1
OIO No. 122/29.02.2012
Brief facts of the case:
This order is being passed in pursuance to the show cause notice issued under
F. No. DGCEI/AZU/36-48/2011-12 dated 25.05.2011 issued by DGCEI, Ahmedabad
Zonal Unit, Ahmedabad. The facts of the case in brief are that M/s.
Co-operative
Marketing
Federation
Gujarat
State
Limited, having registered office at Sahakar
Bhavan, Relief Road, Ahmedabad - 380 001 (here-in-after referred to as "Gujcomasol"
for the sake of brevity) is
Society
Co-
a
co-operative
federation
established
are
Gujarat
operative Society Act. Gujcomasol is carrying out business activity of sale
of agricultural products, distribution of fertilizers and insecticides to
They
under
registered
with
service
tax
department
the
farmers.
at Ahmedabad under "Renting
of immovable property service and Goods transport Agency service".
INTELLIGENCE:
2. Information gathered by the officers of Directorate General of Central Excise
Intelligence, (here-in-after referred to as DGCEI for the sake of brevity), Ahmedabad
Zonal Unit (AZU), that Gujcomasol is the main distributor of IFFCO, KR1BHCO, GNFC,
GSFC, Hindalco, RCF, Deepak Fertilisers, Aries Agro and Liberty Phosplrate -for supply of
fertilizer to farmers. They distribute all kinds of fertilizers-through their three tier channel
to farmers throughout Gujarat in co-operative structure. The distribution channel works
as Gujcomasol —> District Cooperative Purchase and Sale Union Limited → Taluka Cooperative Purchase and Sale Union Limited —> Village Co-operative —> Farmers.
Gujcomasol is getting overriding commission from fertilizer manufacturing
for
distribution
companies
of fertilizers. Over riding commission appears to be taxable under
“Business Auxiliary Service” and appropriate service tax should be paid. But Gujcomasol
have not paid service tax on this overriding commission. Therefore inquiry was initiated
under summon proceedings.
REPLY DATED 08-03-2010 FROM GUJCOMASOL :
3.
Gujcomasol vide their letter dated 08-03-2010 furnished the following information:
i. They are registered with service tax department and hold service tax
No.
a)
AAAAG2927KST001
for
the
following
registration
two categories of services:
Renting of Immovable Property (zzzz);
b) Transportation of goods by road (zzp).
ii. Further
they
have
applied
for
addition
of "Advertising agency service" in
their service tax registration;
iii. Further information submitted are: a)
b)
Gujcomasol is registered under the Bombay Co-operative Societies Act, 1925;
Their main activity is distribution of agriculture input and output as well as
manufacturing of edible oil, oilseeds, food grains, agriculture seeds, etc.
c)
Their financial accounts are maintained on mercantile system of accounting and
preparing profit and loss account.
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d)
Their federation has 1238 members i.e., share holders as on March, 2009. Only co-
operative societies of agriculture products are enrolled as members. Procedures for
enrolling members is mentioned in clause 9, 10 and 11 of Bye-laws of the federation;
e)
There is no agreement entered with M/s. IFFCO Tokio General Insurance Co. Ltd;
f)
They do not undertake any packing activity.
STATEMENT OF SHRI MANOJ M. PATEL OF GUJCOMASOL:
4.1
Statement of Shri Manoj M. Patel, Incharge Chief Executive of Gujcomasol was
recorded on 19-05-2010 wherein he interalia stated that the objective of the federation
is arranging the sale of agricultural products and purchase and distribution of fertilizers
and insecticides to the farmers. Gujcomasol have 1354 members (as on 31.03.2009)
and is formed with a share capital of Rs. 2,78,20,800/-. The members includes district
Purchase and Sale unions, Taluka Purchase and sale unions and Primary Agricultural cooperative societies, who are also co-operative societies registered under the Gujarat cooperative Society Act. There is no individual membership.
4.2 They are in distribution of fertilizer for the agricultural purpose for which Agricultural
department issues them allocation to be distributed through their members. The
allocation is fixed company-wise/district wise. In case of fertilizer distribution done
through them, there is 3 tier distributions network system is adopted. At the state level,
Gujcomasol gets the supply of fertilizers from the fertilizer company which is then
received by the District purchase and sale units, from where it is passed on to the Taluka
sale and purchase units. And from there it is to be received by the Primary Agricultural
Cooperative societies (PACS). This mechanism of distribution is established by the
mutual understanding among various co-operative unions. There is no written
agreement. Fertilizers are received directly by the PACS, only the billing and payment is
rotated through all the channels.
4.3 He further added that the prices of fertilizers are fixed under the Essential
Commodities Act, 1955 (10 of 1995). Ministry of Agricultural and Rural Development
have issued Fertilizer control order 1985 as per which the Central Government with a
view to regulating equitable distribution of fertilizers and making fertilizers available at
fair prices, by notification in the Official Gazette, fix the maximum prices or rates at
which any fertilizer may be sold by a dealer, manufacturer, importer or a pool handling
agency. And accordingly no dealer, manufacturer, importer or pool handling agency shall
sell or offer for sale any fertilizer at a price exceeding the maximum price or rate fixed.
Gujcomasol is an institution which is entitled to receive allocation of fertilizer as per the
above
order.
Department
of
Agricultural
decides
the
distribution
of
fertilizer
manufactured by a manufacturing unit. To explain the same, he produced a copy of
circular No. ECA/Ravi-09-10/Fa-34 dated 30.09.2009, as per which have been allotted
37% of the urea is allotted to them. The fertilizer companies intimate the terms and
conditions of the price of fertilizer to them through their letter. A sample copy issued by
GNFC vide their letter No. GNFC/CMM (JCH) Terms -2010 dated 10.04.2010 is produced.
4.4 Regarding the distribution margin of Rs. 225/- shown in the letter issued by M/s
GNFC for CAN and Rs. 200/- a dealers margin for UREA in the case of GSFCL, he stated
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that the fertilizer companies issues bill minus the dealers margin and pays VAT on the
remaining amount. The distribution margin is to be retained by the different agencies
which help in delivery of the fertilizers to the actual users. Actual user gets the fertilizer
at the MRP fixed by the Government. Dealer Margin is fixed by Govt, of India. The
distribution margin is fixed by Govt, of India. It is further divided between the three tier
systems as explained earlier. For example Rs. 200/- is distributed as follows :Gujcomasol gets the share of Rs.19/- DPSU and TPSU each gets the share of Rs. 10/each and Rs. 161/- is the share of PACS (Primary Agricultural cooperative societies) For
this purpose resolution is passed by the organization from time to time.
4.5
Gujcomasol
purchase
Urea,
Ammonium
Sulphate,
DAP
and
ASP
from
Manufacturers/Suppliers, viz., Iffco, Kribhco, GSFC, GNFC, IPL, Hindalco. etc. Their
location from the where it is to be received is not fixed. They deliver the fertilizer upto
the nearest rake point. They are required to deliver the fertilizer to the sale point of
PACS, however if they have no transport network, the work is handled by Gujcomasol for
which Gujcomasol is paid as per Block Level Equated Freight (BLEF). They do not have
any agreement or MOU with the fertilizer companies. The allocation is decided by the
Government.
