
8B
Bikaner
6,727,859
807,343
16,147
0
823,490
15
1/31/2007
9
Bikaner
9,534,322
1,144,119
22,882
0
1,167,001
16
1/31/2007
10
Bikaner
6,072,925
728,751
14,575
0
743,326
19
2/26/2007
11
Bikaner
3,616,970
434,036
8,681
0
442,717
20
3/1/2007
12
Bikaner
8,440,409
1,012,849
20,257
0
1,033,106
23
3/26/2007
13
Bikaner
1,612,338
193,481
3,870
0
197,350
24
3/28/2007
14
Bikaner
2,976,132
357,136
7,143
0
364,279
26
3/31/2007
15
Bikaner
3,724,096
446,892
8,938
0
455,829
27
3/31/2007
16
Bikaner
6,055,321
726,639
14,533
0
741,171
29
4/20/2007
16A
Bikaner
6,973,206
836,785
16,736
0
853,520
32
5/21/2007
17
Bikaner
5,554,602
666,552
13,331
6,666
686,549
33
5/30/2007
18
Bikaner
3,517,794
422,135
8,443
4,221
434,799
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Value
30
Service Tax
Edu.
Cess
SHE
Cess
Total
F. NO. STC/4-7/O&A/DGCEI/2012-13
35
6/11/2007
19
37
6/28/2007
20
38
7/9/2007
21
40
7/23/2007
21A
41
7/25/2007
22
43
8/9/2007
23
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
Ranjit
Buildcon
Ltd
19
20
21
22
23
24
Bikaner
7,666,306
919,957
18,399
9,200
947,555
Bikaner
7,720,360
926,443
18,529
9,264
954,236
Bikaner
4,040,660
484,879
9,698
4,849
499,426
Bikaner
5,473,600
656,832
13,137
6,568
676,537
Bikaner
10,687,843
1,282,541
25,651
12,825
1,321,017
Bikaner
2,692,156
323,059
6,461
3,231
332,750
13,48,01,836
161,76,220
3,23,524
56,824
1,65,56,563
TOTAL
Whereas, the demand of service tax of Rs. 1,82,13,837/- as detailed in the below given
Table-2, pertaining to the R.A. Bills raised by M/s Mahalaxmi to the Principal M/s
Sadbhav Engineering Ltd for the period from 15.10.2006 to 22.8.2007 sustains:
Table-2
Bills prior to 23.08.2007 ( raised to Sadbhav Enginering Ltd.)
Sr
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Sr. No.As
per
Annexure
A
Date of bill
RA No.
Issued to
whom
Site
2
10/20/2006
9
Sadbhav
Engg. Ltd
Bhavnagar
5,979,229
717,507
14,350
0
731,858
4
11/11/2006
10
Sadbhav
Engg. Ltd
Bhavnagar
13,748,116
1,649,774
32,995
0
1,682,769
6
11/22/2006
10
Sadbhav
Engg. Ltd
Bhavnagar
4,701,559
564,187
11,284
0
575,471
8
12/7/2006
11
Sadbhav
Engg. Ltd
Bhavnagar
12,870,119
1,544,414
30,888
0
1,575,303
9
12/20/2006
11
Sadbhav
Engg. Ltd
Bhavnagar
8,236,706
988,405
19,768
0
1,008,173
12
1/6/2007
12
Sadbhav
Engg. Ltd
Bhavnagar
16,970,632
2,036,476
40,730
0
2,077,205
14
1/22/2007
12
Sadbhav
Engg. Ltd
Bhavnagar
6,919,907
830,389
16,608
0
846,997
17
2/12/2007
13
Sadbhav
Engg. Ltd
Bhavnagar
11,033,226
1,323,987
26,480
0
1,350,467
18
2/19/2007
13
Sadbhav
Engg. Ltd
Bhavnagar
7,985,778
958,293
19,166
0
977,459
21
3/7/2007
