OIO No.STC/34/COMMR/AHD/2013
Brief facts of the caseM/s. Intas Pharmaceuticals Ltd., 2nd Floor, Chinubhai Centre, Off.
Nehrubridge, Ashram Road, Ahmedabad (also referred to as ‘noticee’) is engaged in
manufacture and selling of pharmaceutical products and also providing taxable services
such as (i) Business Auxiliary Service, (ii) Banking and Financial Services, (iii)
Management Consultancy Services and (iv) recipient of ‘Goods Transport Agency
Service’ as defined under sub clause zzb, zm, r and zzp respectively of Section
65(105) of the Finance Act, 1994 (hereinafter referred to as “the Act”). For providing the
said taxable services, M/s Intas Pharmaceuticals Ltd., Ahmedabad (herein after referred
to as ‘the said noticee’) is registered with Service Tax Ahmedabad Commissionerate
having been allotted Registration No. AAACI5120LST001. They are also registered as
an ‘Input Service Distributor’.
2.
The noticee falls under category of Multi Locational Unit (MLU) and has
manufacturing units under the jurisdictions of Ahmedabad – I, Ahmedabad – II, Surat –
II, Meerut – I and Siliguri Central Excise Commissionerates. Audit of all these Multi
Locational Units was carried out under the guidance / co-ordination of Additional
Director General (Audit), Customs, Central Excise, & Service Tax, Ahmedabad Zonal
Unit, Vastrapur, Ahmedabad. During the course of the audit of one of its multi locational
units namely M/s Intas Pharmaceuticals, Camp Road, Selaque, Dehradun, falling under
Central Excise Meerut – I Commissionerate, it was noticed that the said unit was having
central excise registration certificate no. AACFI0241HXM001 and engaged in the
manufacture of medicaments falling under chapter heading 3004 and availing
exemption under notification no.49/2003-CE and 50/2003-CE dated 10.06.2003. It was
also noticed that the said unit was also registered with service tax department having
been allotted registration no. AACFI0241HST001 for payment of service tax on
‘Transportation of goods by road service’ (GTA).
3.
M/s Intas Pharmaceuticals, Dehradun, is a partnership firm and one of its
partners is M/s Intas Pharmaceuticals Ltd., Ahmedabad. The manufacturing activities of
M/s Intas Pharmaceuticals, Dehradun entity are looked after and controlled by the firm
itself, but its other activities such as back office support, accounting activity, providing
space to their staff for carrying the business, processing and placing of purchase
orders, advice by Managing Directors relating to administrative functions, consulting,
market activities etc are done by M/s Intas Pharmaceuticals Ltd., Ahmedabad. The
above named services provided by M/s Intas Pharmaceuticals Ltd., Ahmedabad to its
Dehradun entity are in relation to the manufacturing activities of the Dehradun entity and
it can be inferred that the said noticee supports the activities of its partnership firm. The
expenses so incurred for providing the above named services are shared by the
partners and M/s Intas Pharmaceuticals, Dehradun has paid certain amount to the said
noticee for the part relating to the expenses.
4.
On detail scrutiny of the records of M/s Intas Pharmaceuticals, Dehradun and on
comparison of the Form 3CD filed under the Income Tax Act, 1961, it was noticed by
the officers of Meerut–I Central Excise Commissionerate that M/s Intas
Pharmaceuticals, Dehradun had made payment to M/s Intas Pharmaceuticals Ltd.,
Ahmedabad for receiving three services viz. (i) Marketing Services, (ii) Consultancy
Services and (iii) Administrative Services. On further perusal of the records of M/s Intas
Pharmaceuticals, Dehardun, it was noticed that the payments made to the said noticee,
i.e., M/s Intas Pharmaceuticals Ltd, Ahmedabad were for receiving services which
appeared to be taxable as per the clause / definition of ‘Business Support Services’,
‘Business Auxiliary Service’, ’Market Research Agency’ and ‘Management Consultant
Service’ of Section 65(105) of the Finance Act, 1994. The details of the payment made
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to the noticee, as communicated by the Central Excise Meerut – I Commissionerate
vide their Final Audit Report (FAR) no. 116/10-11, October 2010, were as underDescription of
services
received
F.Y.2006-2007
Payment made
1.
Marketing
Expenses
Rs.43500000/(Debit note no.
MISC/186 dated
31.03.2007)
Rs.1346880/Rs.22470000/-
-
F. Y.
2009-2010
Payment
made
-
Rs.2243153/-
Rs.2757500/-
Rs.67597775/(Debit note no.
MISC/192 dated
31.03.2008
Rs.72329038/(J.V.no.710001
7586
dated
31.03.2009)
2.
Consultancy
Expenses
3.
Administrative
Expenses
F. Y.2007-2008
Payment made
-
F. Y.2008-2009
Payment made
-
5.
It was noticed during the course of audit, that M/s Intas Pharmaceuticals Ltd.,
Ahmedabad had issued Debit Notes / Journal Vouchers on M/s Intas Pharmaceuticals,
Dehradun for providing the above mentioned three services which included back office
services like ‘Administrative Expenses’, ‘Accounting and processing of transactions’,
‘Placing and processing of purchase orders’, ‘Infrastructural support’ and ‘Consulting
services’ to M/s Intas Pharmaceuticals, Dehradhun as per the 3 CD statements filed by
M/s Intas Pharmaceuticals, Dehradun. On further scrutiny, it was noticed that M/s Intas
Pharmaceuticals Ltd., Ahmedabad, was registered with the service tax department
under category of ‘Management Consultant Service’ along with other categories like
‘GTA’, ‘Business Auxiliary Service’, ‘Banking and Financial Service’, ‘ISD’, etc. and had
properly discharged service tax liability on the amount mentioned above at Sr. No. 2
of table in para 4 above, i.e., ‘Consulting Fees’ under ‘Management Consultant
Services’ defined under Section 65(105)( r ) of the Finance Act, 1994.
6.
It was noticed that service tax had not been paid by M/s Intas Pharmaceuticals
Ltd., Ahmedabad on the income received for providing remaining two services (out of
the above three), viz. ‘Marketing Services’ and ‘Administrative Services’ provided to M/s
Intas Pharmaceuticals, Dehradun. Insofar as the first service ‘Marketing Expenses’
was concerned, the noticee did assist / support its Dehradun entity by helping them to
market their products. The noticee does not act as a ‘Market Research Agency’, but
only assists its entity and apparently this service, i.e ‘Marketing Service’ provided was
squarely covered by the definition of ‘Business Support Service’ [section
65(105)(zzzq) of Finance Act, 1994] which reads as below;
“taxable service” means any service provided or to be provided, to
any person, by any other person, in relation to support services of
business or commerce, in any manner,
“support services of business or commerce” means services
provided in relation to business or commerce and includes evaluation of
prospective customers, tele marketing, processing of purchase orders and
fulfillment services, information and tracking of delivery schedules,
managing distribution and logistics, customer relationship management
services, accounting and processing of transactions, operational
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OIO No.STC/34/COMMR/AHD/2013
assistance for marketing, formulation of customer service and pricing
policy, infrastructural support services and other transaction processes.
Explanation :- For the purposes of this clause, the expression
“infrastructural support services” includes providing office along with office
utilities, lounge, reception with competent personnel to handle message,
secretarial services, internet and telecom facilities, pantry and security
[section 65(104c)]”
7.
Insofar as the income related to ‘Administrative Expenses’ is concerned, on
which no service tax had been paid, it was clear that there was no such specific service
i.e. ‘Administrative Services’ defined / specified under the Section 65(105) of the
Finance Act, 1994. Such expenses had been incurred for providing various services
mentioned above in support of the activities of M/s Intas Pharmaceuticals, Dehradun
and the same appeared to be more appropriately classifiable under ‘Business Support
Service’ specified / defined under clause (zzzq) of Section 65(105) of the Finance Act,
1994.
