1
Brief facts of the case
M/s. IRM Ltd.. 5/6, Sun Complex, Nr. Stadium Circle, Navrangpura, Ahmedabad-15
(hereinafter referred to as ‘ the assessee’ for sake of brevity) are providing services under the
categories of “Rent-a-cab Scheme Operator Service”, “Manpower Recruitment Agency Service”,
“Outdoor Catering Service”, “Management, Maintenance and Repair Service”, “Air Travel Agent
Service” and “Business Auxiliary Service” which are taxable services under sub clause (o), (k),
(zzt), (zzg), (l) and
(zzb)
respectively of Section 65 (105) of the Finance Act, 1994. For
providing the above services, they are registered with service tax having
Service Tax
Registration No. AAACI3678MST003.
2.
During the course of audit of records belonging to M/s IRM Ltd, for the period 2007-08 to
2009-10, by the officers of audit section of service tax Commissionerate, Ahmedabad, it was
observed that the assessee was showing the income under the head ‘Bus Operating Income’ for
the buses operated by them for transportation of staff belonging to M/s Cadila Pharmaceuticals
Ltd.(herein after referred as “M/s.Cadila”). They were paying service tax on such income by
classifying the same under “Rent-a-Cab Operator Service” after claiming abatement under
Notification No.1/2006 dated 01.03.2006.
3.
Whereas, it appears that the asseessee entered into an agreement dated 01.03.2008
with M/s. Cadila for the contract of transportation service. As per the agreement
 the assessee has to provide requisite number of manpower like drivers, conductors,
cleaners, loaders, helpers etc. (hereinafter referred to as “manpower”) to conduct the
transportation services as assigned by M/s. Cadila;
 the assessee have to maintain all records of manpower, provided to M/s. Cadila and
such record shall comprise personal details, attendance, leave, etc.;
 the assesse shall be exclusively and fully responsible for complying with all legal
requirements as per the Contract Labour (Regulations & Abolition) Act, 1970;
 the assessee have to pay remuneration / compensation /other payments as the case
may be, including expenses, if any;
 the assessee have to deduct and deposit statutory dues such as PF, ESI, Pension,
Labour Welfare Fund, Workmen Compensation Insurance Premium and other
contribution to the relevant government authorities;
 the assessee have to comply with all the applicable laws including Factories Act, 1948,
Employees’ Provident Funds & Misc. Provisions Act, 1952, Payment of Bonus Act, 1965,
Payment of Wages Act, 1936, Minimum Wages Act, 1948, Workmen Compensations
Act, 1923, The Contract Labour (Regulation & Abolition) Act, 1970, Industrial Dispute
Act, 1947, Industrial Employment (Standing Orders) Act, 1946, Labour and Welfare
Legislations and timely filling / submission of periodic forms / returns and obtaining
license or permission in context with this agreement.;
 completing all the formalities as and when manpower are not required;
 keeping strict watch and ensure that the manpower provided by the assessee shall not
indulge in any other activity or works in any other firm.
2
4.
The relevant paras of the above discussed agreement are reproduced here below for
reference:
:-
3
4
5
6
4.1
It is further evident from Annexure-I to the agreement that depending on the size of bus
and route the assessee charged M/s Cadila the following amounts on monthly basis.
5.
Sr. No.
Bus and Route
Amount Charged
1
Big Bus 54 seater for Dholka
Rs.79,500/- per bus per month
2
Mini Bus 34 seater for Dholka
Rs.35,000/- per bus per month
3
Big Bus 54 seater for Kadi
Rs.1,16,000/- per bus per month
4
Big Bus 54 seater for Bhat
Rs.51,750/- per bus per month
5
Mni Bus 40 seater for Bhat
Rs.48,187/- per bus per month
The term “Manpower Recruitment or Supply Agency” is defined under Section 65(68) of
the Finance Act, 1994 w.e.f. 16.06.2005 as follows:
“manpower recruitment or supply agency” means any commercial concern engaged in
providing any service, directly or indirectly, in any manner for recruitment or supply of
manpower, temporarily or otherwise, to a client”
The statutory definition has been amended with effect from 16.05.2008 so as to read as
follows:
“manpower recruitment or supply agency” means any person engaged in providing any
service, directly or indirectly, in any manner for recruitment or supply of manpower,
temporarily or otherwise, [to any other person]”.
