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BRIEF FACTS OF THE CASE
M/s. Aqua Master Clean (herein after referred to as "the said
service provider"), situated at 404, Parn Kunj Apartment, In lane of Balam
Dairy, Near Ambawadi Circle, Ahmedabad are engaged in the business of
providing cleaning services to various clients as defined under Section 65
(24b) of the Finance Act, 1994, as amended and having Service Tax
Registration No.ABZPV7365DST001.
2.
It appeared that the said service provider were engaged in
providing the said services but not paying the Service Tax. They are
engaged in the business of providing cleaning services to various clients and
recovering Service Tax from their clients but they were not depositing the
same with the exchequer.
3.
The said service provider were issued letters dated 13.05.2010,
10.06.2010, 07.07.2010 13.08.2010 & 29.09.2010 from file No. ST/0471/Rg-14/08-09, but they did not responded to the same. Further, summons
under Section 14 of the Central Excise Act, 1944 read with Section 83 of
Finance Act, 1994 by the Superintendent, Service Tax, Range-XIV, DivisionIII, Ahmedabad vide F.No.ST/04/71/RG-14/08-09 dated 01.10.2010 was
issued to them to remain present for recording their statement and submit
documents mentioned in the said summons. The statement of Smt. Bijal
Dhiman Vyas, residing at 404, Parn Kunj Apartment, In lane of Balam Dairy,
Near Ambawadi Circle, Ahmedabad, Proprietor of the said Service Provider
was recorded on 06.10.2010 under Section 14 of the Central Excise Act,
1944 read with Section 83 of Finance Act, 1994, wherein she inter-alia,
stated that she is the Proprietor of the said Service Provider firm and looking
after all the affairs relating to Service Tax matters and she is responsible for
discharging proper Service Tax; and thereafter she put her signature in the
statement dated 06.10.2010. On being asked she stated that her firm is
engaged in providing cleaning services
Ahmedabad,
Surat,
Bhuj,
Mumbai
and
to various clients/customers in
they
are
having
different
administrative offices in the area of Gujarat and situated in different cities;
that their Baroda office is situated at 44, paradise Complex, Sayajigunj,
Baroda; that for their all administrative offices, there is centralized billing
system at their Ahmedabad office; that they have not obtained centralized
service tax registration, so far. On being asked, she stated the following are
their major clients: that they are having approximately 400 workers in their
firm:-
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(i)
Reliance Web World (all branches of Gujarat State).
(ii)
Muni Sewa Ashram Hospital, Baroda.
(iii)
Arvind Mills, Ahmedabad.
(iv) City Gold Multiplex, Ahmedabad.
(v)
3.1
Torrent Power (AEG), Ahmedabad.
She also stated that they had not paid Service Tax for the period
from 01.04.2009 to 31.03.2010, and, therefore they had not filed their ST-3
Returns for the year 2009-10; that they had not obtained any Centralized
Registration of Service Tax till date; that their Baroda Office is situated at
44, Paradise Complex, Sayajigunj, Baroda. She produced details of their
total receipt (income) reflected in the Balance Sheet during the period 200910, which is Rs.6,58,62,552/-; that the above figures are sales which include
value of material also. On being asked regarding Bank Accounts, she stated
that they are having (i) current account bearing No. 002405005978 with
ICICI Bank, JMC House Branch, Ahmedabad, (ii) current Account bearing No.
200130110000010 with Bank of India, Panchvati Branch, Ahmedabad (iii)
C/C bearing No. 200130110000010 with Bank of India, Panchvati Branch,
Ahmedabad (iv) Saving account bearing No. 006401501179 with ICICI Bank
,Driven in Road Branch, Ahmedabad and (v) Saving account bearing No.
085104000015516 with IDBI Bank, C.G. Road Branch, Ahmedabd.
3.2
She further stated that certain data with respect to House
keeping charges/labour charges and cleaning material charges, so claimed,
were not comprehensively shown/disclosed by their accountant since the
same were not finalized at the relevant point of time; that now she was
submitting complete final data, based on audited profit and loss and Balance
Sheet of the relevant period. The facts and figures mentioned here in
Annexure-I and II to the statement was examined and verified by her; that
she had not filed their ST-3 Returns for the period 2009-10 & and had not
discharged the service tax liability amounting to Rs.21,39,170 /-.
3.3
Further on being specifically asked as to why they had not paid
the service tax amount of Rs.21,39,170/- which was liable to be paid as per
the aforesaid Annexure -I and II of the said statement (which have been
annexed as per Annexure-l & II of the Show Cause Notice), she stated that
due to recession in the market and financial crises, she was not in a position
to pay up the said amount as well as the interest on the delayed payments;
that she would like to further bring on record that during the period in
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question she had been taking up the business i.e. providing cleaning and
house keeping services to various noncommercial organizations such as Muni
Sewa Ashram, Kailash Cancer Hospital, Sports Club of Guj. Ltd., and other
such organizations; that she is unable to produce supporting evidence with
regard to their non-commercial status.