4.6 Generally the fertilizer is received at the PACS, which is the responsibility of the
fertilizer companies, in case they are unable to do so, and the work is done by
Gujcomasol on the basis of BLEF. The bills are raised in the name of Gujcomasol and
Gujcomasol raises bills to the DPSU and DPSU raises bills to TPSU, who in turn bills to
PACS. Indents are supplied to the companies for supply to their member organization. In
cases where such supplies are received directly by
the village level co-operatives or
supplies are received directly by the village level co-operatives or district level cooperatives indents on behalf of PACS and the payments received from PACS are given to
the fertilizer companies.
4.7 Gujcomasol receives the fertilizers by rake or road (truck) and Fertilizer
manufacturers/suppliers bear entire cost of freight. The urea manufactures have their
own
godowns
in
each
district
for
sales
of
Urea
in
that
particular
district.
Gujcomasol/PACS lift the urea from the notified godowns or the rake point. Under the
fertilizer distribution policy, delivery of fertilizer to the final sale point is the responsibility
of the company, however in many case when they are unable to do so, it is done by
Gujcomasol on receipt of charges as specified under BLEF.
4.8 Regarding type of VAT accounts are maintained, he stated that during the period
from April, 2006 to May, 2006, where the VAT was chargeable, at every sale transaction
was accounted as VAT payable or VAT receivable. From June, 2006 Govt, of Gujarat vide
Notification No. (GHN-72)VAT-2006-S.5(2)(8)-TH dt. 01-06-2006 exempted the VAT
charges on subsequent sales if the first sale in the State of Gujarat is charged with VAT
and therefore from June, 2006 sales & purchase are inclusive of VAT. Thus now no VAT
is paid on fertilizers by them.
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4.9 They are making payment of freight to the transporters. They pay service tax as
recipient of goods transport agency services. The storage income and transport income,
as shown in the profit and loss account are related to distribution of fertilizers only. In
the off season when there is no demand of fertilizer, the fertilizers are stored in their
Godowns, for which they are paid storage amount. Similarly as per Govt, policy and
price control, the delivery of fertilizer delivery to the fertilizers company have to
maintain primary godowns in every district. However where they do not have such
godowns, transportation is done by Gujcomasol for which they are paid as per BELF,
when they use their storage facility, storage charges are paid by them.
4.10 They have godowns which are used for various purposes like storage of food grains.
They have rented godowns to some organizations like FCI, NCMSL (National Collateral
Management Services Limited), NBHC (National Bulk Handling Corporation), SWC (State
Warehousing Corporation), Seeds Corporation, Central Warehousing Corporation, L.G.
Electronics.
They are paying service tax on the charges recovered under renting of
Immovable property services, except in the case of FCI. However, they are not paying
service tax on the income of the storage of fertilizers in the off season in such Godowns
because the ownership of fertilizers stored is with the fertilizer companies, till the bills
are raised to PACS. Gujcomasol is maintaining its account, on mercantile system of
accounting and the description of each head in the profit and loss account is as under:Sale:-
the
insecticide
heading
shows
the
sale
income
towards
seeds, pesticides,
fertilizers, and foods grains.
Interest:- It is earned from the deposits made in the bank.
Godown and
office
rent:- On this amount service tax is paid by us. The godowns
are rented to various parties on monthly rent.
Overriding commission:- The fertilizer
companies for distribution of fertilizers,
considering various aspects declares their
basic price. They also declares the
distribution margin to the Gujcomasol. One sample chart is as under:UREA price declared by GSFC
Particular
Value
1
Basic Price for 20 bags
5310.00
2
Distribution Margin
(-) 200.00
3
Total
5110.00
4
Vat (4%)
204.40
5
Add. Tax (1%)
51.10
6
Dealers Net Price (3+4+5)
5365.50
7
Basic Price to farmers (at Rs. 278.30/- Per Bag)
5566.00
The
distribution
margin
of Rs. 200/-
is
distributed
by
Gujcomasol
Distribution of distribution Margin of Rs. 200/Gujcomasol
19
in Rs.
as under:-
5
DPSU ( District Purchase and Sale units)
10
TPSU ( Taluka Purchase and Sale units)
10
PACS ( Primary Agricultural Credit Societies )
161
Total
200
Sometimes when they distribute the fertilizers overlooking the three tier supply chain,
the differential amount is booked as overriding commission in their accounts.
(v) Storage Income and transport income:- The same have been received from the
fertilizer companies in addition to the distribution margin as explained above. During
storage, the goods are in the name of the company and when the indent is received
from the PACS, it is sold to them.
REPLY DATED 12-01-2011 FROM GUJCOMASOL :
5.1
Gujcomasol vide their letter elated 12-01-2011 informed that they have charged
rent from Food Corporation of India for the period from 01-06-2007 to 31-03-2010 but
not paid service tax because they are not liable to pay service tax on rent collected from
FCI for the reason that FCI is established under Food Corporation Act, 1964 in order to
fulfill the following objectives of the Food Policy: a)
Effective price support operations for safeguarding the interests of the farmers;
b)
Distribution of food
grains
throughout
the
country
for
public distribution
system;
c)
Maintaining satisfactory level of operational and buffer stocks of food grains to
ensure National Security.
5.2
FCI do not use the property given on rent for the use in the course of furtherance
of its business or commerce. Hence the property given on rent is not fulfilling criteria
within the definition of "Renting of immovable property" as defined in clause (90a) of
Section 65 of the Act. Hence, they are not liable to pay service tax under Section
65(105)(zzzz).
5.3
Gujcomasol has furnished information relating to storage charges received from
fertilizer companies for storage of fertilizers in Gujcomasol's godowns during slack
season vide their letter dated 08-04-2011. They have also paid service tax payable on
the storage charges received during the period from May, 2005 to March, 2010. They
paid service tax of Rs. 3,03,581/- (includes service tax of Rs. 2,95,937/-, education cess
of Rs. 5,918/- and secondary & higher education cess of Rs. 1,726/-) along with interest
of Rs. 1,19,509/- on 26-03-2011.
FURTHER STATEMENT OF SHRI MANQJ PATEL OF GUJCOMASOL:
6.1 Shri Manoj Patel, Chief Executive of Gujcomasol in his further statement dated 1005-2011 stated as under: (i) On the issue of payment of service tax on storage and warehousing income he stated
that M/s. KRIBHCO and M/s. IFFCO, both cooperative fertilizer manufacturing units,
stores their fertilizers manufactured by them in Gujcomasol godowns situated at
different locations especially in slack season i.e., at the times of less agricultural
activities. Fertilizer companies pay warehouse charges to them for use of their
warehouses. Rate for warehousing is not fixed. It varies from location to location.
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Gujcomasol were of the view that fertilizer storage is connected with agricultural
activities, no service tax is chargeable. Therefore they have not paid service tax on
storage and warehouse charges received from the fertilizer companies. They have not
raised any bill for storage and warehouse charges. Fertilizer companies issue credit notes
for the storage charges without service tax.
(ii) However, after the issue was raised, by the DGCEI, they discussed the issue with
their legal consultant. As per the advice given by their legal consultant, they have paid
service tax of Rs. 3,03,581/ - along with interest of Rs. 1,19,509/- vide e-payment
challans dated 24-03-2011 & 26-03-2011 being the service tax payable for the period
from 2005-06 to 2009-10. He further stated that for the year 2010-11, they have
received warehouse charge of Rs.6,89,067/- from KRIBHCO & IFFCO. Service tax of Rs.
70,974/- paid and the said information furnished in ST-3 return filed for the 2nd half
year 2010-11 (October, 2010 to March, 2011). He reiterated that no other payment is
received during the year 2010-11 towards warehousing charges.