6.
As discussed in para 3 and 4 supra, the terms and conditions are only related to supply
of manpower hence, the services provided by the assessee in the shape of providing drivers,
conductors, cleaners, loaders etc. for efficient transportation of employees of M/s Cadila fall
under the category of “Manpower Recruitment or Supply Agency Service” and not under “Rent a
Cab Operator services” as categorized by them. Thus, the gross amount charged by the
assessee as bus hire charges are towards supply of manpower service only.
6.1
In view of the above, it appears that to evade service tax, the assessee has wrongly
classified
the above said service under “Rent-a-cab operator scheme service” and has
discharged their service tax liability by availing abatement of 60 % under Notification No.
01/2006-ST dtd.01.03.2006 on the gross amount charged / received from M/s. Cadila. As per
Section 67 of the Finance Act, 1994, taxable value as regards the “Manpower Recruitment and
Supply Agency Service”
shall be the gross amount charged by the assessee
and no
abatement is notified for this service. Hence, the abatement, taken by the assessee under
Notification No.1/2006 dated 01.03.2006, by mis-classifying their service under “Rent-a-cab
operator service” appears to be in-admissible and the same is required to be disallowed.
7.
The Superintendent, AR-X, Division-II, Service Tax, Ahmedabad, issued letter dated
23.08.2012 asking the assessee to provide bus operating income received by them during the
period 2010-11 and 2011-12 and also to provide a copy of agreement dated 1.3.2008 between
M/s Cadila and the assessee. Since, no reply to the said letter was received, summons dated
11.09.12 and 19.09.12 were issued to the assessee asking them to provide the aforesaid details
and to remain present for recording of statement. The said assessee vide letter dated 24.09.12
sought for extension. Further, the said assessee vide their letter dated 29.09.2012 submitted the
details regarding bus operating income during the period 2010-11 and 2011-12. The details of
the same are as below :-
7
Period
Bus
operating Rate of Service Service
income as per Tax (in Rs.)
Tax Service Tax paid
payable (in Rs.)
(in Rs.)
ledger (in Rs.)
2010-11
18390402
4.12%
757685
761602
2011-12
24359008
4.12%
1003591
1002797
8.
Further, the said assessee vide letter dated 1.10.2012 authorised Shri Lalji Patel to
remain present before the service tax authorities.
8.1
A statement of Shri Laljibhai Popatlal Patel, Deputy Manager (Accounts) of M/s. IRM
Limited, Ahmedabad was recorded by the Superintendent, Range-X, Service Tax, Division-II,
Ahmedabad on 01.10.2012 under Section 14 of the Central Excise Act, 1944 read with Section
83 of Finance Act, 1994. Shri Laljibhai Patel has in his statement interalia stated that their
company is providing to and fro bus service to transport the staff members of M/s. Cadila from
various points; that the buses are owned by M/s. Cadila and their company are providing man
power and maintaining the buses, including cost of fuels and managing to provide manpower
like Drivers, conducters etc.
8.1.1
On being further asked about the inception of bus services provided to M/s. Cadila
Pharmaceuticals Ltd., he stated that the company is
providing bus services to the staff
members of M/s. Cadila since beginning and that their company is charging amount on the
basis of sitting capacity and distance, details of which are mentioned in Annexure-I, attached
with the Agreement dated 01.03.2008, copy of which is already provided by their company to
the Audit party; that they have never submitted Agreement dated 01.03.2008, made between
M/s. Cadila
and M/s. Green Channel Travel Services (Div. of IRM Ltd.) to Service Tax
Department. On being asked about existance of any Agreement between these two companies
regarding Bus services before 01.03.2008, he stated that there was no agreement between their
company and M/s. Cadila
before 01.03.2008, however, the said bus services were
in
existance from begining.
8.1.2.
On being asked to peruse the Agreement (entered in the name of ‘Transport Service
agreement’) made on 01.03.2008 between M/s. Cadila Pharmaceuticals Ltd. and M/s. Green
Channel Travel Services (Div. of IRM Ltd.), he admitted that that their company is providing
requisite number of manpower like drivers, and the cost towards maintainance of the buses.