4.
She produced separate summary for the year financial year
2009-10 showing the details in respect of housekeeping charges, cleaning
materials charges and service tax liabilities etc. As per the said summary
service tax liability covering the period from 01.04.2009 to 31.03.2010,
comes to Rs.21,39,170/- and for the Service Tax of Rs.21,39,170/-, she
undertook to pay in due course of time along with interest liability.
5.
As per the Annexure-l, in respect of the said service Provider,
which rendered Cleaning Service to various customers, the total taxable
value collected/realized has been worked out to the tune of Rs.2,07,68,644/and Service Tax actual payable worked out to the tune of Rs.21,39,170 /during the period from 01.04.2009 to 31.03.2010.
6.
The Cleaning Service came into effect from 16.06.2005 and
according to the provisions contained under clause (24b) of the Section 65
of the Finance Act, 1994, as amended, Cleaning Activity means - 'Cleaning,
including
specialized
cleaning
services
such
as
disinfecting,
exterminating or sterilizing of objects or premises, of(i)
commercial or industrial buildings and premises thereof; or
(ii)
factory, plant or machinery, tank or reservoir of such commercial or
industrial buildings and premises thereof, but does not include such
services in relation to agriculture,
horticulture, animal husbandry or
dairying.'
The definition provides that cleaning activity means cleaning.
Thus the term cleaning has to be understood in its general sense. As per
American Heritage Dictionary, 4th Edition, the term 'cleaning' means- to get
rid of dirt, rubbish, or impurities; to remove the contents from; to undergo
or perform an act of cleaning. Some examples of general cleaning services
are - Dusting, Mopping, Vacuuming, Rubbish disposal, Toilets, Kitchens,
Dishwashing, Glass cleaning, Car Park scrubbing, Factory floor cleaning etc.
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7.
Page 4 of 18
Further, according to the provisions contained under sub-clause
(zzzd) of Clause (105) of Section 65 of the Finance Act, 1994, as amended,
taxable service is a service provided or to be provided to any person, by any
other person, in relation to cleaning activity.
8.
From the above, it appeared that the above said firm are
engaged in the business of providing the taxable service i.e. Cleaning
Services, are charging and collecting the taxable consideration for the
service rendered and are liable to pay the Service Tax on the total taxable
amount of consideration charged and received by them. Further, it appeared
that the said firm are charging and collecting Service Tax from their
customers but have not deposited the same with the Government account,
which can be fairly understood from the statement of the proprietor of the
firm dated 06.10.2010.
9.
All the above acts of contraventions on the part of the said
service provider appeared to have been committed by way of suppression of
facts with an intend to evade payment of Service Tax and therefore, the said
Service Tax not paid is required to be demanded and recovered from them
under the proviso to Section 73(1) of the Finance Act, 1994 by invoking
extended period of five years. All these acts of contraventions of the
provisions of Section 66, 68, 70, 73A and 83 of the Finance Act, 1994 read
with Rules 4, 5, 6 and 7 of the Service Tax Rules, 1994 appeared to be
punishable under the provisions of Section 76, 77 and 78 of the Finance Act,
1994.
10.
Moreover, in addition to the aforesaid contraventions, omissions
and commissions on the part of the said service provider as stated in the
foregoing paras, it appeared that, they have willfully suppressed the facts,
nature and value of service provided by them with an intent to evade the
payment of Service Tax, rendering themselves liable for penalty under
Section 78 of the Finance Act, 1994.
11.
Thus,
it
appeared
that
the
said
Service
Provider
have
contravened the provisions of:
a. Section 68 of the Finance Act, 1994 read with Rule 6 of the Service
Tax Rules, 1994, in as much as that they have failed to make payment
of Service Tax total amounting to Rs.21,39,170/- as mentioned in the
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foregoing paras for the period from 01.04.2009 to 31.03.2010 within
the statutory time limit prescribed;
b. Section 70 of the Finance Act, 1994 read with Rule 7 of the Service
Tax Rules, 1994, in as much as that they have failed to file prescribed
Service Tax returns for the year 2009-10, in form ST-3 in the
stipulated time;
c. Section 73A of the Finance Act, 1994 in as much as they have failed to
deposit the Service Tax collected by them to the credit of Central
Government.
12.