(iii) Regarding payment of service tax on godown rent, he stated that Gujcomasol has
godowns
at
different
locations
which
are
given
on
rent
to
various
companies/organization for various purposes like storage of food grains ,Cummins,
castor,
mustard, cotton bales, seeds etc that they have rented godowns to some
organizations like FCI, NCMSL (National Collateral Management Services Limited) NBHC
(National Bulk Handling Corporation), SWC (State Warehousing Corporation, Seeds
Corporation, Central Warehousing Corporation, L.G. Electronics. They are paying service
tax on the charges recovered under renting of Immovable property services, except in
the case of FCI. FCI (Food Corporation of India) a central government owned
organization, has instructed them not to charge service tax from them. FCI claim that
they are not liable to pay service tax as they are storing agricultural products such as
wheat and rice which are meant for public distribution at subsidized rates as per the
policy of Government. Storage of agricultural products is exempt from payment of
service tax. In view of the above, they are not paying service tax on rental charges
received from FCI.
6.2 Gujcomasol under their letter dated 12-05-201 1 has also furnished a copy of letter
dated 11-05-2011 from FCI wherein it is mentioned that FCI stores wheat and rice.
EXAMINATION
OF
THE
INFORMATION
/
DOCUMENTS
RECEIVED
FROM
GUJCOMASOL:
7.1 The present inquiry was initiated to verify whether Gujcomasol has paid service tax
payable by them on the income received under the heads of overriding commission,
rental income of immovable property and storage and warehousing income.
7.2 On examination of various submissions made by Gujcomasol, it appears that the
fertilizer companies for distribution of fertilizers, considering various aspects declares
their basic price. The fertilizer companies issues bill minus the dealer’s margin and pays
VAT on the remaining amount. The distribution margin is to be retained by the different
agencies which help in delivery of the fertilizers to the actual users. Actual user gets the
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fertilizer at the MRP fixed by the Government. Dealer Margin is fixed by Govt, of India.
The distribution margin is fixed by Govt, of India. It is further divided between the three
tier systems viz., Gujcomasol gets the supply of fertilizers from the fertilizer company
which is then received by the District purchase and sale units(DPSU), from where it is
passed on to the Taluka sale and purchase units (TPSU). And from there it is to be
received by the Primary Agricultural Cooperative societies (PACS). For example Rs.
200/- is distributed as follows:Gujcomasol gets the share of Rs.19/- DPSU and TPSU each gets the share of Rs. 10/each and Rs. 161/- is the share of PACS (Primary Agricultural co-operative societies).
7.3 Sometimes when they distribute the fertilizers overlooking the three tier supply
chain, the differential amount is booked as overriding commission in Gujcomasol books
of accounts. Further they contend that they are engaged in the purchase and sale of
fertilizers and what is got by them is their profit margin and thus is not liable to service
tax. It is also submitted that from 01-06-2006, VAT is exempted on the resale of
chemical fertilizers. However for the period prior to 01-06-2006, they were paying VAT.
Therefore it appears that distribution margin is for sale and purchase only. Thus, the
contention of Gujcomasol that no service tax is payable on such distribution margin
appears to be correct.
7.4
It
is
found
that
Gujcomasol
is
also
receiving
storage charges from
fertilizer companies for storage of fertilizers in their godowns in the off season when
there is no demand for fertilizer. During the storage period, the goods are in the name of
the company and when the indent is received from PACS, it is sold to Gujcomasol.
Initially they held the view that fertilizer storage is connected with agricultural activity
and therefore they are not liable to pay service tax on the storage of fertilizers in the off
season because the ownership of fertilizers stored is with the fertilizer companies till the
bills are raised to PACS. The amount of storage and warehousing charges received from
fertilizer companies during the years 2006-07 to 2009-10 is as under: Sr. No.
Date of receipt
Amount in Rs.
1
30-06-2006
8,466
2
30-04-2007
4,63,366
3
09-02-2008
2,08,970
4
31-05-2008
1,52,091
5
31-03-2009
2,26,066
6
31-03-2009
3,59,625
7
30-06-2009
2,00,000
8
30-11-2009
2,84,693
9
31-03-2010
2,20,840
21,24,117
7.5 Section 65(102) of the Finance Act, 1994 defines 'storage and warehousing' as
under:-
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"Storage and warehousing includes storage and warehousing services for
goods including liquids and gases but does not include any services provided, for storage
of agriculture produce or any service provided by a cold storage".
7.6 Further, section 65(105)(zza) of the Finance Act, 1994 defines the taxable service as
follows:"The taxable service means any services provided or to be provided to any
person, by a storage or warehouse keeper in relation to storage and warehousing of
goods".
7.7 It can be seen from the above definition that services provided in relation to storage
and warehousing of goods is chargeable to service tax under "Storage and warehousing
service". In the instant case, Gujcomasol has admitted that the}'' are allowing fertilizer
companies to store fertilizers in the off-season in the godowns. Fertiliser companies pays
them storage charges.
7.8 Gujcomasol cited two reasons for not paying service tax for two reasons:
a) Fertilizer storage is connected with agricultural activity;
b) Fertiliser companies have not paid them storage charges along with service tax.
7.9 As explained above, only the storage of agriculture produce is exempt
payment
of service
tax under
storage
and
from
warehousing service. Fertilizers is not
agricultural produce. Therefore the exemption granted to agriculture produce cannot be
extended to fertilizers. Secondly, liability to pay service tax under storage and
warehousing service is cast on Gujcomasol under Section 65(105)(zza) of the Finance
Act, 1994.
It is therefore responsibility of Gujcomasol to pay service tax.
8. In view of the above, it is very clear that Gujcomasol is liable to pay service tax on
the value of storage and warehousing charges charged from fertilizer companies under
storage and warehousing service. From the information obtained from Gujcomasol, it is
found that they have received amount of Rs. 21,24,117/- during the period from 01-042006 to 31-03-2010 and service tax payable work out to Rs. 2,35,375/-which includes
service tax of Rs. 2,29,070/-, education cess of Rs. 4,581/-and Secondary & Higher
Education cess of Rs. 1,724/-. During the course of investigation, Gujcomasol have
accepted the liability to pay service tax under storage and warehousing services and paid
service tax on the value of storage and warehousing charges received from fertilizer
companies along with interest as given below:Sr. No.
Date
Of
Amount
RateService
Edu.
Tax Rs.
Cess
in Rs.
receipt
of
S & H Total
Amount Date
Edu.
of
of
Cess
interest
payment
ST
paid
(Rs.)
1
30.06.06 8,466
12 1,016
20
0
1,036
638
26.03.11
2
30.04.07 4,63,366
12 55,604
1,112
0
56,716
28,765
26.03.11
3
09.02.08 2,08,970
12 25,076
502
251
25,829
10,303
24.03.11
9
4
31.05.08 1,52,091
12 18,251
365
183
18,798
6,883
24.03.11
5
31.03.09 2,26,066
10 22,607
452
226
23,285
6,004
24.03.11
6
31.03.09 3,59,625
10 35,963
719
360
37,041
9,552
26.03.11
7
30.06.09 2,00,000
10 20,000
400
200
20,600
4,644
26.03.11
8
30.11.09 2,84,693
10 28,469
569
285
29,323
5,013
26.03.11
9
31.03.10 2,20,840
10 22,084
442
221
22,747
2,908
26.03.11
21,24,117
9. It is found
that
2,29,070 4,581
Gujcomasol
1,724 2,35,375 74,710
is registered
with
Service tax Commissionerate,
Ahmedabad and holds service tax registration No. AAAAG2927KST001 for the services of
"Renting of immovable property" and "Transport of goods by road service". However,
they have not obtained service tax registration under "storage and warehousing service".