8.
The noticee supports the activities of its partnership firm and the nature of
services provided, viz. ‘Marketing Services’ and ‘Administrative Service’, appeared to be
squarely covered under ‘Business Support Service’ and not under ‘Business Auxiliary
Service’ as discussed above. No service tax liability had been discharged on these two
services by the noticee.
9.
From the books of accounts produced during the course of audit, it was further
noticed that for the income mentioned above, only debit notes and journal vouchers had
been issued and the said income was not reflected in the Balance sheets or the ST 3
returns filed with the service tax department. On further inquiry, during the course of
audit, with the noticee about not having accounted for the said debit notes and journal
vouchers, the noticee could neither give any satisfactory reason nor any reasonable
cause for failure to mention the said income in ST 3 returns received for providing
‘Marketing Services’ and ‘Administrative Services’.
10.
Regarding non payment of service tax on the income received from M/s Intas
Pharmaceuticals, Dehradun, further inquiry / investigation was conducted by the
Superintendent (Preventive), Service Tax, Hqrs., Ahmedabad and in response to the
summons dated 21.03.2012 issued from F. no.STC/04-159/Prev./Gr. V/07-08 by the
Superintendent(Preventive), Service Tax, Head quarters, Ahmedabad, Shri Kandarp D.
Dholakia, DGM (Deputy General Manager, Indirect Taxation) of the noticee appeared
before the summon issuing authority, to give his statement under Section 14 of the
Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994. His statement
was recorded on 27.03.2012, wherein he stated thati.
though the Director of the company named M/s. Intas Pharmaceuticals Ltd., 2nd
Floor, Chinubhai Centre, off Nehru Bridge, Ashram Road, Ahmedabad was
summoned; he i.e. Mr. K.D. Dholakia was authorized by the said company, to
give statement, as he was well conversant with the matter and that his
statement given on behalf of the company was acceptable to the company;
ii. that his qualification was B.Com and diploma in Indirect taxation and was looking
after all the day to day work of the Company relating to indirect taxation/
government work for last six years;
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iii. that M/s. Intas Pharmaceuticals Ltd., is engaged in pharmaceutical business and
manufacturing medicine and drugs and having proper all type license and
registration of various agencies like Central Excise, VAT, Income Tax and
drugs and controller, Service Tax registration for Inputs Service Distributor
vide registration No. AALPN3552BST001 and all the required govt. formalities
were fulfilled;
iv. that they also filed required returns with Service Tax department regularly and
also made payment of Service Tax liability, if any; and on being asked
specifically, he answered to the questions put forth to him, as below;
Question: Have you received copy of audit report No. 98/2011-12 ?
Answer: Yes, we received copy of said Audit report.
Question: Have you paid Service Tax liability with interest as pointed out by the
Audit officer?
Answer: Yes, we agreed and paid our Service Tax liability with interest.
Question: Please produce the relevant documents under which the said services
were being provided to Dehradun unit by your Ahmedabad unit i.e. registered
premises?
Answer: The relevant documents are as under and same is submitted herewith
for your perusal please. General voucher, Debit notes issued to M/s, Intas
Pharmaceuticals, Dehradun and Sikkim, work sheets and ledger account for the period
from 2007-08 to 2011-12. (Containing page No. 1 to 27)
Question: Are the B/S is prepared at the Ahmedabad level or it is prepared after
adding the accounts of other units located elsewhere. i.e. whether accounts is being
prepared on the basis of data of accounts of all units together ?. If so, please furnish
details of units covered while preparation of the accounts?
Answer: Yes, It is consolidated B/s for all units of Intas Pharmaceuticals P. Ltd.
Question: Do you know that an account of firm located at Dehradun is also part
of your accounts, if so please give details thereof ?
Answer: No, M/s, Intas Pharmaceuticals Ltd, Dehradun and Sikkim is separately
registered partnership firm since they are doing business of pharmaceuticals produces
for us their ledger accounts is separately maintained in our books and accounts. M/s,
Intas pharmaceuticals maintained their books separately and prepared their own P&L
and B/s separately.
Question: It seems that your company is agreed that on being pointed out the
course of audit the service being provided is liable to service tax and same were not
paid by your company till sept-2011 and now same is paid with interest?
Answer: Yes, we believe that the same is not taxable service however the
amount paid is according to us is not liable for service tax payment.
Question: Do you agreed that if, the department not audit the your records the
extra revenue detected and recovered is possible?
Answer: Please refer earlier answer given in earlier para.
Question: what are the reasons for such non payment/short payment of Service
Tax liability?
Answer: It is not considered as service and therefore not taxable.
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Question: Have whether you have declared disclosing the said Service Tax
liability and value thereof to the department earlier?
Answer: Not required as it is not service because service provided by partner to
partnership firm is nothing but service to self. M/s, Intas Pharmaceuticals is major
partner holding more than 90% share in partnership firm M/s, Intas pharmaceuticals.
11.
As it was apparent on record that the income received from M/s Intas
Pharmaceuticals, Dehradun was not accounted for and only credit / debit notes were
issued; that a consolidated balance sheet was prepared and that the income received
was not shown separately either in balance sheets or in ST 3 returns, it appeared that
there was a willful intention on the part of the noticee in non paying the service tax on
these two services, as they were aware of their service tax liability on the other service
namely ‘Management Consultancy Services’. Inspite of the tax liability known to them,
they did not discharge the same and never approached the department in case they
had any doubts about the taxability / non taxability of the services provided to the unit
based in Deharadun. In his statement dated 27.03.2012, Mr. K.D. Dholakia, has stated
that it was his belief or rather he believed that services provided to their own partnership
firm were not taxable.
12.
The above belief of Shri K.D.Dholakia was contrary to the fact that on one
service namely ‘Management Consultancy Service’ provided to M/s Intas
Pharmaceuticals, Dehradun, service tax duty liability was discharged and on other two
services namely ‘Marketing Services’ and ‘Administrative Services’ provided to the
same unit, no service tax liability had been discharged. The noticee cannot adopt pick
and choose policy in discharging service tax duty liability on one service and not on
other, being provided to the very same unit. Had the plea been that ‘service provided to
partnership firm is not taxable’, then no service tax should have been paid on the one
service namely ‘Management Consultant Service’ also on which they are discharging
service tax liability. Service tax duty liability is not on ‘belief’. When the condition of ‘a
taxable service is provided - by a person - received by a person’, is fulfilled, then service
tax duty liability arises. In this case, there is no denial that the two services provided (on
which no service tax has been paid) are taxable, there is no denial that services have
been provided and further there is no denial that services have been received. The
recipient is a separate entity with a separate PAN number / separate service tax
registration and the noticee is also a separate entity with separate PAN number. When
there are two separate entities, engaged in providing and receiving taxable services
specified/defined under Section 65(105) of the Finance Act, 1994, there is service tax
liability cast on the noticee under the statue. The noticee being well aware of the service
tax liability had not discharged the same on two services intentionally with intent to
evade the service tax and not accounted for the income received on account of these
two services in their Balance Sheet and ST 3 returns. The debit and credit notes had
been netted i.e. adjusted against each other and the balance payment due, after adding
and deducting the debit – credit notes had also not been reflected in the books of
accounts. There were no corresponding entries in the books of accounts which showed
/ reflected or proved the transactions made with its Dehradun entity.
13.