Accordingly,
M/s
Aqua
Master
Clean,
404,
Parn
Kunj
Apartment, In lane of Balam Dairy, Near Ambawadi Circle, Ahmedabad were
issued a show cause notice bearing F.No. STC-34/O&A/SCN/AMC/ADC/10-11
dated 18.10.2010 asking them as to why:
(i)
Services rendered by them should not be considered as taxable service
under the category of Cleaning Service as defined under Section 65 of
the Finance Act, 1994, as amended, and the amount of taxable value
of Rs.2,07,68,644/- received as payment/recovered by them from
their clients for the period 01.04.2009 to 31.03.2010, should not be
considered as taxable value under Section 67 of the Finance Act 1994
and accordingly Service Tax amounting to Rs.21,39,170/- (Rupees
Twenty One Lakhs Thirty Nine Thousand One Hundred Seventy Only)
(as detailed in Annexure "A") for the period from 01.04.2009 to
31.03.2010 should not be demanded and recovered from them under
Section 73(1) of the Finance Act, 1994;
(ii)
Interest as applicable on the amount of Service Tax liability of
Rs.21,39,170/- should not be recovered from them for the delay in
making the payment, under Section 75 of the Finance Act, 1994;
(iii)
Penalty should not be imposed upon them under Section 76 of the
Finance Act, 1994 for the failure to make the payment of Service Tax
payable by them within stipulated time;
(iv) Penalty should not be imposed upon them under Section 77 of the
Finance Act, 1994 for the failure to file prescribed Service Tax returns
within the stipulated time; and
(v)
Penalty should riot be imposed upon them under Section 78 of the
Finance Act, 1994 for suppressing the value of taxable services
provided by them before the Department with intent to evade payment
of Service Tax.
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Defence Reply:13.
Till date the service provider have not bothered to submit
their written submission in this case.
Personal Hearing:14.
Vide this office letter dated 28.02.2011, the service provider was
requested to appear for personal hearing on 09.03.2011, but the service
provider did not appeared for personal hearing. Again vide this office letter
dated 16.03.2011, the service provider was requested to appear for personal
hearing on 23.03.2011, but the service provider did not appear for personal
hearing but vide their letter dated nil received by this office on 23.03.2011
requested for fifteen days extension. Accordingly, next date of personal
hearing was given on 06.04.2011, but still the service provider did not
appear for personal hearing.
They did not even ask for any further
extension of personal hearing. It appears that the service provider is not
interested in appearing for personal hearing before the adjudicating
authority inspite of giving them ample opportunity to represent their case.
As such I have no other option but to decide the case ex-parte on the basis
of evidences available on records.
Discussion and findings:15.1
I have gone through the case records and content of the
aforesaid Show Cause Notice. I find that the service provider have
neither submitted their written submission nor have appeared for
personal hearing though asked to do so repeatedly. Under the
circumstances I proceed to decide the Shown Cause Notice as under.
15.2
I observe that sufficient opportunity of personal hearing was
given to the service provider, but they did not avail the same. In such
circumstances, hon’ble Supreme Court, High Courts and tribunal have held
in several decisions that ex-parte decision will not amount to violation of
principles of natural justice. Some of the relevant decisions are as under;
a) “Natural Justice – petitioner given full opportunity before Collector to
produce all evidence on which he intends to rely but petitioner not
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prayed for any opportunity to adduce further evidence – principles of
natural justice not violated.”
-- United Oil Mills Vs CC & CE, Cochin – 2000 (124) ELT 53 (Ker.)
b) Kumar Jagdish CH Sinha Vs CCE, Calcutta – 2000 (124) ELT 118 (Cal.)
c) Saketh India Ltd. Vs UOI – 2002 (143) ELT 274 (Del.)
d) Devi Dayal Vs UOI – 2002 (144) ELT 502 (Del.) maintained in 2003
(151) ELT A288 (S.C.)
e) Gopinath Chem. Tech Ltd. Vs CCE, Ahmedabad – II – 2004 (171) ELT
412 (Tri. Mum.)
f) F N Roy Vs CC, Calcutta – 1983 (13) ELT 1296 (S.C)
g) “7.Our attention was also drawn to a recent decision of this Court in
A.K.Kripak Vs Union of India - 1969 (2) SCC 340, where some of the
rules of natural justice were formulated in Paragraph 20 of the
judgment. One of these is the well known principle of audi aiteram
partem and it was argued that an ex parte hearing without notice
violated this rule. In our opinion this rule can have no application to
the facts of this case where the appellant was asked not only to send a
written reply but to inform the Collector whether he wished to be
heard in person or through a representative. If no reply was given or
no intimation was sent to the Collector that a personal hearing was
desired, the Collector would be justified in thinking that the persons
notified did not desire to appear before him when the case was to be
considered and could not be blamed if he were to proceed on the
material before him on the basis of the allegations in the show cause
notice. Clearly he could not compel appearance before him and giving
a further notice in a case like this that the matter would be dealt with
on a certain day would be an ideal formality.”
-- Jethmal Vs UOI – 1999 (110) ELT 379 (S.C.)
16.