14
Sadbhav
Engg. Ltd
Bhavnagar
9,421,173
1,130,541
22,611
0
1,153,152
22
3/19/2007
14
Sadbhav
Engg. Ltd
Bhavnagar
5,249,263
629,912
12,598
0
642,510
25
3/31/2007
15
Sadbhav
Engg. Ltd
Bhavnagar
12,715,117
1,525,814
30,516
0
1,556,330
28
4/19/2007
15
Sadbhav
Engg. Ltd
Bhavnagar
5,263,215
631,586
12,632
0
644,218
30
5/10/2007
16
Sadbhav
Engg. Ltd
Bhavnagar
10,464,386
1,255,726
25,115
0
1,280,841
31
5/21/2007
16
Adhoc
Sadbhav
Engg. Ltd
Bhavnagar
3,628,018
435,362
8,707
4,354
448,423
34
6/7/2007
17
Sadbhav
Engg. Ltd
Bhavnagar
8,366,752
1,004,010
20,080
10,040
1,034,131
36
6/18/2007
17
Sadbhav
Engg. Ltd
Bhavnagar
2,180,887
261,706
5,234
2,617
269,558
39
7/11/2007
18
Sadbhav
Engg. Ltd
Bhavnagar
2,853,524
342,423
6,848
3,424
352,696
42
8/9/2007
19
Sadbhav
Engg. Ltd
Bhavnagar
50,773
6,093
122
61
6,276
14,86,38,380
1,78,36,606
3,56,732
20,496
1,82,13,837
TOTAL
Value
Service Tax
Edu.
Cess
SHE
Cess
Total
For the period from 23.8.2007 to 10.7.2008, sub-contractor, M/s Mahalaxmi is required
to pay service tax on the R.A.Bills raised to both the Principal Contractors, as held above.
M/s Mahalaxmi vide their letter dated 17.3.2013 submitted that demand for the said
31
F. NO. STC/4-7/O&A/DGCEI/2012-13
period works out to Rs. 2,72,68,592/-. However, I find that they have not submitted any
basis for working out the said amount of service tax. I, therefore work out the demand for
the period from 23.8.2007 to 10.7.2008 as per Annexure-A to the show cause notice
starting with Sr.No. 44 showing R.A.Bill No. 24 dated 30.8.2007 which works out to
2,96,78,137/- as detailed in Table-3 below:
Table-3
Bills after 23.08.2007 ( raised to Ranjit Buildcon Ltd. & Sadbhav Engineering Ltd.)
Sr
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Sr. No.As
per
Annexure
A
Date of
bill
RA
No.
44
8/30/2007
24
45
9/8/2007
Final
46
9/9/2007
20
47
9/10/2007
25
48
9/25/2007
18
Adhoc
49
9/27/2007
26
50
10/8/2007
21
51
10/11/2007
27
52
10/20/2007
27A
53
10/30/2007
28
54
11/5/2007
29
55
11/15/2007
22
56
11/26/2007
30
57
12/10/2007
31
58
12/14/2007
23
59
12/31/2007
32
60
1/5/2008
33
61
1/25/2008
34
62
2/3/2008
24
63
2/12/2008
35
64
2/18/2008
1
65
2/20/2008
25
66
2/23/2008
19
67
2/27/2008
36
68
3/6/2008
23
69
3/12/2008
37
70
3/18/2008
2
71
3/19/2008
38
72
3/20/2008
20
73
3/25/2008
A-26
74
3/31/2008
39
75
3/31/2008
27
76
3/31/2008
39A
77
4/21/2008
3
78
4/21/2008
40
79
5/4/2008
4
80
5/12/2008
41
Issued to
whom
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Sadbhav Engg.
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Site
Value
Service
Tax
Edu.