Letters dated 1.6.2011, 5.7.2011 and 14.9.2011 were issued from F. No. ST/4183/AP-III/08-09 by the Superintendent (Audit Party V), Service Tax, Ahmedabad,
requesting the said noticee to furnish the details of the income received from M/s Intas
Pharmaceuticals, Dehradun, in order to co-relate the audit objection raised in FAR
no.116/10-11 by Central Excise, Meerut – I Commissionerate. In response to the above
referred three letters, the noticee vide its letter dated 1.11.2011 informed that they
agreed to the audit objection of not having discharged proper service tax liability in
relation to rendering of two services namely ‘Marketing Services’ and ‘Administrative
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Services’ to M/s Intas Pharmaceuticals, Dehradun and voluntarily paid service tax
amounting to Rs.4,10,99,017/- along with interest of Rs.1,27,07,060/- in cash, under the
head ‘Business Auxiliary Services’ defined under sub clause (zzb) of Section 65(105) of
the Finance Act, 1994 for the period from 2006-07 to 2010-2011 and enclosed the
copies of the GAR 7 challans. It was however noticed that out of the three services
namely (i) Marketing Services, (ii) Consultancy Services and (iii) Administrative
Services, the said noticee had paid service tax on ‘Consultancy Fees’ received by them
from very beginning i.e. 2006-07 onwards under ‘Management Consultant Services’ and
had not discharged service tax liability on (i) Marketing Services and (ii) Administrative
Services. The details of the service tax and interest paid, on these two services, under
the category of ‘Business Auxiliary Services’, were as underSl. No.
1.
2.
3.
4.
Year
2006-07
2007-08
2008-09
2009-2010
5.
2010-2011
Amount
43500000
67597775
72329038
89915907
(J.V.
no.
7100019265
dated
31.03.2010)
103964100
(J.V.
no.
7100021343
dated
31.03.2011)
TOTAL
Service Tax
5324400
8355085
7449891
9261338
Interest
3243474
3980498
1839648
1936247
10708302
993194
4,10,99,017/-
1,27,07,060/-
14. On going through the nature of services provided to M/s Intas Pharmaceuticals,
Dehradun by the notice, namely (i) Marketing Services and (ii) Administrative Services,
it appeared that the said services were not covered under ‘Business Auxiliary Services’
but were squarely covered under the definition of ‘Business Support Service’ specified /
defined under sub-clause (zzzq) of Section 65(105) of the Finance Act, 1994, which
read as under“taxable service” means any service provided or to be provided, to
any person, by any other person, in relation to support services of
business or commerce, in any manner,
“support services of business or commerce” means services
provided in relation to business or commerce and includes evaluation of
prospective customers, tele marketing, processing of purchase orders and
fulfillment services, information and tracking of delivery schedules,
managing distribution and logistics, customer relationship management
services, accounting and processing of transactions, operational
assistance for marketing, formulation of customer service and pricing
policy, infrastructural support services and other transaction processes.
Explanation :- For the purposes of this clause, the expression
“infrastructural support services” includes providing office along with office
utilities, lounge, reception with competent personnel to handle message,
secretarial services, internet and telecom facilities, pantry and security
[section 65(104c)]”
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15.
The noticee was asked to clarify as to why service tax was paid under ‘Business
Auxiliary Services’ and not under ‘Business Support Service’, vide their letter / FAX
dated 16.01.2011, the noticee intimated that they had earlier applied for registration
under the category of ‘Business Support Service’ and the same was not granted (till the
date of audit). Therefore, they paid service tax along with interest which was not paid by
them on (i) Marketing Services and (ii) Administrative Services, under the category
under ‘Business Auxiliary Service’. It has been mentioned in their letter dated
16.01.2011 that they have no objection if the service tax department treats the service
tax amount and interest paid by them (relating to these two services mentioned above)
as having been paid under the category of ‘Business Support Service’.
16.
The noticee submitted another letter dated 18.01.2012 wherein it was further
affirmed that they support their partnership firm, as they are one of the partners and the
nature of support is in form of guidance, assistance, etc. It was further intimated in the
said letter that they had paid the demanded service tax and that they be pardoned from
levy of any penalty as the service tax along with interest had been paid by them
voluntarily and there was no malafide intention to evade the service tax liability.
17.
In all the letters / correspondence made by the noticee with the department in
connection with the issue of non payment of service tax in question here, the noticee
never contended that they were not liable to pay service tax and on pointing out, they
paid the service tax along with interest. No reasonable reason or cause was been given
for non payment of service tax. No justification was given to substantiate the non
accounting of these receipts in books of accounts. The noticee at no point of time
approached the department for any clarification if they had any doubt regarding non
applicability of service tax on the two services which they presumed were non taxable
as per their belief. As narrated above that the noticee being well aware of the taxability
service provided by them and liability of service tax had not discharged the same on two
services i.e. (i) Marketing service (ii) Administrative service falling under “Business
Support Service” specifically defined under Section 65 (105) (zzzq) of Finance Act,
1994, intentionally with intent to evade the service tax and have not accounted for the
income received on account of these two service in their Balance sheet and ST-3
returns. The debit and credit notes had been netted i.e. adjusted against each other and
the balance payment due after adding and deducting the debit-credit notes had also not
been reflected in the books of account. There was no corresponding entry in the books
of account which show / reflect the transaction made with its Dehradun entity as
discussed in aforesaid paras and subsequently paid the service tax leviable. Thus from
the facts of the case, it was proved that the noticee had suppressed the facts and there
was a willful intention to evade the service tax and the reason put forth by the noticee
for non payment of service tax as and when pointed out only by audit officer the noticee
had paid service tax with interest. Therefore extended period of five years was
applicable in this case for the purpose to issue notice for recovery of service tax non
payment / short payment under proviso to Section 73(1) of Finance Act, 1994.
18.
It is provided under Section 68(1) of the act that ‘every person providing taxable
service to any person shall pay service tax at the rate specified in section 66 in such
manner and within such period as may be prescribed.’ The manner and period of
payment has been prescribed under Rule 6 of the Service Tax Rules, 1994. Further, in
their ST-3 returns self assessment memorandum para 7, they had given declaration that
they had assessed and paid the service tax and/or availed and distributed Cenvat credit
correctly as per the provisions of the Finance Act,1994 and the rules there under.
However, it appeared that they had wrongly given certificate by not paying the
appropriate service tax.
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19.
Further, it appeared that as per the provisions of Section 65 and 67 of the
Finance Act, 1994, the noticee had failed to properly classify the two services on which
service tax had not been paid and also failed to ascertain proper assessable value of
such services provided, thereby leading to non payment of service tax, thereby
contravening the provisions of the Section 65 and 67 of the Finance Act, 1994 read with
Rule 6 of the Service Tax Rules, 1994.
20.
As provided under Section 70 of the Act, ‘every person liable to pay the service
tax shall himself assess the tax due on the service provided by them and shall furnish to
the Superintendent of Central Excise, a return in such form and in such manner and as
such frequency as prescribed. The form, manner and frequency are prescribed in Rule
7 of the Service Tax Rules, 1994.
21.
In the instant case the said noticee has not assessed the tax due on the service
provided by them and not paid the service tax and thereby violated the provisions of
Section 70 of the Act and Rule 7 of the Service Tax Rules, 1994.
22.
In view of the above, it appeared that the noticee had contravened the provisions
of Section 65, 66, 67, 68 & 70 of the Finance Act, 1994 and Rule 6 & 7 of the Service
Tax Rules, 1994 inasmuch as there was a non payment of service tax with willful
intention to evade duty. All the contraventions and violations as mentioned above
rendered them liable to penalty under Section 76 (upto 09.05.2008) for failure to pay
service tax and also liable to penalty under Section 77 and Section 78 for non payment
of service tax by reason of willful mis-statement or suppression of facts or contravention
of any of the provisions of the Chapter V of the Finance Act, 1994 or of the Rules made
thereunder with intent to evade payment of service tax along with interest under Section
75 of the Finance Act, 1994.
23.