On being specifically asked that there is no mention about the maintenance of buses etc in the
agreement dated 01.03.2008, he stated that the said agreement dated 01.03.2008 is only
related to Manpower supply and its related provisions or act as per statutary law in existence.
He further stated that besides this agreement dated 01.03.2008, there is no other agreement in
force as on today in respect of “Bus Operating services” between their company and M/s.
Cadila .
8.1.3. On being asked about the ownership of the buses, used by M/s. IRM Ltd. for providing
transportation services to the staff members of M/s. Cadila, he stated that the buses
are
owned by M/s. Cadila and the same are given to their company and M/s. Cadila is not
charging any remuneration from M/s. IRM Ltd. ; that the proof regarding ownership of buses, the
copies of RC Book has already been provided to the Audit conductors, cleaners, loaders,
helpers, etc. (hereinafter refer to as” Manpower”) in r/o
buses, owned by M/s. Cadila and
besides this their company is also incurring the expenditure towards fuel Party during the
8
course of Audit and as per the said RC Book, the ownership of all the buses, which are used by
their company for the above said purpose belongs to M/s. Cadila.
8.1.4. On being asked regarding classification of such bus service / payment of service tax on
such “Bus operating income” under the category of “Cab Operator service”, he stated that the
company is
not paying service tax on such Bus services previously,
however, after
amendment in definition of the “Rent-a- cab operator” services w.e.f. 01.06.2007, the company
has self-classified such bus services under the category of “Rent-a-cab operator” services and
started paying service tax on “Bus operating income”, received from M/s. Cadila under cab
operator services from 01.06.2007; that they have not paid service tax on “Bus Operating
income” pertaining to the period 2007-08 and the same was paid later on in the year 2008-09
with interest by self-classifying such income under the category of “Cab Operator services”, i.e.
after agreement dated 01.03.2008.
8.1.5
On being asked regarding payment of service tax under “ Rent a cab Service’, he
stated that they are providing bus service to the Staff members of M/s Cadila for which they
have charged fixed amount from M/s Cadila as per sitting capacity of the buses and distance
and the amount charged from M/s Cadila is towards the bus services provided by their
company
and as per Notification No.1/ 2006 dtd..01.03.2006,
they have discharged
the
Service Tax liability after availing the abatetment of 60% on Bus operating Income received
from M/s Cadila Pharmaceuticals Ltd, Ahmedabad under the category “Cab operator services”.
9.
Shri Laljibhai Patel during the recording of statement could not produce any
documentary evidence with regard to expenditure incurred by them on account of fuel and
maintenance of buses. In fact, the said assessee could also not provide the documentary
evidences in respect of their above contention that they have been incurring expenditure
towards fuel and maintenance. Hence, it appears that they were just taking a shelter of incurring
expenditures so as to avail the deduction thereof and thereby evade payment of service tax.
Further, it was noticed that the assessee has not been co-operating with investigation and has
been dilly delaying the issue on one pretext or the other. The Agreement discussed at para-3
and 4 supra clearly mentions that the transporation contract between the asseessee and M/s.
Cadila was purely for supply of Drivers, Conducters, Cleaners, Loader etc. i.e. supply of
Manpower only. No where in the contract, there is a mention of payments other than the
payments to be made to the Manpower. The Annexure-1 to the said Agreement only talks about
the payment that M/s. Cadila would be making to the assessee per month. Further, the fact that
M/s. Cadila provided buses free of cost to the assessee clearly shows that the payment made
by them was towards manpower supply only. Had the assessee taken buses on lease from
some other parties, they would have incurred monthly expenses in the form of rent. Since, the
assessee did not incur rental expenses on account of the buses provided to them, the
expenditure incurred by them on account of fuel and maintenance gets balanced.Hence, the
contention of Shri Laljibhai Patel that they have been incurring expenditure towards fuel and
maintenance is not correct and the same appears to have been made with an intent to evade
service tax by claiming deduction on account of such fictitious expenditure.
9.1.
In view of above, the bus operating income provided by the assessee has been taken as
gross amount for the purpose of calculation of service tax short paid by the assessee. Further
Sh. Laljibhai Patel has in his statement confirmed that the asseessee was providing similar
services to M/s. Cadila prior to the contract for transportation with M/s. Cadila. However, they
9
had for the period
2007-08 not paid any service tax on the services provided by them.