The proceeding contemplated under the impugned Show
Cause Notice is that M/s Aqua Master Clean is engaged in providing
“Cleaning Service” without discharging their proper tax liability on the
income collected in respect of Cleaning Services.
17.
I observe that the service provider has nowhere disputed the
facts about the nature of service provided, as earlier also the show cause
notices have been issued to the said service provider for the period covering
16.06.2005
to
31.03.2008
for
Rs.83,43,470/-
&
01.04.2008
to
31.03.2009 for Rs.49,89,095/- which stands decided by in favour of the
department vide Order in Original No. STC/25/COMMR/AHD/2009 dated
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25.01.2010 & Order in Original No. 21/STC-AHD/ADC(MKR)/2010-11
dated 21.02.2011. Therefore it is not a disputed fact, as indeed, it is only
from 16.06.2005 that “Cleaning Activity” has been under the net of service
tax. I reproduce the contents of Para 24 to 29.3 of the Order-In-Original
No. 21/STC-AHD/ADC(MKR)/2010-11 dated 21.02.2011 passed by the
undersigned ;
“24.
As per Section 65 (24b) of the Finance Act, 1994 Cleaning Activity
means ;
“Cleaning activity” means cleaning, including specialized cleaning services such as
disinfecting, exterminating or sterilizing of objects or premises of ;
(i)
Commercial or industrial buildings and premises thereof ; or
(ii)
Factory, plant or machinery, tank or reservoir of such commercial or
industrial buildings and premises thereof, but does not include such service
in relation to agriculture, horticulture, animal husbandry or dairying.
24.1
From the above definition, it is very much clear that the service
provided by the service provider clearly falls within the category of “Cleaning
Activity” and is chargeable to Service Tax.
25.1
I further observe that the service provider in his defense reply has
argued that they have provided cleaning services to hospitals & religious places and
has recovered total sum of Rs.24,21,898/- and the same is exempted from service
tax as non commercial buildings and premises thereof are not covered within the
purview of service tax under the category of “Cleaning Activity”.
25.2
I further find that to prove that the cleaning service to whom it has
been rendered are non-commercial entities, they were asked during the course of
Personal Hearing by the then Commissioner of Service Tax in their earlier show
cause notice issued from F.No. STC/4-78/O&A/2008 dated 06.03.2009 to provide a
certificate issued by Income Tax department that the same are charitable
organizations. Just because an organization is a hospital or is a seva ashram or is
named as a seva ashram does not make it a non-commercial organization. No such
certificates have been provided to the adjudicating authority by the service provider
till date. In view of the above, I find that there are no grounds to arrive at
conclusion that the said organization is of non commercial nature.
25.3
I find that the exemption from payment of service tax in the category
of “Cleaning Activity” is available only in the following case ;
(i)
Services provided to United Nations or an International Organization.
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(ii)
Service provided to a Developer or a Unit of Special Economic Zone (SEZ) ;
(iii)
Service provided to the foreign diplomatic missions / consular posts in India
or to the family members of diplomatic agents / career consular officers ;
(iv)
Services provided to Reserve Bank of India
(v)
Services exported from India ;
(vi)
Value of goods & material sold by the service provider
(vii) Services provided by small service providers, whose aggregate value of
taxable services excluding exempted service does not exceed Rs.10 Lakhs.
25.4
I further find that though the service provider being registered with
the department and providing taxable service to various clients and recovering
service tax from their clients but they were not depositing the same in the
Government Account.
25.5
From the above discussion, it is very much clear that the service
provided by the service provider to hospitals & religious place falls within the
purview of Service Tax and the Service Tax is required to be recovered from them.
26.1
Further, I find that the service provider has also argued in his defense
reply that in the impugned show cause notice, service tax has also been charged on
the material supplied to the client. The total value of the material supplied during
the period from 01.04.2008 to 31.03.2009 is Rs.2,46,00,052/-.
26.2
Here, I find fit to reproduce the relevant provisions of Section 67 of
the Finance Act, 1994, as effective from 18.04.2006, read with the Service Tax
(Determination of Value) Rules, 2006 ;
“Where the provision of service is for a consideration in money, the value of
taxable service shall be the gross amount charged by the service provider for
the service provided or to be provided.
All expenditures or costs incurred by the service provider in the
course of providing a taxable service forms integral part of the
taxable value and are includible in value.
26.3
Further, I find that under Rule 5(2) of the Determination of Value
Rules, 2006, the expenditure or costs incurred by the service provider as a pure
agent of the recipient of service, shall be excluded from the value of the taxable
service if all the following conditions are satisfied, namely:(i)
the service provider acts as a pure agent of the recipient of service when he
makes payment to third party for the goods or services procured;
(ii)
the recipient of service receives and uses the goods or services so procured
by the service provider in his capacity as pure agent of the recipient of
service;
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(iii)
the recipient of service is liable to make payment to the third party;
(iv)
the recipient of service authorizes the service provider to make payment on
his behalf.