Thus, a show cause notice F.No.STC/4-24/O&A/12-13 dated 15.10.2012 was
issued to the noticee (M/s Intas Pharmaceuticals Ltd, Ahmedabad) by the
Commissioner of Service Tax, Ahmedabad, calling upon them to show cause as to
why:(i)
The income received from M/s Intas Pharmaceuticals, Dehradhun amounting
to Rs.37,73,06,820/- for the period from 2006-07 to 2010-2011, for providing
taxable services viz. (i) Marketing Services and (ii) Administrative Services’,
should not be treated as taxable under category of ‘Business Support Service’
specified / defined under sub-clause (zzzq) of Section 65(105) of the Finance
Act, 1994;
(ii)
amount of Service Tax of Rs.4,10,99,017/- (incl. cess) on the above taxable
value of Rs.37,73,06,820/- should not be demanded under the provisions of
Section 73(1) of the Finance Act 1994 and as the said amount of
Rs.4,10,99,017/- has been paid, why the same should not be appropriated /
adjusted against the service tax amount so demanded;
(iii) Interest of Rs.1,27,07,060/- should not be demanded under Section 75 of the
Finance Act 1994 and as the said interest amount of Rs.1,27,07,060/- has
already been paid, why the same should not be appropriated / adjusted
against the interest so demanded;
(iv) penalty should not be imposed upon them under Section 76 (for the period
from 2006-07 upto 09.05.2008) of the Finance Act 1994, for contravention of
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Section 68(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax
Rules, 1994;
(v)
penalty under Section 77 of the Finance Act, 1994 should not be imposed
upon them for the contravention of Section 67 of the Finance Act, 1994, for
not computing the correct taxable value for computation of service tax
payable by the said assessee and non-payment of service tax read with Rule
6 of the Service tax Rules; and
(vi) Penalty under Section 78 of the Finance Act, 1994 should not be imposed
upon them for non payment of service tax by reason of willful mis-statement
or suppression of facts or contravention of any of the provisions of the
Chapter V of the Finance Act, 1994 or of the Rules made thereunder with
intent to evade payment of service tax.
DEFENCE REPLY24.
The noticee has filed their reply to the show cause notice on 10.7.2013.
24.1
They stated that they were not liable to pay service tax on the amount received
from M/s Intas Pharmaceuticals Ltd., Dehradun, a partnership firm, however, when an
issue was raised by the Department, they paid the service tax immediately even before
the Show Cause Notice was issued. Therefore, they are eligible for benefit of Section
73 (3) of the Finance Act, 1994 which clearly states that the Show Cause Notice needs
to be issued only for the amount that is not paid by the assessee. However, Section
73(4) states that Section 73(3) shall not apply in cases of fraud, suppression etc. In this
regard they stated that the allegation of suppression has been made in the SCN only to
ensure that they are unable to take benefit of section 73(3). That they have not
suppressed any facts nor did they have any intention to evade payment of duty. That
they had already paid the service tax as demanded in the Show Cause Notice alongwith
interest and therefore it is settled position of law that when the whole amount was paid
before issuance of Show Cause Notice, the issuance of the same was not warranted.
In this regard they relied on the following judgments:
 Majestic Mobikes Pvt. Ltd. Vs Commr. Of Service Tax, Bangalore 2008
(11) S.T.R. 609 (Tri. - Bang.)
 ESS Engineering Vs C C. EX., Chandigarh 2010 (20) S.T.R. 669
24.2
They also referred the Board’s Circular No. 137/167/2006-CX-4, dated 3-102007 which clarified that as per the provisions contained in section 73(3) of the Act, in
case of payment of service tax and interest before the issuance of Show Cause Notice,
the entire adjudication proceedings stand concluded.
They referred Tribunal Order in the case of Krishna Security and Detective
Services Vs. Commissioner of Service Tax 2011 [24] S.T.R. 574, wherein the
Hon’ble Tribunal has held as follows:
2. I have considered the submissions. I find that in this case service tax for
the quarters ending June 2006 and September 2006 was discharged with
interest on 7-12-2006 and 30-12-2006 respectively. Show cause notice was
issued only on 30-7-2007. According to Section 73(3) of Finance Act, 1994,
where any service tax has been short paid, the person chargeable with service
tax may pay the amount on the basis of his own ascertainment before service of
notice on him. Once he makes such Payment and informs the Central Excise
Officer of such. payment, not show cause notice under sub-section 1 of Section
73 shall be issued Section 73(1) provides for issue of show cause notice for
recovery of service tax short paid within one year or five years depending upon
9
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the reason for short payment. In this case no suppression of facts misdeclaration, fraud etc. are involved and therefore the question of imposition of
penalty under Section 78 does not arise. Further the learned advocate also drew
my attention to the circular issued by the Board in this regard. According to the
Board's Letter F.No. 137/167/2006-CX-4, dated 3-10-2007, once the service tax
due has been paid with interest before issue of show cause notice, as provided in
Section 73 discussed above, no show cause notice can be issued. When no
show cause notice can be issued as per the provisions of law, there cannot be
any justification for imposition of penalty. Further, I also find that the reliance of
the learned advocate on the decisions of this Tribunal in the case of Nishchint
Engineering Consultants Pvt. Ltd. v. C.C.E, Ahmedabad reported in 2010 (19)
S.T.R. 276 (Tri. - Ahmd.) and is applicable to the facts of the present case. In
view of the above, the imposition of penalty is not justified. Accordingly appeal is
allowed with consequential relief to the Noticees.
(emphasis supplied)
24.3 They also referred the Hon’ble High Court of Karnataka case in the case of CCE
& ST, LTU, Bangalore Vs. Adecco Flexione Workforce Solutions Ltd. 2012 (26)
S.T.R. 3 (Kar.). The Hon’ble High Court has held that as per Section 73(3) of Finance
Act, 1994, no notice shall be served against persons who have paid service tax with
interest. The relevant extract of the judgment is produced herein below:
2. Facts are not in dispute. The assessee has paid both the service tax
and interest for delayed payments before issue of show cause notice under the
Act. Sub-sec. (3) of Section 73 of the Finance Act, 1994 categorically states,
after the payment of service tax and interest is made and the said information is
furnished to the authorities, then the authorities shall not serve any notice under
sub-sec. (1) in respect of the amount so paid. Therefore, authorities have no
authority to initiate proceedings for recovery of penalty under Sec. 76 of the Act.
3. Unfortunately the assessing authority as well as the appellate authority
seem to think. If an assessee does not pay the tax within the stipulated time and
regularly pays tax after the due date with interest. It is something which is not
pardonable in law. Though the law does not say so, authorities working under the
law seem to think otherwise and thus they are wasting that valuable time in
proceeding against persons who are paying service tax with interest promptly.
They are paid salary to act in accordance with law and to initiate proceedings
against defaulters who have not paid service tax and interest in spite of service of
notice calling upon them to make payment and certainly not to harass and initiate
proceedings against persons who are paying tax with interest for delayed
payment. It is high time, the authorities will change their attitude towards these
tax payers, understanding the object with which this enactment is passed and
also keep in mind the express provision as contained in sub-sec. (3) of Sec. 73.
The Parliament has expressly stated that against persons who have paid tax with
interest, no notice shall be served. If notices are issued contrary to the said
Section, the person to be punished is the person who has issued notice and not
the person to whom it is issued. We take that, in ignorance of law, the authorities
are indulging in the extravaganza and wasting their precious time and also the
time of the Tribunal and this Court. It is high time that the authorities shall issue
appropriate directions to see that such tax payers are not harassed. If such
instances are noticed by this Court hereafter, certainly it will be a case for taking
proper action against those law breakers.
4. In that view of the matter, we do not see any merit in these appeals.
The appeals are dismissed.
5. Mark a copy of this order to the Commissioner of Large Tax Payers
Unit who is in charge of collection of service tax to issue proper circular to all the
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concerned authorities, not to contravene this provision, namely sub-section (3) of
Section 73 of the Act.