The failure to obtained registration for storage and warehousing can be attributed to
their intention of suppression of the facts from the department and to evade payment of
service tax thereon.
10.1 Section 68 of the Finance Act, 1994 provides that every person providing taxable
service to any person shall pay service tax at the specified rates and in such manner and
within such period as may be prescribed. Further, Rule 6 of the Service Tax Rules, 1994
stipulates that service tax shall be paid to the credit of the Central Government, by the
5th of the month immediately following the calendar month, in which the payments are
received, towards the value of taxable services.
10.2 Section 69 of the Finance Act, 1994 read with Rule - 4 of the Service Tax Rules,
1994 provides that every person liable to pay service tax should make an application
within a period of thirty days from the date on which the service tax under Section 66 of
the Finance Act, 1994 is levied.
10.3 Section
70
of the
Finance
Act,
1994,
provides
that every person liable to
pay the service tax shall himself assess the tax due on the services provided by him and
shall furnish to the Superintendent of Central Excise, a return in such form and in such
manner and at such frequency as may be prescribed. Rule 7 of the Service Tax Rules,
1994, prescribes that every assessee shall submit a half-yearly return in Form ST-3 or
ST-3A as the case may be, alongwith a copy of the Form TR-6, in triplicate for the
months covered in the half-yearly returns. Further sub-rule [2] thereto also provides
that every assessee shall submit the half yearly return by the 25th of the month following
the particular half-year.
11.1 In view of above, it appears that the assessee have not paid service tax by
suppression of facts and in contravention of provisions of the Finance Act, 1994 relating
to levy and collection of service tax and Rules made there under with an intent to evade
the payment of service tax.
10
11.2 Therefore, it appears that the proviso to sub-section [1] of Section 73 of the
Finance Act, 1994 is applicable to invoke the extended period of five years for the
recovery of service tax not paid by them on storage charges received from fertilizer
companies under "storage and warehousing service".
11.3 In view of the above, it appears that Gujcomasol has contravened the provisions
of:
(i)
Section 67 of the Finance Act, 1994 in as much as they failed to pay appropriate
service tax on the gross value amount charged by them for service of storage and
warehouse provided by them;
(ii) Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994,
in-as-much as they have not paid service tax as detailed upra to the credit of the
Government of India;
(iii) Section 69 of the Finance Act, 1994 read with Rule - 4 of the Service Tax Rules,
1994 in as much as they failed to obtain service tax registration under "storage and
warehousing services";
(iv) Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994,
in as much as they had not filed periodical half yearly return in form ST-3 to the
department.
11.4Gujcomasol has not paid the service tax under storage and warehousing service,
therefore, it appears that they rendered themselves liable to penal action under Section
76 of the Finance Act, 1994.
11.5 Further, it appears that Gujcomasol has suppressed / concealed the value of
taxable services received for storage of fertilizers from fertilizer companies with intent to
evade payment of service tax. They have not paid service tax by way of suppression of
facts and contravened the provisions of Finance Act, 1994 relating to levy and collection
of service tax and Rules made there under with intent to evade payment of service tax.
It therefore, appears that Gujcomasol is liable to penal action under Section 78 of the
Finance Act, 1994.
12.
Therefore,
M/s.
Gujarat State Co-operative Marketing Federation Limited
having registered office at Sahakar Bhavan, Relief Road, Ahmedabad - 380 001 were
called upon to show cause to the Deputy/Assistant Commissioner of Service Tax,
Division -II, Ahmedabad having his office at 1st floor APM Mall 100 FT Ring Road,
Satellite, Ahmedabad-380015 as to why:(i) Service Tax amounting to Rs. 2,35,375/- (which includes service tax of Rs.
2,29,070/-, education cess of Rs. 4,581/- and Secondary & Higher Education cess of Rs.
1,724/-) (Rupees Two Lakh Thirty Five Thousand Three Hundred Seventy Five only) not
paid by them during the period from 01-04-2006 to 31-03-2010 under "Storage and
warehouse services" should not be demanded and recovered from them under Section
73 of the Finance Act, 1994 by invoking extended period of five years as per proviso to
sub-section (1) of said Section;
11
(ii) Service tax amounting to Rs. 2,35,375/- (Rupees Two Lakh Thirty Five Thousand
Three Hundred Seventy Five
only) paid by them during the course of investigation
should not be appropriated against the service tax liability as mentioned at (i) above.
(iii) Interest at the rate of 13% amounting to Rs. 74,710/- should not be demanded and
recovered from them for the delayed period under section 75 of the Finance Act, 1994;
(iv) Interest amounting to Rs. 74,710/- paid by them during the course of investigation
should not be appropriated against the interest liability for the delayed payment of
service tax.
(v) Penalty under the provisions of Section 76 of the Finance Act, 1994, as amended,
should not be imposed on them for failure to pay Service Tax, as mentioned
hereinabove;
(vi) Penalty under the provisions of Section 77 of the Finance Act, 1994, as amended,
should not be imposed on them for contravention of provisions of the Finance Act, 1994,
as explained hereinabove;
(vii) Penalty under Section 78 of the Finance Act, 1994, as amended, should not be
imposed on 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.
13. Defence Reply:
13.1 The said service provider vide their letter dated 27.06.2011 submitted their defence
reply to the SCN in which they stated that Gujarat State Co-operative Marketing
Federation Ltd, (Gujcomasol) is registered under the provision of Chapter V of Finance
Act, 1994 under following categories of services.
(1)
Advertising Agency - Section 65(105) (e)
(2)
Storage & Warehouse Service -Section 65 (105) (zza)
(3)
Transport of goods by Road - Section 65 (105) (zzp)
(4)
Renting of Immovable Property - Section 65 (105)(zzzz) Bearing Service Tax
Registration No.AAAAG29271 KST001
13.2 Gujcomasol is regular in payment of Service Tax and filing of half yearly return in
ST-3 regularly and in time.
13.3 Gujcomasol is paying more than 10 lakh rupees as Service Tax and hence liable to
pay service tax by e-payment and also further liable to file half yearly Return in ST-3 in
the mode of e-filing. And therefore since last two years Gujcomasol is executing its
Service Tax dues by e-payment and filing its half yearly return in ST -3 by mode of efiling.
13.4 Further Gujcomasol is a Co-operative Society and mainly its field of operation is
around agriculture, agriculture produce and farmers. Its main object to help primary
farmer's society or farmers by providing fertilizers, agriculture seeds etc., on demand.
Hence Gujcomasol has its storage and warehousing facility at several places in the State
of Gujarat.
12
13.5 They replied to Sub-paras (v) (vi) and (vii) of Para No. 12 of the notice under
reference together in their defense.
13.5.1 Sub-para (v) - " Penalty under the provision of section 76 of the Finance Act,
1994 as amended, should not be imposed on them for contravention of provision of the
Finance Act, 1994 as explained herein above".
13.5.2 Sub- para (vi) - " Penalty under the provision of section 77 of the Finance Act,
1994 as amended, should not be imposed on them for contravention of provision of the
Finance Act, 1994 as explained herein above".
13.5.3 Sub- para (vii) - " Penalty under section 78 of the Finance Act, 1994, as amended
should not be imposed on 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".
13.5.4 Before replying to sub-para (v), (vi) and (vii) of the notice under reference, they
gave herein below the statutory definition in relation to "Storage and Warehouse service"
in Chapter V of Finance Act, 1994.