Cess
SHE
Cess
Total
Bikaner
12,627,654
1,515,318
30,306
15,153
1,560,778
Rajpardi
3,314,709
397,765
7,955
3,978
409,698
97,831
11,740
235
117
12,092
Bikaner
752,347
90,282
1,806
903
92,990
Bhavnagar
264,142
31,697
634
317
32,648
7,342,716
881,126
17,623
8,811
907,560
428,511
51,421
1,028
514
52,964
Bikaner
2,081,866
249,824
4,996
2,498
257,319
Bikaner
3,734,333
448,120
8,962
4,481
461,564
Bikaner
9,588,948
1,150,674
23,013
11,507
1,185,194
Bikaner
3,122,052
374,646
7,493
3,746
385,886
698,667
83,840
1,677
838
86,355
Bikaner
12,357,929
1,482,951
29,659
14,830
1,527,440
Bikaner
353,071
42,369
847
424
43,640
Bhavnagar
259,965
31,196
624
312
32,132
Bikaner
4,961,390
595,367
11,907
5,954
613,228
Bikaner
4,039,137
484,696
9,694
4,847
499,237
Bikaner
7,557,049
906,846
18,137
9,068
934,051
41,083
4,930
99
49
5,078
Bikaner
5,320,631
638,476
12,770
6,385
657,630
Rajpardi
12,271,512
1,472,581
29,452
14,726
1,516,759
Bhavnagar
794,575
95,349
1,907
953
98,209
Bhavnagar
529,961
63,595
1,272
636
65,503
6,663,427
799,611
15,992
7,996
823,600
722,500
86,700
1,734
867
89,301
Bikaner
6,214,253
745,710
14,914
7,457
768,082
Rajpardi
19,487,522
2,338,503
46,770
23,385
2,408,658
Bikaner
7,049,633
845,956
16,919
8,460
871,335
Bhavnagar
768,664
92,240
1,845
922
95,007
Panandhro
5,674,406
680,929
13,619
6,809
701,357
Bikaner
1,332,524
159,903
3,198
1,599
164,700
651,516
78,182
1,564
782
80,527
Bikaner
2,140,500
256,860
5,137
2,569
264,566
Rajpardi
20,720,395
2,486,447
49,729
24,864
2,561,041
Bikaner
10,824,328
1,298,919
25,978
12,989
1,337,887
Rajpardi
16,857,498
2,022,900
40,458
20,229
2,083,587
Bikaner
12,956,974
1,554,837
31,097
15,548
1,601,482
Bhavnagar
Bikaner
Bhavnagar
Bhavnagar
Bhavnagar
Bikaner
Bhavnagar
Bhavnagar
32
F. NO. STC/4-7/O&A/DGCEI/2012-13
38
39
40
41
81
5/15/2008
5
82
6/6/2008
42
83
7/9/2008
43
84
7/10/2008
44
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Ranjit Buildcon
Ltd
Rajpardi
19,025,866
2,283,104
45,662
22,831
2,351,597
Bikaner
13,818,890
1,658,267
33,165
16,583
1,708,015
Bikaner
226,800
27,216
544
272
28,032
Bikaner
2,438,579
292,629
5,853
2,926
301,408
24,01,14,354
2,88,13,722
5,76,274
2,88,137
2,96,78,137
TOTAL
21.8 In view of the above discussion, service tax of Rs. 4,78,91,974/- (Rs.
2,96,78,137/- + Rs. 1,82,13,837/-) as detailed on Table-2 and Table-3 is recoverable from
M/s Mahalaxmi under proviso to Section 73(1) of the Finance Act, 1994 along with
interest under Section 75 of the Finance Act, 1994. However, since M/s Mahalaxmi had
paid service tax of Rs. 1,00,00,000/- during the course of investigation, the same shall be
appropriated against the above demand of Rs. 4,78,91,974/- (Rs. 2,96,78,137/- + Rs.
1,82,13,837/-).
22.