24.4 Further, the above judgment has been followed by Hon’ble Ahmedabad Tribunal
in case of M.R Coatings (P) Ltd. Vs. CCE, Rajkot [2012] 36 STT 103. They also
placed reliance on the decision of the Bangalore Tribunal in the case of C. Ahead Info
Technologies India P Ltd. 2009 (14) S.T.R. 803 (Tri. - Bang.), wherein it has been
held that if during the course of investigation, the Service Tax along with interest was
paid, in these circumstances, the issue is squarely covered by the provisions of Section
73(3). This decision has been affirmed by the Hon’ble High Court of Karnataka in the
decision reported at 2012 (26) S.T.R. J25 (Kar.).
Thus, in the light of the above judicial decisions, they requested that the
Show Cause Notice is liable to be dropped.
24.5 They further referred the Partnership Act, 1932 and stated that as per the Act,
the partner and the partnership firm are not distinct and separate from each other.
Section 4 of the Indian Partnership Act, 1932 defines the terms “Partnership”, “Partner”,
“Firm” and “Firm name” which is as under:
“Partnership” is the relation between the persons who have agreed to
share the profits of a business carried on by all or any of them acting for
all.”
Persons who have entered in to partnership with one another are
called individually, “partners” and collectively “the firm” and the name
under which their business is carried on is called the “firm name”.
Section 25 of the Partnership Act, 1932 provides for liability of a partner for
acts of the firm which is reproduced below:
“Every partner is liable jointly with all the other partners and also
severally, for all acts of the firm done while he is a partner”.
24.6 Section 26 of the Partnership Act, 1932 provides for the liability of the firm for
wrongful acts of the partner which is reproduced below:
“Where, by the wrongful act or omission of a partner acting in the
ordinary course of the business of a firm or with the authority of his
partners, loss or injury is caused to any third party, or any penalty is
incurred, the firm is liable therefore to the same extent as the partner”.
24.7 Combined reading of all the aforementioned provisions of the Indian Partnership
Act, 1932 provides that any partner can carry the business on behalf of the firm and
individually they are called “Partners” and collectively “the firm”. Further every partner is
liable jointly for all acts of the firm done while he is a partner and similarly, the firm is
responsible for the acts of the partner while done in ordinary course of the business.
24.8 Therefore, according to the Indian Partnership Act, 1932, the partners and
partnership firm are not separate and they may be held responsible for the acts done by
them as partners of the firm. Further, a partner in the firm may be a natural person or a
juristic person. The rights and duties of the partners are governed by the
abovementioned provisions of the Partnership Act, 1932. That there is no difference in
partner whether he is natural person or juristic person.
24.9 With regard to Partnership issue they referred the following Supreme Court
Judgement.
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(i) Hon’ble Supreme Court in case of Munshi Ram Vs. Municipal
Committee (1979) 3 SCC 83 (3 Member bench of Hon’ble Supreme Court) held
that with reference to Section 4 of Indian Partnership Act, 1932, firm or
partnership is not a legal entity separate and distinct from partners and is only a
compendious description of individuals who compose the firm.
(ii)
Hon’ble Supreme Court in case of V. Subramaniam Vs. Rajesh
Raghuvandra Rao (2009) 5 SCC 608 held that a partnership firm, unlike a
company registered under the Companies Act, is not a distinct legal entity and is
only compendium of its partners. Even registration of a firm does not convert it
into a distinct legal entity like a company. Partners of a firm are co-owners of the
property of the firm, unlike shareholders in a company who are not co-owners of
the property of the company.
(iii) In case of Regional Director, ESI Corpn. Vs. Ramanuja Match
Industries (1985) 1 SCC 218, Hon’ble Supreme Court held as under:
A partnership firm is not a legal entity. This court in Champaran Cane
Concern Vs. State of Bihar (1964) 2 SCR 921:AIR 1963 SC 1737, pointed out
that in a partnership each partner acts as an agent of the other. The position of a
partner qua the firm is thus not that of a master and a servant or employer and
employee which concept involves an element of subordination but that of
equality. The partnership business belongs to the partners and each one of them
is an owner thereof. In common parlance the status of a partner qua the firm is
thus different from employees working under the firm, it may be that a partner is
being paid some remuneration for any special attention which he devotes but that
would not involve any change of status and bring him within the definition of
employee.
They also cited the following judgements in this regard:
(i)
(ii)
(iii)
(iv)
Keshavji Ravji & Co. Vs. CIT (1990) 2 SCC 231 : AIR 1991 SC 1806
N. Khadervali Saheb Vs. N Gudu Sahib (2003) 3 SCC 229
CIT vs. R.M. Chidambaram Pillai (1977) 106 ITR 292 (SC)
Malabar Fisheries Co. vs. CIT (1979) 120 ITR 49 (SC)
On the basis of the above judgements, they stated that the SCN is liable to
be dropped.
24.10 They further stated that according to concept of mutuality the share of profit from
partnership firm is exempted in the hands of partner under the Income Tax Act, 1961. In
this regard they stated that Section 10(2A) of the Income Tax Act, 1961 provides that in
the case of a partner (including minor admitted for the benefit of the firm) of a firm, his
share in the total income of the firm shall be exempt from tax. The underlying rationale
behind this provision is that the partner and the partnership firm are the same entity. If
the firm has bore the burden of tax on its profit/ income then it would amount to double
taxation if the tax is once again levied from the partner. In other words, both are mutual
and the same person. They stated that it is very well clear from Section 4 of the
Partnership Act, 1932 that a firm is not a legal entity; it is merely a collective term of
partners who have entered into a partnership with one another. This position was
settled by Hon’ble Gujarat HC in the case of Bharat Sarvodaya Mills Co AIR 1969
Guj.178
24.11 They also cited judgement of Hon’ble Madras High Court (Full Bench) in the case
of R.M. Chidambaram Pillai [1970] 77ITR494(Mad). They also referred the judgement
of CIT Vs. Bankipur Club Ltd. 1997 (226) ITR 97 (SC).
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24.12 They further submitted that the extended period of limitation is not invokable in
the present case as there was no suppression of facts with an intent to evade payment
of service tax. Therefore, the entire demand is barred by limitation. In this regard they
stated that they were under a bonafide belief that they are not liable to pay service tax
for the reasons stated hereinabove. Hence, there can be no suppression of facts
and thus, the extended period of limitation is not invokable.
24.13 That there has been no suppression since all facts were disclosed to the
Department. They stated that they had regularly filed the ST-3 returns and other
statutory returns as required by law and disclosed all the necessary information to the
Department. In this regard they quoted several judgements to protect themselves from
charges of suppression of facts. Some of the cited judgements are as under:
(a)
Cosmic Dye Chemical vs. Collector of Central Excise, Bombay
1995 (75) E.L.T. 721 (S.C.)
(b)
Tamil Nadu Housing Board vs. Collector 1994 (74) E.L.T. 9 (S.C.)
(c)
Cadila Laboratories Pvt. Ltd. vs. CCE 2003 (152) E.L.T. 262 (S.C.)
(d)
Pushpam Pharmaceuticals Company vs. Collector of Central Excise,
Bombay 1995 (78) E.L.T. 401 (S.C.)
Moreover, they vehemently opposed all the penalties imposed upon them on the ground
that since there was no service tax liability, question of imposition of penalties does not
arise.
PERSONAL HEARING:
25.
A personal hearing in the matter was held on 21.06.2013. Shri Jigar Shah,
Advocate and Shri Kandarap Dholakia represented the noticee. They argued that the
partnership firm is formed by three partners, one of them being the assessee, and
based on Hon’ble Supreme Court Case law [CIT vs RM Chindambaram Pillai], a partner
cannot render service to a partnership firm and the service provider and service
recipient relationship does not exist. They requested to drop the case.
DISCUSSION & FINDINGS:
26.
I have carefully gone through the show-cause notice and noticee’s reply to the
show cause notice. I have also considered the oral submissions made by the noticee’s
representative during personal hearing.
27.
The show cause notice proposes to recover the service tax not paid by the
noticee for the marketing and administrative services provided to their partnership firm
in Dehradun during 2006-07 to 2010-11. It is alleged that the noticee provided the
named services and generated an income of Rs.37,73,06,820/- during 2006-07 to 201011 but failed to pay the applicable service tax of Rs.4,10,99,017/- at the appropriate
time.