(v)
The recipient of service knows that the goods and services for which payment
has been made by the service provider shall be provided by the third party;
(vi)
the payment made by the service provider on behalf of the recipient of
service has been separately indicated in the invoice issued by the service
provider to the recipient of service;
(vii) the service provider recovers from the recipient of service only such amount
as has been paid by him to the third party; and
(viii) the goods or services procured by the service provider from the third party
as a pure agent of the recipient of service are in addition to the services he
provides on his own account.
26.4
To my belief the cleaning material are an integral part of “Cleaning
Activity Service”, and how the party intends to exclude the same from the gross
taxable value is beyond comprehension. As a service provider in the category of
cleaning activity services, all the activity of cleaning was to be done by them. The
expenditure incurred on such work will form part of their services. Under Rule 5 (1)
of the Service Tax (Determination of Value) Rules, 2006, where any expenditure or
costs were incurred by the service provider in the course of providing taxable
service, all such expenditure or costs shall be treated as consideration for the
taxable service provided or to be provided and shall be included in the value for the
purpose of charging service tax on the said service.
26.5
Moreover, M/s Aqua Master Clean were providing cleaning services and
as a service provider, the entire work of the services was to be performed by them,
and thus whatever expenses incurred by them would form part of the taxable
services. Thus, their claim to exclude Cleaning Material from the amount of services
is not correct. It is also clear that the conditions stipulated for exclusion of the
reimbursable expenses under Rule 5(2) of the Determination of Value Rules, 2006,
were not fulfilled in the case of M/s Aqua Master Clean.
26.6
Rule 5(1) of the Valuation Rules states that where any expenditure or
costs are incurred by the service provider in the course of providing taxable service,
all such expenditure or costs shall be treated as the consideration for the taxable
service provided or to be provided and shall be included in the value for the
purpose of charging service tax on the said service. Thus none of the expenses
deducted from the taxable value by the party can be done so legally and they are
to be added in the taxable value. The rules do not allow any deduction other than
the expenditure / costs incurred as pure agent by fulfilling the conditions laid down
under rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 but as
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already pointed out, the party has not fulfilled the necessary conditions laid down
under this rule to make them a “pure agent.”
27.1
I find that the service provider has relied on number of judgments. I
observe that most of the decisions have been given with respect to photography
service, whereas in the present case the service provider is providing cleaning
service. Hence, all such cases are irrelevant and misplaced.
27.2
The nature of photography service and cleaning service is altogether
different. In photography service expenditure is dispensable and evitably incurred
to provide the service. That’s why the hon’ble tribunal has taken different view.
Whereas in the cleaning service, the expenditure is indispensable and inevitably
incurred to provide the service, such cost should essentially form part of cost of
service itself and shall contribute to value of taxable service.
28.1
I further find that the Apex Court in the case of All India Federation
of Tax Practitioners Vs Union of India reported in 2007 – TIOL – 149 – SC – ST
= 2007 (7) S.T.R. 625 (S.C) held that service tax is destination based consumption
tax and that may be either performance based or property based. Economic
services are provided for valuable consideration without being rendered
charitably. No service which is un- economical or commercially unviable are
provided in the commercial world. Various elements of cost contribute to the
provision
of
economic
services.
Expenses
which
are
indispensable
and
inevitably incurred to make the economic service performable that contribute
to the gross value of service. The provider of economic service recovers his
entire cost involved in providing such service in the best possible manner that
may be viable to him and the service recipient.
28.2
The basic principle that service tax being destination based
consumption tax, till the service reaches its destination, that contributes to the
proposition that all expenses incurred till that point and time become essential
consideration of cost of service. Agreement of parties in respect of modality of
payment of valuable consideration towards service provided does not matter
for Revenue. In whatever manner the recipient and provider of taxable service
arrange their affairs for their benefit or mutuality to deal with consideration
that is also immaterial to Revenue. Service Valuation Rule of 1994 (sic)
contributes
to
the
above
fiscal
philosophy
and
the
destination
based
consumption tax submit for taxation on the gross value of taxable service
which is measure of taxation. The gross value takes into its fold entire cost of
service
enabling
that
to
be
performable.
Therefore,
by
no
stretch
of
imagination neither the arrangements of the parties nor their mutuality or
nomenclature or format of their agreement and mode of discharge of
consideration shall prevail on the law relating to service tax. Legislature
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accordingly intend that the gross value of the service shall be the measure of
value for taxation whether paid as consideration directly or by reimbursement
of expenses relating to providing of taxable service.