However, once the
contract of transportation service was made (i.e. on 01.03.2008) they
calculated their service tax liability by classifying their services under the category of Rent-a-cab
services and paid the same with interest. The subject show cause notice covers the period
2007-08 and proposes to classify the services provided by the assessee with regard to
transportation of staff members of M/s. Cadila under the category of Manpower recruitment and
supply agency.
10.
It appears that the assessee have willfully misclassified their services under the category
of “Rent-a-cab operator service” to avail the benefit of abatement of Notification No. 01/2006,
dated 01.03.2006. The details of bus operating income and short payment of service tax for the
period 2007-08 to 2011-12, has been worked out on the basis of audit report and the assessee
letter dated 29.09.2012, which come to Rs. 9,80,46,418/- and Rs. 66,21,729/- respectively, as
per Annexure-A to the show cause notice.
11.
Thus, it appears from the foregoing discussion that the assessee have contravened the
provisions of:
(i)
Section 67 of the Finance Act, 1994 in as much as they have failed to determine the
correct taxable value of service provided by them;
(ii)
Section 68 of the Finance Act,1994 read with Rule 6 of Service Tax Rules,1994 as
amended in as much as they failed to assess and pay the required service tax to credit
of Central Government by due date at the rate prescribed under Section 66 of the
Finance Act,1994;
(iii)
Section 70 of the Finance Act, 1994 in as much as they failed to self assess and
declare the correct taxable value of service to the department in the prescribed return in
form ST-3 and also failed to correctly assess the tax due on the service provided by
them and furnish correct return.
12.
As discussed above, the assessee has evaded/short paid service tax on account of
discharging only a part of service tax declared by them in their ST.3 returns; by willful
misstatement by classifying their service in wrong head for availing undue advantage of
abatement of Notification No.01/2006-ST dtd.01.03.2006 and by not disclosing full and correct
information about classification of the service provided by them. Thus, it appears that there is
willful misstatement to the department on the part of the assessee with intention to evade full
payment of service tax on the service provided by them. It appears that the assessee
deliberately withholding correct information from the department about service provided by
them. It appears that all these material information have been concealed from the department
deliberately, consciously and purposefully to evade payment of service tax. Therefore, in this
case all essential ingredients exist to invoke the extended period in terms of section 73(1) of
Finance Act, 1994 to demand the service Tax being short paid.
13.
Further, as per Section 75 ibid , 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 Central Government within the period prescribed, shall pay simple
interest (at such rate not below ten percent and not exceeding thirty six percent per annum, as
is for the time being fixed by the Central Government, by notification in the official gazette) for
10
the period by which such crediting of the tax or any part thereof is delayed. The assessee have
not discharged service tax liability and hence liable to pay interest under Section 75 of the act.
14.
All these acts of contravention of the provisions of Section 67, 68 and 70 of the Finance
Act, 1994 read with Rule 6 and 7 of Service Tax Rules, 1994 appears to be punishable under
the provisions of section 76, 77 and 78 of the Finance Act, 1994 as amended from time to
time.
15.
The government from the very beginning placed full trust on the service providers, so far
as service tax concerned and accordingly measures like self assessment etc., based on mutual
trust and confidence are in place. Further, a taxable service provider is required to maintain any
statutory or separate records under the provisions of Service Tax Rules as considerable amount
of trust is placed on the service provider and private records maintained by him for normal
business purpose are accepted, practically for all the purpose of service tax. All these operates
on the basis of honesty of the service provider; therefore, the governing statutory provisions
create an absolute liability when any provision is contravened as there is a breach of trust
placed on the service provider; no matter how innocently. The deliberate efforts by not paying
the correct amount of service tax is utter dis-regard to the requirement of law and breach of trust
deposed on them, such outright act in defiance of law appears to have rendered them liable for
stringent penal action as per the provisions of Section 78 of Finance Act, 1994 for suppression
on concealment and willful misstatement with intent to evade payment of service tax.
16.