28.
As a factual detail, the noticee accepted the tax liability and paid the tax amount
alongwith interest when pointed out and before getting show cause notice in the matter.
In their reply to the show cause notice, however, they have disputed the tax liability and
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have denied that they are liable to pay any service tax on the services provided to their
partnership firm.
29.
Before touching the issue of taxability and tax liability in the matter, the admitted
facts of the case can be usefully recalled as follows. The noticee is a company
registered under the Companies Act, 1956 and engaged in the business of manufacture
of bulk drugs, drugs intermediaries and pharmaceutical products. The noticee is also
having service tax registration as they are also providing taxable services such as
management consultancy services, banking and financial services, business auxiliary
services.
29.1 The noticee is a major partner of M/s Intas Pharmaceuticals, Dehradun, a
partnership firm engaged in, inter-alia, manufacture of pharmaceutical products. The
noticee in the capacity of an active partner to M/s Intas Pharmaceuticals, Dehradun,
provided various services to the partnership firm, e.g., accounting activity, providing
space to their staff for carrying on the business, consulting and marketing activities, etc.
and received payments for providing such services. The named services were broadly
recognised as (i) Marketing services (ii) Consultancy services and (iii) Administrative
services. The noticee received payment against provision of such services starting from
2006-07 and appropriate service tax was paid by them in respect of ‘consultancy fees’
under ‘management consultant service’ category. However, for the income received
from other two services namely marketing services and administrative services, the
noticee neither accounted for the income in their books of account nor they declared the
same in their ST-3 returns and applicable service tax was not paid.
29.2 The fact of non accounting the income and non-payment of service tax on
marketing services and administrative services came to light in the course of auditing by
the department and when pointed out, the noticee paid the applicable service tax alongwith appropriate interest, though the payment was made under business auxiliary
service category instead of business support service, which appeared a more
appropriate categorization of the named services.
30.
In the backdrop of above facts, I proceed to decide the taxability of the services,
noticee’s liability to pay the service tax and other issues of interest and penalties in light
of the noticee’s defence submissions.
30.1 The business support service, under which marketing and administrative services
provided by the noticee are proposed to be taxed, has been defined under sub-clause
(zzzq) of section 65(105) of the Finance Act, 1994 as follows“taxable service” means any service provided or to be provided, to any person, by any
other person, in relation of support services of business or commerce, in any manner.
“support services of business or commerce” means services provided in relation to
business or commerce and includes evaluation of prospective customers,
telemarketing, processing of purchase orders and fulfillment services, information and
tracking of delivery schedules, managing distribution
and logistics, customer
relationship management services, accounting and
processing of transactions,
operational assistance for marketing, formulation of customer service and pricing
policing, infrastructural support services and other transaction processes.
Explanation:- For the purposes of this clause, the expression “infrastructural support
services” includes providing office alongwith office utilities, lounge, reception with
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competent personnel to handle message, secretarial services, internet and telecom
facilities, pantry and security [section 65(104c)].
30.2 From the details available in the show cause notice and defence reply, I observe
that the noticee has provided the services and facilities relating to marketing the
products of their partnership firm and also infrastructural facilities such as office
accommodation and connected utilities. The noticee has provided business support in
the form of back office support, accounting activity, processing and placing of purchase
orders, advice relating to administrative functions, consulting, marketing activities, etc.
As can be observed from the kind of services provided and from the definition of
business support service, the services provided by the noticee other than that falling
under management consultant services are in the nature of supporting the business
being conducted by the partnership firm in Dehradun. Hence, the services for which
demand has been raised in the show cause notice, namely marketing and
administrative services deserve to be categorized as ‘business support services’.
Hence, it is clear that the marketing and administrative services are liable to be taxed
under business support services as defined under sub-clause (zzzq) of section 65(105)
of the Finance Act, 1994.
31.
Now, I come to the points raised by the noticee in their arguments disputing the
tax liability. The first point that the noticee has raised is that their case falls under
section 73(3) of the Finance Act, 1994 as they had paid the full amount of service tax
along-with interest much before the show cause notice was issued. For this, the noticee
has relied on the following judgments Majestic Mobikes Pvt Ltd vs Commr of Service Tax, Banglore - 2008(11) STR
609(Trib.-Bang.)
 ESS Engg vs CCE, Chandigarh - 2010(20) STR 669
 Krishna Security and Detective Services vs Commr of Service Tax - 2011(24)
STR 574
 CCE & ST, LTU, Banglore vs Adecco Flexion Workforce Solutions Ltd 2012(26) STR 3 (Kar.)
 M R Coatings P Ltd vs CCE, Rajkot - 2012(36) STT 103
 C. Ahead Info Technologies India P Ltd - 2009(14) STR 803(Trib.-Bang.), as
affirmed in 2012(26) STR J25(Kar.)
31.1 As per Section 73(3), where any service tax has not been levied or paid or has
been short levied or short paid or erroneously refunded, the person chargeable with the
service tax, or the person to whom such tax refund has been erroneously been made,
may pay the amount of such service tax, chargeable or erroneously refunded, on the
basis of his own ascertainment thereof, or on the basis of tax ascertained by a central
excise officer before service of notice on him under un-Section (1) in respect of such
service tax, and inform the central excise officer of such payment in writing, who, on
receipt of such information shall not serve any notice under Sub-Section (1) in respect
of the amount so paid. Further, as per explanations, the interest under Section 75 shall
be payable on the amount paid by the person under this Sub-Section and also on the
amount of short payment of service tax or erroneously refunded service tax, if any, as
determined by the central excise officer and no penalty under any of the provisions of
the Finance Act, 1994 or the rules made there-under shall be imposed in respect of
payment of service tax and interest thereon.
31.2 As per Section 73(4), however, nothing contained in Sub-Section (3) shall apply
to a case where any service tax has not been levied or paid or has been short levied or
short paid or erroneously refunded by reason of fraud or collusion or willful misstatement or suppression of facts or contravention of any of the provisions of chapter
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(V) of the Finance Act, 1994 or of the rules made there-under with intent to evade
payment of service tax.
31.3 From the harmonious reading of Section 73(3) and Section 73(4), it is clear that
by virtue of Section 73(4), Section 73(3) is not applicable where service tax has not
been paid by reason of fraud or collusion or willful mis-statement or suppression of facts
or contravention of any of the provisions of chapter (V) of Finance Act, 1994 or of the
rules made there-under with intent to evade payment of service tax. Therefore, the
noticee’s claim under Sub-Section (3) merits consideration only when non-payment of
service tax is not by reason of suppression of facts with intent to evade payment of
service tax. Since the case on hand involves the charges of suppression of facts with
intent to evade payment of service tax, which is one of the ingredients mentioned in
Section 73(4), provisions of Section 73(3) become inapplicable in the present case.
31.4 I have also gone through various decisions cited by the noticee in support of their
claim under Section 73(3). I, however, find that all the cases cited by the noticee are
different and distinguished from the present case in the sense that none of the case
laws cited involves ingredients of Section 73(4) of the Finance Act, 1994.
32.
The second point made by the noticee is that as per Partnership Act, 1932, the
partner and the partnership firm are not distinct and separate from each other. As a
result, the condition of ‘a taxable service is provided –by a person – received by any
other person’ is not fulfilled for them. In other words, the noticee (M/s Intas
Pharmaceuticals Ltd, Ahmedabad) and the partnership firm (M/s Intas Pharmaceuticals,
Dehradun) are not two different persons and therefore services provided by a partner to
the partnership firm cannot be charged to service tax as the condition of there being a
service provider and a service receiver is not satisfied.