13.5.5 Section 65 (102) of the Act defines ‘Storage and Warehousing' as "storage and
warehousing includes storage and warehousing services for goods including liquid and
gases but does not include any services provided for storage and agriculture produce or
any service provided by a cold storage".
13.5.6 Section 65 (105) (zza) of the Act defines 'Taxable Service 'means any service
provided or to be provided to any person by a storage or warehouse keeper in relation to
storage and warehousing of goods".
13.6 They invited attention to para No.5 of circular No.F. No.B/11/1/2002-TRU dated
01-08-2002, which is reproduced as under.
"5. It has been stated that in some case a storage owner only rents the storage
premises. He does not provide any service such as loading/unloading, stacking security
etc. A point has been raised as to whether service tax would be leviable in such cases. It
is clarified that mere renting of space can not be said to be in the nature of service
provided for storage or warehousing of goods. Essential test is whether the storage
keeper provides for security of goods, stacking, loading/unloading of goods in the
storage area".
13.7 They were under bonaflde belief that
(1)
As they are not providing any facility towards loading /unloading, stacking etc.,
they are not liable to pay Service Tax on the amount credited on "storage income" in
their financial book and also they have not charged and collected service tax from the
service recipient.
(2)
They were under impression that fertilizers is considered as 'agriculture produce' as
it helps in growing more agriculture products than under non-use of fertilizer.
(3)
The income that they received for storage of fertilizer is off-season in very less
compared to their other income.
13
When they are paying service tax of more than 10 lakhs rupees in a year there can not
be their intention not pay to service tax of around less than Rs.60,000/- on storage
income per annum (Total tax payable from 1-4-2006 to 31-3-2010 i.e. for 4 years
Rs.2,35,375/-).
(4)
They do not raise the bill for storage for fertilizers by Fertilizers Company during
the off-season. They came to know only when they receive credit note from respective
fertilizer company.
13.8 As soon as, during the course of investigation they were made to understand that
the amount which has been credited as "storage income' attract the service tax, they
their own calculate the amount of service tax and interest thereon and pay the same.
13.9 Further they stated that they have no intention of evading the tax by suppressing
the value received and credited as "Storage Income' in their audited accounts. If they
had knowledge of such provision, they would have applied for registration under suitable
category of taxable service and pay the service tax on due date and should have shown
payment in half-yearly return of ST-3.
13.10 They invited attention to following decisions of CESTAT at Ahmedabad in their
support for non-levying of penalty under section 78 in view of the provision of section
73(3) read with Explanation - 2.
a)
Amiras Enterprise Vs. CCE - (2010) 20STR 631 (Tri. Ahmd.)
b)
Rabindranath K. Kanungo Vs CCE - (2010) 20 STR 636 (Tri. Ahmd.).
13.11 Further there are several decisions of various CESTAT that where the assessee
paid service tax along with interest question of levying penalty under section 76 and/ or
section 78 do not arise in view of the provision of section 73(3) of the Finance Act, 1994.
13.12 They humbly stated that when during the course of investigation, they are made
to understand that service tax is payable on "Storage Income", they, their own, calculate
the amount payable as Service Tax for the storage income and calculate the interest for
late payment.
13.13 They were under bonafide belief that such storage income will not attract service
tax as they are not providing any service relating to loading/unloading stacking of goods
etc. Hence extended period of five years under proviso to sub-section (1) of the section
73 can not be invoked.
13.14 From the above stated reasons they are under a bonafide belief that the money
collected as storage income is not liable to service tax. This being a reasonable cause,
they requested to invoke the provisions of Sec.80 and drop the proceedings as they are
under bonafide belief that they are not liable to Service Tax hence, they have not
collected service tax and not paid the same, also they have not registered the service
and not shown the details of the same in respective ST-3 return.
As soon as they came
14
to know that they are liable to pay service tax, they got the service registered and paid
service tax with interest and informed and filled challans of payment of tax with interest
with the Service Tax authority.
13.15 They requested to invoke section 73(3) and drop the proceeding. They have
recorded all the receipt in their books. There is no intention to evade payment of Service
Tax hence extended period of 5 years as per proviso to sec. 73(l) cannot be applicable.
Late registration / non registration can not be the ground for invoking extended period of
5 years as per the proviso to Sec.73 (1), when they have a bonafide belief that they are
not liable to service tax., All the receipt are recorded in their books of accounts and it is
reflected under the same head in their audited annual accounts submitted to the
department.
13.16 They submitted that they are a Co-operative society. Their office bearers are the
members of this society by evading the service tax they are not gaining any thing out of
it hence, there can not be any intention to evade tax.
13.17 However, they agreed that the amount of Rs.2,35,375/- (Rupees Two lacs Thirty
Five Thousand Three Hundred Seventy five Only) be appropriated towards the dues as
mentioned in sub-para (ii) of Para 12 of the notice under reference.
13.18 They further agree that amount of Rs.74710/- (Rupees Seventy four thousand
seven hundred ten only) paid towards interest be appropriated for the delayed payment
under section 75 of the Finance Act, 1994.
13.19 The said service provider also submitted their reply to the SCN dated 28.01.2012
wherein they have submitted Xerox copy of challans dated 24.03.11 and 26.03.11 of Rs
235377/- (Service Tax) plus interest of Rs 74710/- totaling Rs. 310087/-. They stated
that they have received SCN on 30.05.11 i.e after payment made and intimated to the
department and also shown in the ST-3 return and hence penalty under various
provision of service tax will not be applicable and they requested to invoke the provision
of section 80 of the Act for waiver of penalty as they have deposited full amount of tax
with interest.
14. Records of personal hearing:
PH in the matter was held on 30.01.2012. Shri Manoj B Shah CA and Shri Ramesh A
Patel, employee of the said service provider appeared for PH on 30.01.2012 and they
reiterated the arguments in their letter dated 28.01.2012 (Received on 30.01.2012).
They stated that service tax alongwith interest is already paid by them before issue of
SCN and hence they requested to drop the penal proceedings u/s 76, 77 and 78 in
support of judgment of CESTAT, Ahmedabad in case of Docsus Services Pvt. Ltd. Vs
Commissioner of Service Tax, Ahmedabad (As reported in 2011(22) STR-68 (Tri-Ahmd).
15. Discussion and findings:
15
15.1 I have carefully gone through the subject SCN, their defence reply dated
27.06.2011 and 28.01.2012 and records of personal hearing held on 30.01.2012.
15.2 I find that the case of the department was that the said service provider is
receiving
also
storage charges from fertilizer companies for storage of fertilizers in their
godowns in the off season when there is no demand for fertilizer. During the storage
period, the goods are in the name of the company and when the indent is received from
PACS, it is sold to Gujcomasol. Initially they held the view that fertilizer storage is
connected with agricultural activity and therefore they are not liable to pay service tax
on the storage of fertilizers in the off season because the ownership of fertilizers stored
is with the fertilizer companies till the bills are raised to PACS. The amount of storage
and warehousing charges received from fertilizer companies during the years 2006-07 to
2009-10 are Rs 21,24,117/15.3 Section 65(102) of the Finance Act, 1994 defines 'storage and warehousing' as
under:"Storage and warehousing includes storage and warehousing services for goods
including liquids and gases but does not include any services provided, for storage of
agriculture produce or any service provided by a cold storage".