I now take up the issue of revenue neutrality. I observe that in the
impugned show cause notice, allegation is of non payment of service tax by M/s
Mahalaxmi being sub-contractors. 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 of cenvat credit by the two Principal Contractors. The said assessee
is trying to get waiver of the prerequisite of payment of service tax since cenvat credit
was admissible which is like putting the cart before the horse. I observe that if the said
plea of revenue neutrality is accepted then it will lead to a situation which will make rules
of payment of service tax redundant and nobody will discharge the service tax liability
under the pretext of availability of cenvat credit on the other side which is not the
intention of the legislature. Moreover, claim of revenue neutrality can only be raised by
the Principal Contractors and not by the sub-contractor. In view of the above discussion, I
do not find any merit in the plea of revenue neutrality raised by M/s Mahalaxmi.
Moreover, the availability of cenvat credit by the Principal contractor is not an issue
before me in the present show cause notice.
22.1
In this regard, 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 (TribunalLB). In the said judgement it is clearly held that revenue neutrality being a question of
fact, the same is to be established in the facts of each case and not merely by showing the
availability of an alternate scheme. It is also held therein that where the scheme opted by
the assessee is found to be misused, the existence of an alternate scheme would not be an
acceptable defence.
22.2
In view of the above, I find that M/s Mahalaxmi should have got
themselves registered from 15.10.2006 and raised R.A.Bills to the Principal Contractor
for charging the value and payment of service tax thereof. The Principal Contractors
could have availed CENVAT credit of the service tax paid by them which could have
later on been used by them for payment of service tax. This procedure has not been
followed in the case before me.
23.
I now take up the issue of suppression of facts and invoking of the extended
period. M/s Mahalaxmi cited letter F.No. STC/4-115/CLF/2006, 31.1.2006 issued by the
Joint Commissioner, Service Tax, Ahmedabad. I find that vide the said letter, the
Principal contractor M/s Ranjit Construction Ltd were informed by the Joint
Commissioner of Service Tax that their services were classifiable under the service
category of Site formation and clearance, excavation and earth moving and demolition
services; that any person hired by them to work under their direct supervision, control
and specific instruction/guidelines need not pay any tax separately provided the entire tax
33
F. NO. STC/4-7/O&A/DGCEI/2012-13
liability on the site formation service is discharged by them as the main service provider
and no amount/consideration is received by the person hired by them from their principal
in any manner, in addition to what had been paid to them. The aforesaid letter of the Joint
Commissioner is in line with the Board’s clarification of 1997. However, the said letter
was addressed to Principal Contractor Ranjit Construction Ltd and not to M/s
Mahalaxmi, which doesnot in any way suggest that the department was aware of the
activities carried out by M/s Mahalaxmi. Hence, the attempt to take shelter of the said
letter cannot be considered so far as the issue of suppression of facts is concerned. Inspite
of this letter dated 31.1.2006, M/s Mahalaxmi provided services from 15.10.2006 and
obtained Service Tax registration only in the month of January-2008 under the category
of Mining Services. They tried to evade obtaining the registration and payment of service
tax by describing their services in the invoices as ‘Hiring of equipments’. Furthermore,
with the issuance of the Circular No.96/7/2007-ST dated 23.8.2007 it was abundantly
clear that they being sub-contractor of the Principal contractor were liable to pay service
tax and the applicability of the above letter of the Joint Commissioner ceased to exist as
far as the taxability of the sub-contractor is concerned. I find that they failed to obtain
registration till January-2008, failed to file ST-3 returns, failed to assess Service tax and
failed to pay the same by the due date prescribed under the Finance Act,1994 and rules
made there under. All these acts were committed by them with intention to evade
payment of service tax.
As regards, their contention that department has carried out audit of their records for the
period from Jan-2008 to Mar-2009 on 6.11.2009 and 20.11.2009, I find that the demand
is for the period from Oct’2006 for non payment of tax by the sub-contractor. The audit
has verified the records for the period after Jan’2008 i.e. after M/s Mahalaxmi had
obtained Service Tax Registration when the taxability of the sub-contractor was not in
dispute after the Master Circular of 2007. The function of audit is confined to the records
maintained for the purpose of service tax and not beyond that. Based on the records, it
was objected by the audit party that the said assesee failed to pay service tax for the
financial year 2007-08.