32.1 The noticee has explained the Indian Partnership Act, 1932 to state that partners
and partnership firm are not separate. The noticee has further cited a number of
Supreme Court judgments to emphasize that a partnership firm is not a legal entity
apart from the partners constituting it. During personal hearing also, the advocate
representing the noticee stressed on the point that a partner cannot render service to a
partnership firm. The noticee has gone a step further and has added that according to
the concept of mutuality the share of profit from partnership firm is exempted in the
hands of partner under the Income Tax Act, 1961. Here also, the noticee has supported
their argument by judicial decisions.
32.2 Thus, the noticee, as a main point of defence, has contended that when a
partnership firm is not different from its partners, a partner cannot be said to be
providing services to the firm. In his main defence, the noticee has all along relied on
the Indian Partnership Act and Income Tax Act. I, however, would like to refer the
Finance Act, 1994, which fundamentally governs service tax administration.
33.
I have gone through the submissions made by the noticee with regard to above. I
have no reason to differ with what the noticee has submitted that in terms of Indian
Partnership Act, a partnership firm is not a separate legal entity from the partners
constituting it. I also do not dispute the argument that under Income Tax, the profit
share of a partner in the total income of the firm is exempted from income tax with an
underlying rationale that the partner and the partnership firm are the same entity.
34.
Under section 65B (inserted w.e.f. 1.7.2012), interpretation of different terms has
been given. As per clause (37) of this section, “person” includes, inter-alia, a ‘company’
and a ‘firm’ along-with many others such as an individual, a HUF, a society. Thus, under
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the Finance Act, 1994, the term person has been interpreted to include both a company
and a firm. As both company as well a firm have been recognised as two different
persons under the Finance Act, 1994, there can be no doubt that both a company and a
firm can be service provider and service receiver. Therefore, when a company, viz. M/s
Intas Pharmaceuticals Ltd, provides service to a firm, viz. M/s Intas Pharmaceuticals,
Dehradun, or vice versa, there exists a service provider as well as a service recipient as
these are two different persons.
35.
The definition of a person as discussed above has been introduced from
1.7.2012 under negative list regime. Before this, however, the term ‘person’ was not
defined under the Finance Act, 1994 and as the present case pertains to the period
prior to 1.7.2012, it is more pertinent to ascertain the position existing at that time. It
would be helpful to check the position with regard to ‘business support services’, the
same being subject matter of the present case.
35.1 ‘Business support services’ were introduced under clause (104c) of the section
65 with effect from 1.5.2006 and the same were defined as follows(104c) “support services of business or commerce” means services provided in relation
to business or commerce and includes evaluation of prospective customers,
telemarketing, processing of purchase orders and fulfillment services, information and
tracking of delivery schedules, managing distribution and logistics, customer
relationship management services, accounting and processing of transactions,
formulation of customer service and pricing policies, infrastructural support services and
other transaction processing.
Explanation – for the purposes of this clause, the expression “infrastructural support
services” includes ….. …… …………
35.2 Further, as per sub-clause (zzzq) of section 65(105), “taxable service” means
any service provided or to be provided to any person, by any other person, in relation to
support services of business or commerce, in any manner.
35.3 Thus, with regard to support services of business or commerce, taxable service
is the service provided or to be provided to any person, by any other person,….. …..,
in any manner. So, here also a service is supposed to be provided by a person to some
other person. In other words, for any business support service to become taxable,
service provider and service recipient are required to be two different persons. In other
words, service provided to self cannot be charged to service tax.
35.4 As the term ‘person’ was not defined separately under the Act until 1.7.2012,
resort will have to be made to General Clauses Act, 1897. Under section 3(42) of the
General Clauses Act, ‘person’ shall include any company or association or body of
individuals, whether incorporated or not. Hence, here also, a company and a firm both
are ‘persons’. Under section 2(31) of the Income Tax Act, 1961 also, a ‘company’ as
well as a ‘firm’ are included in the definition of ‘person’. Thus, though the term ‘person’
was not defined for the purposes of levy of service tax until 1.7.2012, the term’ person’
can be construed to be of a very vide connotation in terms of definition under General
Clauses Act.
35.5 So, very clearly, with reference to the point that a taxable service is one provided
by a person to some other person, I am convinced that a company and a firm are two
different persons. As a result, where a company is providing some services to a firm, no
fault can be found on the ground that a company or a firm is not a person. In the case
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before me, the noticee company (M/s Intas Pharmaceuticals Ltd) has provided services
of business and commerce to a firm (M/s Intas Pharmaceuticals, Dehradun) and since
both M/s Intas Pharmaceuticals Ltd and M/s Intas Pharmaceuticals, Dehradun are
‘persons’, one as a company and other as a partnership firm, the person providing
services, i.e., the noticee is liable to pay the service tax leviable.
36.6 Having found that both noticee and their partnership firm are ‘persons’ for the
purposes of services tax levy, I come to the noticee’s contention that they are not
different from their partnership firm and the service tax cannot be levied in their case as
the services provided to self cannot be taxed. As discussed earlier, the noticee has
relied on the Indian Partnership Act and Income Tax Act in support of their contention
that the services provided by a partner to its partnership firm cannot be taxed under
service tax laws as both are one and the same.
36.7 With regard to what is contained in the Indian Partnership Act and Income Tax
Act and in all judicial pronouncements that a partnership firm is not a separate legal
entity from the partnership firm, I observe that what the noticee has highlighted is for the
purposes of Partnership Act and Income Tax Act and applicable in case of sharing of
profits or calculating income tax on the income of partners and the firm to which they
are partners. The Judgments cited by the noticee are also on the issue of calculating
income tax. Indian Partnership Act and Income Tax Act operate in their respective
jurisdictional domains and any definition given there-under or any clarification given or
judgments pronounced by the courts cannot be applied as a rule under service tax
provisions unless the same has been so applied in the court judgments. The noticee, I
find, has not come up with such a case law in their favour. Therefore, I am of the view
that under service tax laws, a company and a partnership firm are two different persons,
and services provided by a company to a partnership firm, including its own partnership
firm, are liable to service tax, if the services are otherwise taxable under the Finance
Act, 1994.
37.8 Having found that the service provider and service recipient relationship is very
well existent in the present case, the noticee’s defence on this count is not sustainable.
38.
The noticee has further defended the case on limitation. According to them
extended period of limitation is inapplicable as they had disclosed all facts to the
department by filing ST-3 returns regularly. They have further cited a number of
decisions in favour of their argument that extended period cannot be invoked without
establishing an act of suppression of mis-declaration with intent to evade payment of
duty.
38.1 I observe that the noticee has not presented the facts correctly here. It is true that
they were filing ST-3 returns, but the income pertaining to this particular case has never
been disclosed in the returns. Further, the relevant income was not accounted for in
their books of account which shows their intention of evasion. The details of taxable
income could be found during audit only from their credit/ debit notes. Had the
department not conducted audit of the records, the relevant facts would have remained
hidden. Another fact which cannot be lost sight of is that when the noticee was paying
service tax on their income from consulting services being provided to their partnership
firm, why they failed to declare the income from administrative and marketing services
provided to the partnership firm and pay service tax on the same. This is also clearly
indicative of their intention of evasion. All these facts point to the noticee’s flagrant
violation of service tax provisions, suppression of facts from the department and their
intention to evade the payment of service tax. As a consequence, the extended period
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of limitation is rightly applicable in the case as per proviso to section 73(1) of the
Finance Act, 1994.
39.
Thus, the noticee’s contentions on all counts is un-sustainable and accordingly, I
find that the income amount of Rs.37,73,06,820/- received by them for the period 200607 to 2010-11 for providing marketing services and administrative services is taxable
under category of ‘business support service’ as defined under sub-clause (zzzq) of
section 65(105) of the Finance Act, 1994. Consequently, the noticee is liable to pay
service tax of Rs.4,10,99,017/-. However, as the amount of Rs.4,10,99,017/-already
stands paid by the noticee during investigation, I appropriate the same towards their
service tax liability.
40.