Thus a show cause notice was issued to M/s. IRM Ltd.. 5/6, Sun Complex, Nr. Stadium
Circle, Navrangpura, Ahmedabad-15 by the Commissioner of Service Tax, Ahmedabad, as to
why:(i)
the services categorized by the assessee under the category of Rent-a-cab
operator services for providing bus service to M/s. Cadila Pharmaceuticals
Limited should not be considered as taxable service under the category of
“Manpower Recruitment and Supply Agency” service, defined under Section 65
(105)(k) of Finance Act, 1994 and amount of Rs. 9,80,46,418/- charged and
received towards providing the above service during the period 2007-08 to 201112 should not be considered as taxable value and;
(ii)
service tax amounting to Rs. 66,21,729/- (as per Annexure-A) short paid by
the assessee should not be demanded and recovered from them under proviso
to Section 73 (1) of the Finance Act, 1994 by invoking extended period of five
years;
(iii)
Interest at appropriate rate should not be demanded and recovered from them on
short payment of service tax as mentioned at (ii) above, under the provisions of
Section 75 of the Finance Act, 1994;
(iv)
penalty should not be imposed upon them under the provisions of Section 76 of
the Finance Act, 1994 for contravention of Section 68 of the Finance Act, 1994
read with Rule 6 of the Service Tax Rules,1994;
(v)
penalty should not be imposed upon them under the provisions of Section 77 of
the Finance Act, 1994 for contravention of Section 70 of the Finance Act,1995;
(vi)
Penalty should not be imposed upon them under the provisions of Section 78 of
the Finance Act, 1994 for willfully suppressing the correct taxable value of the
service from the department with intent to evade payment of service tax
11
17.
Defense Reply:
In reply to show cause notice M/s IRM submitted their defense reply on 31.05.2013. At
the outset they have denied all the allegations made in the SCN. Regarding whether the service
was classifiable under the category of manpower recruitment & supply agency service or renting
a cab service they have stated that they are independent registered limited company,
which is basically doing the business of Air Ticket booking, Forex, Passport & Visa
Services, Maintenance of various Guest Houses of M/s. Cadila Pharmaceuticals
(FMS),
and
management
and
maintenance
of
staff
buses
of
M/s.
Cadila
Pharmaceuticals Ltd., Ahmedabad through M/s. Green channel Travel services (A Div. Of
IRM Ltd.).
17.1
That they are providing to and fro bus service to carry out the staff members of
M/s. Cadila Pharmaceuticals Ltd. from various points. The buses are owned by M/s.
Cadila Pharmaceuticals and our company is providing service operating, running and
maintaining the buses, including cost of fuels.
17.2
That
the
consideration
charges
of
Bus
services
from
M/s.
Cadila
Pharmaceuticals Ltd has been fixed on the basis of sitting capacity and distance.
17.3
That they are holding full responsibility for the running & maintenance of buses
That their company was not paying service tax on such Bus services previously,
however, . after amendment in definition of the "Rent-a- cab operator" services w.e.f.
01.06.2007, and s t ar t ed p a yi ng ser vi ce t a x on " B us ope r at i ng inc om e" ,
r ec e i ved f r om M/ s. C a d il a Pharmaceuticals Ltd. under cab operator services from
01.06.2007.
17.4
Regarding the classification issue they relied upon the following decisions:
a.
2010 (19) S.T.R. 438 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL BENCH,
BANGALORE
S.S. ASSOCIATES Versus COMMISSIONER OF C. EX., BANGALORE
Final Order No. 1447/2009 and Stay Order No. 1699/2009, dated 3-12-2009 in
Application No. ST/Stay/378/2009 in Appeal No. ST/627/2009
Manpower Recruitment or Supply Agency service - Lump-sum work - Contract for
execution of work of loading, unloading, bagging, stacking and destacking - Records not
indicating supply of manpower - Essence of contract was execution of work as per
contract and invoices - Tenor of agreement indicating execution of lump-sum work or job
- No agreement for utilization of services of an individual - Lump-sum work not covered
under Manpower Recruitment or Supply Agency service - Impugned order set aside Section 65(68) of Finance Act, 1994. [paras 9, 11, 12]
Appeal allowed
b.