15.4 Further, section 65(105)(zza) of the Finance Act, 1994 defines the taxable service
as follows:"The taxable service means any services provided or to be provided to any
person, by a storage or warehouse keeper in relation to storage and warehousing of
goods".
15.5
As explained above, only the storage of agriculture produce is exempt
payment
of service
tax under
storage
and
from
warehousing service. Fertilizers is not
agricultural produce. Therefore the exemption granted to agriculture produce cannot be
extended to fertilizers. Secondly, liability to pay service tax under storage and
warehousing service is cast on the said service provider under Section 65(105)(zza) of
the Finance Act, 1994.
It is therefore responsibility of the said service provider to pay
service tax. Thus they are liable to pay service tax of Rs 235375/- on storage and
warehousing service. Thus it was proposed to demand service tax of Rs 235375/- under
proviso to section 73(1) of FA 1994 by invoking extended period of five years, to charge
interest u/s 75 of the Act and to impose penalties u/s 76,77 and 78 of FA 1994.
15.6 The said service provider vide their letter dated 27.06.2011 contended that Section
65 (102) of the Act defines ‘Storage and Warehousing' as "storage and warehousing
includes storage and warehousing services for goods including liquid and gases but does
not include any services provided for storage and agriculture produce or any service
provided by a cold storage".
16
15.7 Section 65 (105) (zza) of the Act defines 'Taxable Service 'means any service
provided or to be provided to any person by a storage or warehouse keeper in relation to
storage and warehousing of goods".
15.8 They invited attention to para No.5 of circular No.F. No.B/11/1/2002-TRU dated
01-08-2002, which is reproduced as under.
"5. It has been stated that in some case a storage owner only rents the storage
premises. They does not provide any service such as loading/unloading, stacking
security etc. A point has been raised as to whether service tax would be leviable in such
cases. It is clarified that mere renting of space can not be said to be in the nature of
service provided for storage or warehousing of goods. Essential test is whether the
storage keeper provides for security of goods, stacking, loading/unloading of goods in
the storage area".
15.9 As submitted by the service Provider that they were under bonaflde belief that
(1)
As they are not providing any facility towards loading /unloading, stacking etc.,
they are not liable to pay Service Tax on the amount credited on "storage income" in
their financial book and also they have not charged and collected service tax from the
service recipient.
(2)
They were under impression that fertilizers is considered as 'agriculture produce' as
it helps in growing more agriculture products than under non-use of fertilizer.
(3)
The income that they received for storage of fertilizer is off-season in very less
compared to their other income. When they are paying service tax of more than 10 lakhs
rupees in a year there can not be their intention not pay to service tax of around less
than Rs.60,000/- on storage income per annum (Total tax payable from 1-4-2006 to 313-2010 i.e. for 4 years Rs.2,35,375/-).
(4)
They do not raise the bill for storage for fertilizers by Fertilizers Company during
the off-season. They came to know only when they receive credit note from respective
fertilizer company.
15.10 As soon as, during the course of investigation they were made to understand that
the amount which has been credited as "storage income' attract the service tax, they
their own calculate the amount of service tax and interest thereon and pay the same.
15.11 Further they stated that they have no intention of evading the tax by suppressing
the value received and credited as "Storage Income' in their audited accounts. If they
had knowledge of such provision, they would have applied for registration under suitable
category of taxable service and pay the service tax on due date and should have shown
payment in half-yearly return of ST-3.
15.12 They invited attention to following decisions of CESTAT at Ahmedabad in their
support for non-levying of penalty under section 78 in view of the provision of section
73(3) read with Explanation - 2.
a)
Amiras Enterprise Vs. CCE - (2010) 20STR 631 (Tri. Ahmd.)
17
b)
Rabindranath K. Kanungo Vs CCE - (2010) 20 STR 636 (Tri. Ahmd.).
15.13 Further they submitted that there are several decisions of various CESTAT that
where the assessee paid service tax along with interest question of levying penalty
under section 76 and / or section 78 do not arise in view of the provision of section
73(3) of the Finance Act, 1994.
15.14They further stated that when during the course of investigation, they are made to
understand that service tax is payable on "Storage Income", they on their own, calculate
the amount payable as Service Tax for the storage income and calculate the interest for
late payment.
15.15 they stated that they were under bonafide belief that such storage income will not
attract service tax as they are not providing any service relating to loading/unloading
stacking of goods etc. Hence extended period of five years under proviso to sub-section
(1) of the section 73 can not be invoked.
15.16 From the above stated reasons they are under a bonafide belief that the money
collected as storage income is not liable to service tax. This being a reasonable cause,
they requested to invoke the provisions of Sec.80 and drop the proceedings as they are
under bonafide belief that they are not liable to Service Tax hence, they have not
collected service tax and not paid the same, also they have not registered the service
and not shown the details of the same in respective ST-3 return.
15.17 They requested to invoke section 73(3) and drop the proceeding. They have
recorded all the receipt in their books. There is no intention to evade payment of Service
Tax hence extended period of 5 years as per proviso to sec.73(l) cannot be applicable.
Late registration / non registration can not be the ground for invoking extended period of
5 years as per the proviso to Sec.73 (1), when they have a bonafide belief that they are
not liable to service tax., All the receipt are recorded in their books of accounts and it is
reflected under the same head in their audited annual accounts submitted to the office.
15.18 Section 65(102) of the Finance Act, 1994 defines 'storage and warehousing' as
under:"Storage and warehousing includes storage and warehousing services for
goods including liquids and gases but does not include any services provided, for storage
of agriculture produce or any service provided by a cold storage".
15.19 Further, section 65(105)(zza) of the Finance Act, 1994 defines the taxable service
as follows:"The taxable service means any services provided or to be provided to any person, by a
storage or warehouse keeper in relation to storage and warehousing of goods".
18
15.20 It can be seen from the above definition that services provided in relation to
storage and warehousing of goods is chargeable to service tax under "Storage and
warehousing service". In the instant case, the said service provider has admitted that
they are allowing fertilizer companies to store fertilizers in the off-season in the
godowns. Fertiliser companies pays them storage charges.
15.21 As explained above, only the storage of agriculture produce is exempt
payment
of service
tax under
storage
and
from
warehousing service. Fertilizers is not
agricultural produce. Therefore the exemption granted to agriculture produce cannot be
extended to fertilizers. Secondly, liability to pay service tax under storage and
warehousing service is cast on the said service provider under Section 65(105)(zza) of
the Finance Act, 1994.
It is therefore responsibility of the said service provider to pay
service tax.
15.22 In view of the above, it is very clear that the said service provider is liable to pay
service tax on the value of storage and warehousing charges charged from fertilizer
companies under storage and warehousing service. From the information obtained from
the said service provider, it is found that they have received amount of Rs. 21,24,117/during the period from 01-04-2006 to 31-03-2010 and service tax payable work out to
Rs. 2,35,375/-which includes service tax of Rs. 2,29,070/-, education cess of Rs. 4,581/and Secondary & Higher Education cess of Rs. 1,724/-. During the course of
investigation, the said service provider have accepted the liability to pay service tax
under storage and warehousing services and paid service tax on the value of storage and
warehousing charges received from fertilizer companies along with interest.
15.23 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.