28.3
The philosophy of service tax law has been described by Apex
Court in paras 6, 7, 8 of All India Federation of Tax Practitioners v. Union of
India reported in 2007 - TIOL -149 - SC - ST = 2007 (7) S.T.R. 625 (S.C)
in following terms :“6. At this stage, we may refer to the concept of “Value Added Tax”
(VAT), which is a general tax that applies, in principle, to all commercial
activities involving production of goods and provision of services. VAT is
a consumption tax as it is borne by the consumer.
7. In the light of what is stated above, it is clear that Service Tax is a
VAT which in turn is destination based consumption tax in the sense
that it is on commercial activities and is not a charge on the business
but on the consumer and it would, logically, be leviable only on services
provided within the country. Service tax is a value added tax.
8. As stated above, service tax is VAT. Just as excise duty is a tax on
value addition on goods, service tax is on value addition by rendition of
services. Therefore, for our understanding, broadly “services” fall into
two categories, namely, property based services and performance
based services. Property based services cover service providers such as
architects, interior designers, real estate agents, construction services,
mandapwalas etc. Performance based services are services provided by
service providers like stock-brokers, practicing chartered accountants,
practicing cost accountants, security agencies, tour operators, event
managers, travel agents etc.”
28.4
The nature and character of service tax has also been explained by
Apex Court in para 22 of the judgment Association of Leasing & Financial
Service Companies Vs Union of India and Others reported in 2010 – TIOL87-SC-ST-LB = 2010 (20) S,T.R 417 (S.C)
“22. In All India Federation of Tax Practitioners’ case (supra), this Court
explained the concept of service tax and held that service tax is a Value
Added Tax (‘VAT’ for short) which in turn is a destination based consumption
tax in the sense that it is levied on commercial activities and it is not a
charge on the business but on the consumer. That, service tax is an
economic concept based on the principle of equivalence in a sense that
consumption of goods and consumption of services are similar as they both
satisfy human needs. Today with the technological advancement there is a
very thin line which divides a “sale” from “service”. That, applying the
principle of equivalence, there is no difference between production or
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manufacture of saleable goods and production of marketable/saleable
services in the form of an activity undertaken by the service provider for
consideration, which correspondingly stands consumed by the service
receiver. It is this principle of equivalence which is inbuilt into the concept of
service tax under the Finance Act, 1994. That service tax is, therefore, a tax
on an activity. That, service tax is a value added tax. The value addition is on
account of the activity which provides value addition, for example, an activity
undertaken by a chartered accountant or a broker is an activity undertaken
by him based on his performance and skill. This is from the point of view of
the professional. However, from the point of view of his client, the chartered
accountant/broker is his service provider. The value addition comes in on
account of the activity undertaken by the professional like tax planning,
advising, consultation etc. It gives value addition to the goods manufactured
or produced or sold. Thus, service tax is imposed every time service is
rendered to the customer/client. This is clear from the provisions of Section
65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event
is each exercise/activity undertaken by the service provider and each time
service tax gets attracted. The same view is reiterated broadly in the earlier
judgment of this Court in Godfrey Phillips India Ltd. v. State of U.P. [(2005
(2) SCC 515] in which a Constitution Bench observed that in the classical
sense a tax is composed of two elements : the person, thing or activity on
which tax is imposed. Thus, every tax may be levied on an object or on the
event of taxation. Service tax is, thus, a tax on activity whereas sales tax is a
tax on sale of a thing or goods. Law as it stood before the Constitution
(Forty-sixth Amendment) Act, 1982 :”
28.5
When logic of service tax incidence calls for taxation of service on the
gross value of taxable service and there is no specific deduction allowed under
statutory provisions to diminish the value of taxable consideration of taxable
service, in absence of such provision in law, the cost of material can not be
excluded from the taxable value and the service provider can not show this amount
under trading of materials just to evade / escape service tax to this extent.
28.6
My above view finds support from below mentioned case laws ;
a. Naresh Kumar & Co. Pvt. Ltd., Vs Commr. – 2008 (11) STR 578 (Tri.)
b. CCE, Chandigarh Vs Team S & S – 2011 (21) STR 290 (Tri.Del)
29.1
Looking to the above discussion, I find that the impugned show cause
notice has been rightly issued and the service tax amount of Rs.49,89,095/- has
been rightly demanded, which needs to be confirmed.
OIO No. 04/STC-AHD/ADC(MKR)/2011-12
29.2
Page 14 of 18
In view of above, I find that the assessee have contravened the
provisions of Section 67 and Section 68 of the Finance Act, 1994 read with Rule 6
of the Service Tax Rules, 1994, in as much as they had suppressed the taxable
value and also failed to make payment of service tax of Rs.49,89,095/- [including
Education Cess] on such suppressed value under the category of “Cleaning
Activity”, such amount of service tax is required to be paid by them along with
interest under Section 73 (2) & 75 of the Finance Act, 1994.