2010 (19) S.T.R. 370 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL BENCH,
BANGALORE
12
DIVYA
ENTERPRISES
Versus
COMMISSIONER
OF
CENTRAL
EXCISE,
MANGALORE
Final Order No. 1450/2009 and Stay Order No. 1711/2009, dated 3-12-2009 in
Application No. ST/St/379/2009 in Appeal No. ST/628/2009
Manpower Recruitment or Supply Agency service - Lump-sum work - Contract for
execution of work of loading, unloading, bagging, stacking and destacking - Records
silent on supply of manpower - Essence of contract was execution of work as per
contract and invoices - Tenor of agreement and purchase orders indicating execution of
lump-sum work as understood by appellant and service recipient - No agreement for
utilization of services of an individual - Lump-sum work or job not covered under
Manpower Recruitment or Supply Agency service - Impugned order set aside - Section
65(68) of Finance Act, 1994. [paras 9, 11, 12]
Appeal allowed
c.
2010 (18) S.T.R. 17 (Tri. - Bang.)
IN THE CESTAT, SOUTH ZONAL BENCH,
BANGALORE
RITESH ENTERPRISES Versus COMMISSIONER OF C. EX., BANGALORE
Manpower Recruitment or Supply Agency service - Lump sum work - Demand on the
ground that labour supply undertaken - Contracts for execution of work of loading,
unloading, bagging, stacking and destacking - Records silent about manpower supply Contracts and invoices indicating that execution of work forming essence of contract Tenor of agreement and purchase orders indicating execution of lump sum work Agreement not for utilisation of services of individual - Lump sum work not covered
under Manpower Recruitment or Supply Agency service - Impugned orders demanding
Service tax set aside - Section 65(68) of Finance Act, 1994. [paras 9, 11, 12]
Appeals allowed
Relying upon the above decisions they stated that have rightly classified service under
the category of rent a cab service & discharge service tax accordingly.
17.5
They further argued that the entire demand is time barred. That the show cause notice
covers the period of 01.04.2007 to 31.03.2012. The show cause notice has been issued on
16.10.2012. Thus, the show cause notice has invoked the extended period of limitation. The
show cause has baldly alleged that they have suppressed the information from the department.
17.6
Once department has issued SCN for the extended period i.e. the department has
issued the SCN dtd.31.12.2010 and 19.04.12 and alleged the longer period and confirmed the
demand vide OIO No STC/12 TO 13/COMMR.AHD/2013 dtd. 19.04.2013, So act of department
to issue another SCN of the extended period as 16.10.2012 was highly objectionable
17.7
Further noticee want to rely the supreme court judgment: . Nizam Sugar Industry Vs UOI
–reported in 2006(197) ELT 465 (SC) in which it is held by the Apex Court that” Allegation of
Suppression of facts against the appellant cannot be sustained, when the first SCN was issued
all the relevant facts were in knowledge of the Department. Later on, while issuing the second
13
OR third notice, the same facts could not be taken as suppression of facts, as these facts were
already in the knowledge of the authorities. Therefore, demand and penalty is not sustainable”.
17.8
They countered that the extended period of limitation cannot be invoked in the present
case since there is no suppression, willful misstatement on their part. They also stated that they
clearly indicated in ST-3 returns furnished by them clearly that they are availing the benefit of
Notification/circular No.1/2006-ST. Due shown in the ST-3 return. Therefore question of
suppression does not arise
18.
Records of Hearing :
Hearing in the case was held on 14.06.2013. The assessee reiterated the earlier submissions
made in their reply to SCN and requested to drop the case.
19.
Discussion & Findings:
I have carefully gone through the show cause notice, defense reply as well as oral
submissions made by them during the course of hearing. The SCN alleges that M/s IRM Ltd.
were providing manpower i.e. drivers, conductors, cleaners etc. for transportation of employees
of M/s Cadila in the buses owned by M/s Cadila, and accordingly classifiedd the
services
provided by them under Manpower Recruitment & Supply Agency Service demanding service
tax short paid by them.
19.1 The issue to be decided in this case is (a) Whether the service provided for transportation
of employees of Cadila is classifiable under the category of manpower recruitment & supply
agency service or under the rent-a- cab service. (b) Whether invocation of extended period in
the case is justified.
20.