15.24 I also find that it is an admitted fact that the said service provider was providing
taxable service i.e Stroage and warehousing service as defined u/s 65 (105)(zza) of FA
1994 and had suppressed
the value of taxable service during the period 2006-07 to
2009-10 and evaded service tax amounting to Rs 235375/-. Thus charges with regards
to contravention of section 68 and 70 of FA 1994 read with rule 6 and 7 of service tax
rules 1994 leveled in the SCN dated 25.05.2011 against the said service provider stand
established. Thus service tax amounting to Rs 235375/- is thus liable to be demanded
under proviso to section 73(1) of FA 1994. Service tax of Rs 235377/- paid by the said
service
provider
vides
their
challans
dated
24.03.11
appropriated against their service tad liability of Rs 235375/-
and
26.03.11
should
be
19
15.25 As regards charging of interest, I find that Section 75 of the Finance Act, 1994
provides that every person, liable to pay the tax in accordance with the provisions of
section 68 or rules made there under, who fails to credit the tax or any part thereof to
the account of the Central Government within the period prescribed, shall pay simple
interest at such rate not below ten per cent and not exceeding thirty-six per cent per
annum, as is for the time being fixed by the Central Government, by notification in the
Official Gazette for the period by which such crediting of tax or any part thereof is
delayed.
15.26 I find that the CESTAT in the case of Sree Vadivambigai Textile Mills Ltd Vs. CCE
[2005] 1 STT 72 (Chennai- CESTAT) held that levy of interest under section 75 is
mandatory and no leniency can be shown merely because appellant has been declared
as sick company. I also find that CESTAT in the case of Ballarpur Industries Ltd V/s.
Commissioner of C.Ex. Nagpur-2007(5) STR-197 (Tri. Mumbai) held that the provisions
of section 75 prescribing interest on service tax paid belatedly are mandatory and
therefore the appellants are liable to pay interest. I also find that CESTAT in the case
INMA International Security Academy (P) Ltd. V/s. CCE-[2005] 1 STT 31 (ChennaiCESTAT) held that the liability to pay interest at prescribed rate, for delayed payment of
dues, was inescapable as the law did not confer any discretion in the matter of levying
interest.
15.27 In the instant case the said service provider had not paid service tax within the
prescribe time limit. Thus interest at appropriate rate is chargeable from the said service
provider in terms of Section 75 of the Finance Act, 1994. Also interest of Rs 74710/paid by the said service provider vide their challans dated 24.03.11 and 26.03.11 at the
time of investigation, would be appropriated against their interest liability.
15.28
As regards the allegation of suppression of facts for invoking the extended
period for demand under proviso of section 73 (1) of the Finance Act 1994, I observe
that, had the preventive checks not been done, the service tax authorities would never
had known the details of storage and
warehousing charges recovered by the said
service provider from fertilizer companies . The said service provider had not declared
the correct taxable value of service provided in ST-3 returns resulting in suppression of
necessary information to the department. Therefore, this is a case of deliberate nondeclaration and suppression of vital information with a willful
payment
of
intention
to
evade
service tax. Accordingly, the extended period for demand of the Service
Tax under proviso of Section 73(1) of the Act in the case before me is fully justified.
15.29 It is found
that
the said service provider is registered
with
service tax
Commissionerate, Ahmedabad and holds service tax registration No. AAAAG2927KST001
for the services of "Renting of immovable property" and "Transport of goods by road
service". However, they have not obtained service tax registration under "storage and
warehousing service". The failure to obtained registration for storage and warehousing
20
can be attributed to their intention of suppression of the facts from the department and
to evade payment of service tax thereon.
15.30 As regards, imposition of penalties it would be appropriate to reproduce the
relevant provisions and the same are reproduced as under:15.30.1 Section 76 of the Finance Act, 1994 [as it stood after 18.04.2006]
“Penalty for failure to pay service tax.76. Any person, liable to pay service tax in accordance with the provisions of section 68
or the rules made there under, who fails to pay such tax shall pay in addition to paying
such tax, and interest on that tax in accordance with the provisions of section 75. a
penalty which shall not be less than two hundred rupees for every day during which such
failure continues, or at the rate of two per cent of such tax, per month, whichever is
higher, starting with the first day after the due date till the date of actual payment of the
outstanding amount of service tax:
Provided that the total amount of penalty in terms of this section shall not exceed the
service tax payable.”
15.30.2
Section 77 of the Finance Act. 1994 (as it stood up to 10.5.08) provided as
under:"77. Penalty for contravention of any provision for which no penalty is
provided- Whoever contravenes any of the provisions of this Chapter or any rule made
there-under for which no penalty is separately provided in this Chapter shall be liable to
a penalty which may extended to an amount not exceeding one thousand rupees.”
15.30.3 Section 77(2) of the Finance Act. 1994 (as it stood from 10.5.08) provided as
under:-“(2) Any person, who contravenes any of the provisions this Chapter or any rule
made hereunder for which no penalty is separately provided in this Chapter shall be
liable to a penalty which may extend to five thousand rupees.
15.31 As per Section 77 (1) (a) “any person who is liable to pay service tax, or
required to take registration, fails to take registration in accordance with the
provisions of Section 69 or rules made under this Chapter shall be liable to pay
penalty which may extend to Rs. 5000/- or 200/- Rupees for every day during
which such failure continues, which ever is higher, starting with the first day after
the due date, till the date of actual compliance
15.32 As per the Section 69 of the Act read with Service Tax Rules 4(1) (hereinafter
referred to as "the said Rules"), Every person liable for paying the Service Tax shall
make an application to the [concerned Superintendent of Central Excise] in form ST-1
for registration within a period of thirty days from the date on which the Service Tax
under Section 66 of the Finance Act, 1994 (32 of 1994) is levied. As per the provisions of
Section 68 of the Act read with Rule 6 of the Rules, 1994 every person providing taxable
service to any person shall pay the Service Tax at the rate specified in Section 66 of the
Act in such manner and within such period as may be prescribed.
21
15.33
In the subject case, the said service provider had neither taken registration
under the category of ‘storage and warehousing service’ nor paid the service tax leviable
thereon and thereby contravened the provisions of section 69 & 68 of the Act and
rendered themselves liable for penalty as provided under section 76 & 77 of the Act.
Since they had taken service tax registration for storage and warehousing service only
on 28-3-2011.
15.34
Section 78 of the Finance Act, 1994 [as it stood from 10.9.04] provides as
under:SECTION 78. Penalty for suppressing value of taxable service -Where any
service tax has not been levied or paid or has been short-levied or short-paid or
erroneously refunded, by reason of - (a) fraud; or (b) collusion; or (c) wilful misstatement; or (d) suppression of facts; or (e)contravention of any of the provisions of
this Chapter or of the rules made thereunder with intent to evade payment of service
tax, the person, liable to pay such service tax or erroneous refund, as determined under
sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such
service tax and interest thereon, if any, payable by him, which shall not be less than, but
which shall not exceed twice, the amount of service tax so not levied or paid or shortlevied or short-paid or erroneously refunded.
15.35
I find that the larger Benchof Hon'ble Supreme Court in the case of Union of
India V/s. Dharamendra Textile Processors-2008(231) ELT-3(SC) observed as under:"12. The stand of learned counsel for the assessee is that the absence of
specific reference to mens rea is a case of casus omissus. If the contention of learned
counsel for the assessee is accepted that the use of the expression "assessee shall be
liable” proves the existence of discretion, it would lead to a very absurd result. In fact in
the same provision there is an expression used i.e. ''liability to pay duty ". It can by no
stretch of imagination be said that the adjudicating authority has even discretion to levy
duty less than what is legally and statutorily leviable. Most of cases relied by learned
counsel for the assessee had their foundation on Bharat Heavy Electirical's case (supra).
As noted above, the same is based on concession and in any event did not indicate the
correct position of law.