Therefore I find that there exists sufficient ground for invoking extended period in the
case on hand.
24.
Penalties under Section 76,77 and 78 :Penalty under section 76:As discussed in the foregoing paras, the said assessee has not paid service tax under the
service category of “Site formation and clearance, excavation and earth moving and
demolition services”/ “mining services” for the period from 23.8.2007 to 10.7.2008
within the stipulated time period as prescribed under Section 68 of the Finance Act, 1994
read with Rule 6 of the Service Tax Rules, 1994. However, with regard to 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
Oct’2006 to July’2008. Therefore, I hold the said assessee, M/s Mahalaxmi liable to
penalty under Section 76 of the Finance Act, 1994 for the period upto 9.5.2008.
Penalty under section 78:-
I further find that this is a clear case of suppression as the said assessee, M/s Mahalaxmi
obtained, the Service Tax registration as late as in Jan’2008, had late filed the statutory
34
F. NO. STC/4-7/O&A/DGCEI/2012-13
ST-3 returns and had suppressed the taxable value in the ST-3 Returns filed by them.
Therefore, their bonafide doesnot get established. This is a case of deliberate suppression
of facts with a willful intention to evade payment of service tax. I find that the said
assessee has suppressed the facts from the service tax authorities with intention to evade
payment of service tax, penalty under Section 78 of the Finance Act, 1994 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, I deem it a fit case to impose penalty on the said assessee under
Section 78 of the Finance Act, 1994.
Simultaneous Penalties under section 76 & 78:As regards imposition of simultaneous penalty under section 76 and 78 of the Finance
Act, 1994, I place my reliance on the judgment of Hon’ble High Court of Kerala in the
case of Assistant Commissioner of Central Excise v. Krishna Poduval as reported at
[2006] 3 STT 96 (KER) which is aptly applicable to the present case. I find that the
imposition of penalty under sections 76 and 78 of the Act is for non payment of service
tax and suppression of value of taxable service respectively which are two distinct and
separate offences attracting separate penalties. I find that the said assessee, M/s
Mahalaxmi has committed both the offences and therefore penalties under section 76 and
78 of the Finance Act, 1994 are imposable on the said assessee upto the period of
9.5.2008.
Penalty under section 77:As regards imposition of penalty under section 77 of the Finance Act, 1994, I observe
that as discussed above the said assessee was liable to pay service tax under the category
of “Site formation and clearance, excavation and earth moving and demolition services”/
“mining services” in the capacity of sub-contractor as provider of service from
15.10.2006 onwards as held above, but they failed to obtain registration certificate under
the said category till Jan’08 as required under section 69 of the Finance Act, 1994 read
with Rule 4 of the Service Tax Rules, 1994. The said contraventions have made the said
assessee liable to penalty under section 77 of the Finance Act, 1994 as it existed at
material time i.e. prior to amendment in Section 77 w.e.f 10.5.2008.
24.1
Benefit under Section 80:As regards invoking Section 80 of the Finance Act, 1994 for waiver of penalty,
the said assessee has 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. As
observed in earlier part of this order, I find that the short payment of the service tax is
found to be with intention and their claim for bonafide belief can not be accepted.
Accordingly, I am unable to consider the benefit of Section 80 for waiver of penalties
under section 76,77 and 78 of the Finance Act,1994.
24.2 The assessee has cited various decisions for non imposition of penalties under
section 76, 77 and 78 of the Finance Act,1994, which I have gone through, however I find
that the same are not applicable in the case on hand as discussed above.
25
In view of the foregoing discussion, I pass the following order.
ORDER
i).