29.3
Since the said service provider had not discharged service tax liability
on the amount of taxable value received as income/commission demanded under
the show cause notice and therefore, they have contravened the provisions of
Section 67, 68, of the Finance Act, 1994 and thereby rendered themselves liable to
penal action under Sections 76, 77 & 78 of Finance Act 1994.”
18.
From the above discussions, it is very much clear that the
service provided by the service provider to their clients falls within the
purview of Service Tax and the Service Tax is required to be recovered from
them. I find that the impugned show cause notice has been rightly issued
and the service tax amount of Rs.21,39,170/- has been rightly demanded,
which needs to be confirmed.
19.1.1
In view of above, I find that the assessee have contravened the
provisions of Section 67 and Section 68 of the Finance Act, 1994 read with
Rule 6 of the Service Tax Rules, 1994, in as much as they had suppressed
the taxable value by not filing ST-3 returns from time to time and also failed
to make payment of service tax of Rs.21,39,170/- [including Education
Cess] on such suppressed value under the category of “Cleaning Activity”,
such amount of service tax is required to be paid by them along with interest
under Section 73 (2) & 75 of the Finance Act, 1994.
19.1.2
However, as regard the Section 11D of Central Excise Act, 1944
and section 73A of the Finance Acxt,1994 proposed to be invoked
in the
Show Cause Notice, I find in the instant case, that it is not the case that
no service tax is payable on the services rendered by the service
provider nor is the case of excess collection of service tax. Whatever
service tax collected by the service provider is towards the taxable
services. Therefore, I find that Section 11D of the Central Excise Act,
1944 and section 73 of the Finance Act.,1994 is of no relevance in
the instant case. Accordingly, I hold that whatever service tax
which have been collected by the service provider towards the
OIO No. 04/STC-AHD/ADC(MKR)/2011-12
Page 15 of 18
taxable service which is not deposited in the government exchequer
is required to be deposited forthwith under the provision of Section
73(1) of the Finance Act, 1994 instead of adjusting against any due
or crediting to the welfare fund constituted under section 12C of the
Central Excise Act,1944.
19.3
Since the said service provider had not discharged service tax
liability on the amount of taxable value received as income/commission
demanded
under
the
show
cause
notice
and
therefore,
they
have
contravened the provisions of Section 67, 68, of the Finance Act, 1994 and
thereby rendered themselves liable to penal action under Sections 76, 77 &
78 of Finance Act 1994 as discussed below.
Penalty under Section 76:
20.1
I further observe that during the relevant period M/s Aqua
Master Clean have defaulted in payment of service tax which has been
established as not paid, in accordance with the provisions of section 68 of
the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, and
thereby rendered liable to pay mandatory penalty under the provisions of
Section 76 of the Finance Act, 1994 for default in payment of service tax on
time till the final payment. It has come to my notice that till date M/s Aqua
Master Clean have not paid the service tax, hence imposition of mandatory
penalty under Section 76 is once again justified.
20.2
Accordingly, I hold that M/s Aqua Master Clean are liable to
imposition of penalty under Section 76 of the Finance Act, 1944. My
conclusion is also based on various decisions of Hon’ble High Courts &
Tribunals as mentioned below ;

CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.)

UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)

UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)

Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd)

CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–Ahmd)

Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-Ahmd)
20.3
I further observe that the Hon’ble CESTAT in a recent judgment
in the case of M/s Gujarat Industrial Security Force Society Vs CST,
Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated 05.08.2010, has
OIO No. 04/STC-AHD/ADC(MKR)/2011-12
Page 16 of 18
held that no lenient view can be taken under section 76 of the Finance Act,
1994. The relevant paras are reproduced below ;
“2.
After hearing both the sides, I find that in this case, the assessee
was registered more than 6 years back and no explanation has been
given by them for delayed filing of return and delayed payment of
service tax. Under these circumstances, I am not finding fault in stand
taken by the lower authority that penalty is imposable under section 76
and once it
is held
that penalty is imposable under section 76, the
amount fixed as per the provision of section 76 is required to be
imposed. Under these circumstances, even though the Ld. Advocate
submitted that the appellant is a non profit organization, no lenient
view can be taken in view of the provisions of law.
3.
20.4
Accordingly, the appeal is rejected.”
Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port
Officer, reported at 2010 (19) STR 641 (Guj) has now settled the issue of
penalty under Section 76. The relevant para is reproduced below ;
“10. A plain reading of Section 76 of the Act indicates that a person
who is liable to pay service tax and who has failed to pay such tax is
under an obligation to pay, in addition to the tax so payable and
interest on such tax, a penalty for such failure. The quantum of
penalty has been specified in the provision by laying down the
minimum and the maximum limits with a further cap in so far as the
maximum limit is concerned. The provision stipulates that the person,
who has failed to pay service tax, shall pay, in addition to the tax and
interest, a penalty which shall not be less than one hundred rupees per
day but which may extend to two hundred rupees for everyday during
which the failure continues, subject to the maximum penalty not
exceeding the amount of service tax which was not paid. So far as
Section 76 of the Act is concerned, it is not possible to read any
further discretion, further than the discretion provided by the
legislature when legislature has prescribed the minimum and the
maximum limits. The discretion vested in the authority is to levy
minimum penalty commencing from one hundred rupees per day on
default, which is extendable to two hundred rupees per day, subject to
a cap of not exceeding the amount of service tax payable. From this
discretion it is not possible to read a further discretion being vested in
OIO No. 04/STC-AHD/ADC(MKR)/2011-12
Page 17 of 18
the authority so as to entitle the authority to levy a penalty below the
stipulated limit of one hundred rupees per day. The moment one reads
such further discretion in the provision it would amount to re-writing
the provision which, as per settled canon of interpretation, is not
permissible. It is not as if the provision is couched in a manner so as
to lead to absurdity if it is read in a plain manner. Nor is it possible to
state that the provision does not further the object of the Statute or
violates the legislative intent when read as it stands. Hence, Section
76 of the Act as it stands does not give any discretion to the authority
to reduce the penalty below the minimum prescribed.”
20.5
The Hon’ble High Court of Gujarat has further confirmed the
above view in the case of CCE Vs S J Mehta & Co., reported at 2011
(21) STR 105 (Guj.) and CCE Vs Bhavani Enterprises reported at
2011 (21) STR 107 (Guj.).
Penalty under Section 77
21.
I further find that the assessee has failed to file their ST-3
returns for the period covered under the impugned show cause notice &
hence they are liable for penalty under Section 77 for non filing of ST 3
returns for the period in dispute.
Penalty under Section 78 :
22.
I further observe that the then Commissioner had already
imposed penalty under Section 78 for the period 16.06.2005 to 31.03.2008.
Since, the present SCN was issued for normal period and also due to
amendment made vide Finance Act, 2008 in Section 78, I do not find any
justification to impose penalty under Section 78 upon the assessee.
In view of the above discussions and findings, I pass the
following order:
-: O R D E R :(i)
I Consider Services rendered by them as taxable service under the
category of Cleaning Service as defined under Section 65 of the
Finance Act, 1994, as amended, and I Consider the amount of taxable
value of Rs.2,07,68,644/- received as payment/recovered by them
from their clients as taxable value under Section 67 of the Finance Act
OIO No. 04/STC-AHD/ADC(MKR)/2011-12
Page 18 of 18
1994 and I Confirm Service Tax amounting to Rs.21,39,170/(Rupees Twenty One Lakhs Thirty Nine Thousand One Hundred
& Seventy Only)
for the period from 01.04.2009 to 31.03.2010
under Section 73(2) of the Finance Act, 1994, as the tax amount has
been collected by them and has not been deposited with government
exchequer.
(ii)
I direct M/s Aqua Master Clean to pay interest at the prescribed rate
chargeable under the provisions of Section 75 of the Finance Act,
1994, as amended, for delay payment of service tax.
(iii)
I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon
them per day or at the rate of 2% of the service tax amount per
month, whichever is higher, under the provisions of Section 76 of the
Finance Act, 1994, as amended, for failure to pay Service Tax within
the stipulated period as required under the provisions of Section 68 (1)
of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules,
1944, as amended. As the actual amount of penalty could be
depending on actual date of payment of service tax, however, as per
Section 76 of the Finance Act, 1994, penalty will be restricted to the
above confirmed amount of service tax liability.
(iv) I impose penalty of Rs.2,000/- (Rupees Two Thousand Only) upon
them under Section 77 of the Finance Act, 1994 for the failure to file
prescribed Service Tax return within the stipulated time.
(v)
I do not impose any penalty under Section 78 of the Finance Act,
1994.
-Sd-
[Dr. Manoj Kumar Rajak]
Additional Commissioner
Service Tax : Ahmedabad
F.No. STC-34/O&A/SCN/AMC/ADC/10-11
Dated : 28/04/2011
By Regd. Post AD
To,
M/s Aqua Master Clean,
404, Parn Kunj Apartment,
In lane of Balam Dairy,
Near Ambawadi Circle, Ahmedabad
Copy to :
i.
ii.
iii.
iv.
The Commissioner, Service Tax, Ahmedabad. (Attention Review Cell).
The Assistant Commissioner, Division III, Service Tax, Ahmedabad.
The Superintendent, Range-XIV, Div-III, Service Tax, Ahmedabad with an
extra copy of OIO to be delivered to the assessee and submit the
acknowledgement to this office.
Guard File