“13. It is well settled principle in law that the court cannot read any thing into
a statutory provision or a stipulated condition which is plain and unambiguous. A statue
is an edict of the legislature. The language employed in a statute is the determinative
factor of legislative intent. Similar is the position for conditions stipulated in
advertisements. "
15.36
I also find that the Hon'ble Tribunal in the case of M/s. Amirsh Enterprises V/s.
Commissioner of Central Excise, Rajkot [2010 (17) STR-491 (Tri.-Ahmd.)] in Para 5 held
as under"5. As regards penalty under Section 76 of the Act, I find that the same is to
the effect that an assessee who fails to pay such tax, shall pay, in addition to such tax
22
and interest, the penalty which shall be not less than Rs. 200/-for every day, during
which such failure is continues. In terms of the lion 'ble Supreme Court Judgment in the
case of Dharmendra Textile Processors, -which lays down the maxium penalty to be
imposed for contravention of the provisions of that law, authorities have no discretion to
reduce such penalty. As such, I am of the view that appellants have not been able to
make out a good prima facie case in their favour. Accordingly, I direct them to deposit
penalty amount within a period of 8 weeks from today and report compliance on
25.9.2009, when their appeal would be taken up for final disposal, after ascertaining
compliance with the above order. "
15.37
The ratio of above decision would apply to present case and the said service
provider thus liable for penalty under Section 76 & 77 of the Finance Act, 1994.
15.38
As regards the allegation of suppression of facts for invoking penalty under
section 78 of the Finance Act 1994, I observe that, had the preventive checks not been
done, the service tax authorities would never had known the details of storage and
warehousing charges recovered by the said service provider form the fertilizer
companies. The said service provider had not declared the correct taxable value of
service provided in ST-3 returns resulting in suppression of necessary information to the
department. Therefore, this is a case of deliberate non-declaration and suppression of
vital information with a willful
intention
to
evade
payment
of
service
tax.
Accordingly, the imposition of penalty under section 78 of the Act in the case before me
is fully justified. Further the penalty under Section 76 is for failure to pay service tax by
the person liable to pay the same, whereas Section 78 relates to penalty for suppression
of the value of taxable service. Of course these two offences may arise in the course of
same transaction, or from the same action of the person concerned. But the incidents of
imposition of penalty are distinct and separate and even if the offences are committed in
the course of same transaction or arises out of the same act, the penalty is imposable
for ingredients of both offences, this aspect is also considered by the Hon'ble High Court
of Kerala in the case of Assistant Commissioner, C.Ex. V/s. Krishna Poduval-2006 (I)STR
185 (Ker) and CEGAT, Northern Bench, New Delhi in the case of Mett Macdonald Ltd.
Vs.Commr.-2001 (134) ELT 799 (Tri.Del.). However, with effect from 10.05.2008 a
proviso in the section 78 of the Finance Act, 1994 had been inserted to the effect that if
any penalty is payable under this section, the provisions of sections 76 shall not apply.
Thus, penalty under section 76 could be imposed for the irregularities committed up to
09.05.2008.
15.39
In view of the foregoing discussion I hold that service tax amounting to
Rs.235375/- is liable to demanded and recovered from the said service provider under
proviso to Section 73(1) of the Finance Act, 1994 and Rs.235377/- deposited by the said
service provider is liable to be appropriated into Government Exchequer. I further hold
that interest at the appropriate rate is chargeable from the said service provider under
Section 75 of the Finance Act, 1994 and interest of Rs 74710/- paid by the said service
provider is liable to be appropriated against their interest liability. I also hold that the
23
said service provider is liable for penalties under Sections 76, 77 and 78 of the Finance
Act, 1994.
16.
Accordingly I pass order as under:ORDER
(i) I confirm a demand of Rs.235375/- (Rupees two lakhs thirty five thousands three
hundred and seventy five only) against M/s.
Federation
Gujarat
State
Co-operative
Marketing
Limited, having registered office at Sahakar Bhavan, Relief Road,
Ahmedabad - 380 001 under proviso to Section 73(l) of the Finance Act, 1994. I order
for appropriation of Rs.235377/- deposited by M/s.
Marketing
Federation
Gujarat
State
Co-operative
Limited, Ahmedabad into the Government Exchequer against
the above demand.
(ii) Interest at appropriate rate would be charged from M/s.
operative
Marketing
Federation
Gujarat
State
Co-
Limited Ahmedabad under Section 75 of the Finance
Act, 1994 and Rs 74710/- deposited by
them would be appropriated against their
interest liability.
(iii)
I impose a penalty of Rs. 200/-(Rs. Two Hundred only) 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
which ever is higher, starting with first day after the due date till the date of actual
payment of the outstanding amount of service tax upon M/s.
operative
Marketing
Federation
Gujarat
State
Co-
Limited, Ahmedabad under section 76 of the Finance
Act,1994 for the period from 18.04.2006 to 09.05.2008.
Provided the total amount of penalty payable in terms of this section shall not exceed
Rs. 83581/-(Rs. Eighty three thousand five hundred and eighty one only) i.e. the
amount of service tax recoverable from M/s.
Federation
Gujarat
State
Co-operative
Marketing
Limited Ahmedabad for the period from 18.04.2006 to 09.05.2008.
(iv) I impose a penalty of Rs. 1,000.00 (Rupees One Thousand only) upon M/s.
Gujarat
State
Co-operative
Marketing
Federation
Limited, Ahmedabad under
Section 77 of the Finance Act 1994 for their each failure to file ST-3 returns properly
incorporating the correct value realized by them. (Total penalty Rs. 7000/- for seven
failures)
(v) I impose a penalty under section 77(1) (a) of Finance Act 1994 upon M/s. Gujarat
State
Co-operative
Marketing
Federation
Limited, Ahmedabad who shall be liable to
pay a penalty of five thousands rupees or two hundred rupees for everyday during which
such failure continues, whichever is higher starting with the first day after the due date,
till the date of actual compliance as required under section 69 of the Finance act 1944
read with rule 4 of the Service Tax rules 1994 for their failure to obtained service tax
registration under storage and warehousing service.
24
(vi) I also impose a penalty of Rs.235375/- (Rupees two lakhs thirty five thousands
three hundred and seventy five only) against M/s.
Marketing
Gujarat
State
Co-operative
Federation Limited Ahmedabad under Section 78 of the Finance Act, 1994 for
suppressing the value of taxable service with intent to evade payment of service tax.
However the said M/s. Gujarat
State
Co-operative
Marketing
Federation
Limited,
Ahmedabad shall have option to avail the benefit of reduced penalty provided under first
proviso to section 78 on fulfillment of conditions laid down under first and second proviso
to Section 78 of the FA, 1994.
(Vaibhav Bajaj)
Assistant Commissioner of Service Tax,
Division-II, Ahmedabad
F. No.DGCEI/AZU/36-48/2011-12
Dated:- 29.02.2012
Registered AD
To
M/s. Gujarat State Co-operative Marketing Federation
Sahakar Bhavan, Relief Road, Ahmedabad - 380 001
Limited,
Copy to:1. The Deputy Commissioner (RRA), Service Tax Commissionerate,
Ahmedabad.
2. The Additional commissioner Service Tax, HQ, Ahmedabad
3. The Assistant Commissioner, Service Tax, Div-III, Ahmedabad
4. The Superintendent of Service Tax Range-IX, Div.II, Ahmedabad.
5. Guard File.
Assistant Commissioner of Service Tax,
Division-II, Ahmedabad