Having found the noticee liable to service tax of Rs.4,10,99,017/- for the period
2006-07 to 2010-11, I consider the issue of charging interest under section 75 of the
Finance Act, 1994. Under section 75, appropriate interest is payable on the amount of
service tax paid late for the period of delay. Here, as the service tax of Rs.4,10,99,017/-,
though stands paid, there was delay in payment and as a consequence, the noticee
was liable to pay appropriate interest under section 75. As a matter of fact, the interest
of Rs.1,027,07,060/- stands already paid, and therefore, I appropriate the same towards
their interest liability.
41.
Now I come to the proposal of penalty under section 76, section 77 and section
78 of the Finance Act, 1994. Section 76 provides for penalty for failure to pay service
tax. As the noticee failed to pay the service tax in prescribed time limit in violation of
section 68(1) of the Finance Act, 1994 and rule 6 of the Service Tax Rules, 1994, they
became liable to penalty under section 76 of the Finance Act, 1994. They also became
liable to penalty under section 77 for contravention of section 67 for not computing the
correct taxable value and non-payment of service tax as per rule 6 of the Service Tax
Rules, 1994. The penalty provisions of section 78 also get attracted in the case for nonpayment of service tax by the noticee by reason of suppression of facts, willful misstatement and contravention of various provisions with intent to evade payment of
service tax.
42.
The noticee has stated that there is no question of imposing penalty as they are
not liable to pay service tax. This argument of the noticee is not tenable now as they
have been found to be liable to pay the service tax as discussed hereinbefore. The
noticee has further argued that there was no malafide or deliberate intention on their
part to evade payment of service tax and the default, if any, was solely on account of
the bonafide belief that they were not liable to pay service tax. They have cited various
judgments in favour of this argument. This argument of the noticee also stands on weak
footing in view of my findings hereinbefore that the noticee by way of suppressing the
facts and willfully indulging in contravention of provisions of various sections and rules
under Finance Act, 1994 have showed their intention of evasion. When the noticee
was a service tax assessee and was paying service tax on consulting charges
received from their partnership firm, there was no reason to avoid payment of tax
on marketing and administrative charges. The noticee has not explained the
bonafide belief for not paying taxes on these two service charges collected from
their partnership firm.
43.
As regards the noticee’s submission that imposition of simultaneous penalty
under section 76 and section 78 is not justified, 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. Hon’ble High Court in this case ruled that incidents of imposition of
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OIO No.STC/34/COMMR/AHD/2013
penalty under sections 76 and 78 of the Finance Act, 1994 are distinct and separate
under tow provisions and even if offences are committed in course of same transaction
or arise out of the same act, penalty is imposable under both the sections. I thus 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 has committed both the offences and therefore penalties under section 76
and 78 of the Finance Act, 1994 are imposable on the said assessee for the period upto 9.5.2008.
44.
The noticee has further claimed benefit under section 80 of the Finance Act,
1994 stating that the service tax was not paid under bonafide belied that they were not
liable to pay service tax. Section 80 provides that penalty shall not be imposed if the
assessee proves that there was reasonable cause for the failures. I am not convinced
with the noticee’s contention. Further, applicability of section 80 for non imposition of
penalty on the ground that the noticee was under reasonable belief that they were not
liable to pay service tax is not proper. A belief cannot take place of the solid reasons
which prevent a service provider to pay the service tax and thus become the reasonable
cause for failure to pay tax or fail to take registration, file returns, etc. I therefore hold
that the noticee is liable to penalty under section 76, 77 and section 78 of the Finance
Act, 1994.
45.
In view of foregoing discussion and findings, I pass the following orderORDER
1. I treat the income of Rs.37,73,06,820/- received by the noticee from M/s Intas
Pharmaceuticals, Dehradhun for the period 2006-07 to 2010-2011, for providing
taxable services viz. (i) Marketing Services and (ii) Administrative Services’, as
taxable under category of ‘Business Support Service’ under sub-clause (zzzq) of
Section 65(105) of the Finance Act, 1994;
2. I order M/s Intas Pharmaceuticals Ltd, Ahmedabad to pay the Service Tax of
Rs.4,10,99,017/- (incl. cess) on the above taxable value of Rs.37,73,06,820/under proviso to Section 73(1) of the Finance Act 1994. As the said amount of
Rs.4,10,99,017/- stands already paid during investigation, I appropriate / adjust
the same against the service tax amount so payable.
3. I order M/s Intas Pharmaceuticals Ltd, Ahmedabad to pay an interest of
Rs.1,27,07,060/- under Section 75 of the Finance Act 1994. As the said interest
amount of Rs.1,27,07,060/- has already been paid, I appropriate / adjust the
same against the interest so payable.
4. I impose on M/s Intas Pharmaceuticals Ltd, Ahmedabad a penalty of Rs.200/(Rupees Two Hundred Only) per day or at the rate of 2% of the service tax
amount per month, whichever is higher, under section 76 of the Finance Act,
1994. As the actual amount of penalty would depend on actual date of payment
of service tax, as per Section 76 of the Finance Act, 1994, penalty amount will
not exceed the amount of service tax payable in terms of this order. The penalty
amount is to be calculated for the tax liability arisen upto 9.5.2008 only.
5. I impose on M/s Intas Pharmaceuticals Ltd, Ahmedabad a penalty of Rs.5000/under Section 77 of the Finance Act, 1994 for the contravention of Section 67 of
the Finance Act, 1994, for not computing the correct taxable value for
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OIO No.STC/34/COMMR/AHD/2013
computation of service tax payable by the said assessee and non-payment of
service tax read with Rule 6 of the Service tax Rules.
6. I impose on M/s Intas Pharmaceuticals Ltd a penalty of Rs.4,10,99,017/- under
section 78 of the Finance Act, 1994. As per proviso to section 78, however, if the
service tax and interest payable under this order are paid within 30 days from the
date of communication of this order, the penalty amount shall be reduced to 25%
of Rs.4,10,99,017/-, provided the penalty amount is also paid within the period of
30 days from the date of communication of this order.
( Tejasvini P. Kumar )
Commissioner,
Service Tax,
Ahmedabad
F.No.STC/4-24/O&A/12-13
18.9.2013
BY RPAD /HAND DELIVERY
To,
M/s. Intas Pharmaceuticals Ltd.,
2nd Floor, Chinubhai Centre,
Off. Nehrubridge,
Ashram Road,
Ahmedabad
Copy to:
1. The Chief Commissioner, Central Excise, Ahmedabad Zone, Ahmedabad.
2. The Deputy/Assistant Commissioner, Service Tax, Division-II, Ahmedabad.
3. The Superintendent, Service Tax, Range-IX, Division-II, Ahmedabad [an
additional copy of OIO to be delivered to the assessee and dated
acknowledgement to be submitted to this office]
4. Guard file.
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OIO No.STC/34/COMMR/AHD/2013
In this regard, I rely on a decision of Hon’ble High Court of Karnatka at Banglore in the
case of World View Vision vs Commissioner of C.Ex., Manglore, reported in 2012 (26)
STR 304 (Kar.), wherein it was observed that benefit of Sub-Section (3) of Section (73)
is not attracted to a case falling under Sub-Section (4). In this particular case, the
assessee was registered as a cable operator and filed returns regularly. On enquiry
from department about number of subscribers, he provided that information promptly
and paid service tax with interest as computed by the department before issuance of
show cause notice. Hon’ble Court observed that once the assessee has registered
himself, filed returns, aware of the liability under the Act, the returns which he filed did
not truly represent the facts which constituted a willful mistake. Sub-Section (4) of
Section 73 expressly provides the benefit of Sub-Section (3) of Section 73 is not
attracted to a case falling under Sub-Section (4). Hon’ble Court held that the contention
of the assessee that he is not liable to pay penalty as he has paid the differential duty
with interest before issue of show cause notice, therefore, is unsustainable.
22