I confirm the demand of Service Tax amounting to Rs. 2,96,78,137/- (Rupees
Two crore ninety six lakh seventy eight thousand one hundred and thirty
seven only) (including education cess and secondary education cess) for the
period from 23.8.2007 to 10.7.2008 under Section 73(2) of Finance Act, 1994;
35
F. NO. STC/4-7/O&A/DGCEI/2012-13
ii).
I confirm the demand of Service Tax amounting to Rs. 1,82,13,837/- (Rupees
One crore eighty two lakh thirteen thousand eight hundred and thirty seven
only) (including education cess and secondary education cess) for the period from
15.10.2006 to 22.8.2007 under Section 73(2) of Finance Act, 1994;
iii).
I order to appropriate service tax of Rs. 1,00,00,000/- (Rupees one crore only)
(including education cess and secondary education cess) paid by the said assessee,
M/s Mahalaxmi during the course of investigation, against the above confirmed
demand;
iv).
I order to recover interest on the above confirmed demand of Rs. 4,78,91,974/(Rs. 2,96,78,137/- + Rs. 1,82,13,837/-) (Rupees Four crore seventy eight lakh
ninety one thousand nine hundred and seventy four only) (including education
cess and secondary education cess) at the prescribed rate from the said assessee,
M/s Mahalaxmi under Section 75 of the Finance Act, 1994;
v).
I impose penalty of Rs.200/- (Rupees Two hundred only) per day for the period
during which failure to pay the tax continued, or at the rate of 2% of such tax, per
month, whichever is higher, starting with the first day i.e. 15.10.2006 after the due
date till the date of actual payment of the outstanding amount of service tax upon
the said assessee, M/s Mahalaxmi under Section 76 of the Finance Act, 1994, for
the period from 15.10.2006 to 9.5.2008; provided that the amount of penalty
payable in terms of this section shall not exceed the service tax payable by the said
assessee for the period from 15.10.2006 to 9.5.2008;
vi).
I impose penalty of Rs. 4,78,91,974/- (Rs. 2,96,78,137/- + Rs. 1,82,13,837/-)
(Rupees Four crore seventy eight lakh ninety one thousand nine hundred and
seventy four only) on the said assessee, M/s Mahalaxmi under section 78 of the
Finance Act, 1994 for suppressing the value of taxable services provided by them
before the department with intent to evade payment of service tax.. In the event of
the said assessee, M/s Mahalaxmi 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.
vii).
I impose penalty of Rs. 1000/- (Rupees One thousand only) under section 77 of
the Finance Act, 1994 as it existed at material time i.e. prior to amendment in
Section 77 w.e.f 10.5.2008 on the said assessee, M/s Mahalaxmi for contravention
of section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules,
1994;
36
F. NO. STC/4-7/O&A/DGCEI/2012-13
viii).
I drop the demand of service tax of Rs. 1,65,56,563/- (Rupees One crore sixty
five lakh fifty six thousand five hundred and sixty three only) (including
education cess and secondary education cess) for the period from 15.10.2006 to
22.8.2007.
(Tejasvini P.Kumar)
Commissioner,
Service Tax
Ahmedabad
F.No. STC/4-7/O&A/DGCEI/12-13
BY REGD. POST A.D.
Date:30/03/2013
To
M/s. Mahalaxmi Infracontract Ltd.,
B-21, Corporate House, Opp. Pakwan
Opp. Karnavati Club,
S. G. Highway,
Ahmedabad – 380 054
Copy to:
1.
2.
3.
4.
5.
The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone,
Ahmedabad.
The Additional Director General, Directorate General of Central Excise
Intelligence, Ahmedabad Zonal unit, 1st Floor, Preema Chambers, Near Mithakhali
Six Roads, Navrangpura, Ahmedabad – 380006.
The Deputy/Assistant Commissioner, Service Tax, Division-III, Ahmedabad.
The Superintendent of Service Tax, Range- XV, Division-III, Ahmedabad.
Guard File.
37