First I discuss the main issue. Audit of M/s IRM for the period 2007-08 to 2009-10
revealed that the assessee was showing the income under the head ‘Bus Operating Income’ for
the buses operated by them for transportation of staff belonging to M/s Cadila Pharmaceuticals
Ltd.(herein after referred as “M/s.Cadila”) and were paying service tax on such income by
classifying the same under “Rent-a-Cab Operator Service” after claiming abatement under
Notification No.1/2006 dated 01.03.2006.
21.
Further the assessee was providing the Bus Operating Service under an agreement
dated 01.03.2008 entered into between M/s Green Channel Travel Services (division of M/s
IRM Ltd.) and M/s. Cadila Pharmaceuticals Ltd. ( referred to as M/s Cadila) for the contract of
transportation service. The said agreement explicitly contained the following terms & conditions.
(a) the assessee has to provide requisite number of manpower like drivers,
conductors, cleaners, loaders, helpers etc. (hereinafter referred to as
“manpower”) to conduct the transportation services as assigned by M/s.
Cadila;
(b) the assessee have to maintain all records of manpower, provided to M/s.
Cadila and such record shall comprise personal details, attendance, leave,
etc.;
(c) the assesse shall be exclusively and fully responsible for complying with all
legal requirements as per the Contract Labour (Regulations & Abolition) Act,
1970;
14
(d) the assessee have to pay remuneration / compensation /other payments as
the case may be, including expenses, if any;
(e) the assessee have to deduct and deposit statutory dues such as PF, ESI,
Pension, Labour Welfare Fund, Workmen Compensation Insurance Premium
and other contribution to the relevant government authorities;
(f) the assessee have to comply with all the applicable laws including Factories
Act, 1948, Employees’ Provident Funds & Misc. Provisions Act, 1952,
Payment of Bonus Act, 1965, Payment of Wages Act, 1936, Minimum Wages
Act, 1948, Workmen Compensations Act, 1923, The Contract Labour
(Regulation & Abolition) Act, 1970, Industrial Dispute Act, 1947, Industrial
Employment (Standing Orders) Act, 1946, Labour and Welfare Legislations
and timely filling / submission of periodic forms / returns and obtaining license
or permission in context with this agreement.;
(g) completing all the formalities as and when manpower are not required;
(h) keeping strict watch and ensure that the manpower provided by the assessee
shall not indulge in any other activity or works in any other firm.
21.1
It is evident from the above that entire agreement pertained to supply of manpower in
the form of drivers, conductors, cleaners, loaders, helpers etc. so that the employees of Cadila
could be transported in the buses owned by Cadila. In fact there is no mention in the agreement
which has any relation to the Renting of Cab Service. Further as per agreement M/s IRM was
responsible for the supply of manpower, maintenance of their remuneration, deduction of
statutory dues such as PF, ESI, Pension, Labour Welfare Fund, Workmen Compensation
Insurance Premium and other contribution to the relevant government authorities.
22.
During the course of recording of statement of Shri Laljibhai Popatlal Patel, DY. Manager
(Accounts) M/s IRM Ltd. it was admitted by Shri Laljibhai that their Company is providing to
and fro bus service to transport the staff members of M/s. Cadila from various points; that the
buses are owned by M/s. Cadila and their company is providing man power and maintaining
the buses, including cost of fuels and managing to provide manpower like Drivers, conductors
etc.
23.
M/s IRM have in their defense stressed on the fact that they were incurring the costs of
fuel, maintenance etc. However, they have not provided any documentary evidence to their
contention.
24.
Further as per Annexure-I of
the agreement the assessee charged M/s Cadila the
following amounts on monthly basis depending on the size of bus and route.
Sr.
Bus and Route
Amount Charged
1
Big Bus 54 seater for Dholka
Rs.79,500/- per bus per month
2
Mini Bus 34 seater for Dholka
Rs.35,000/- per bus per month
3
Big Bus 54 seater for Kadi
Rs.1,16,000/- per bus per month
4
Big Bus 54 seater for Bhat
Rs.51,750/- per bus per month
5
Mni Bus 40 seater for Bhat
Rs.48,187/- per bus per month
No.
25.
It is evident from the above that there is no mention of the amount inclusive of fuel,
maintenance of buses .Thus it can be seen here that the services provided by the assessee are
15
in the shape of providing drivers, conductors, cleaners, loaders etc. for efficient transportation of
employees of M/s Cadila which can not fall under “Rent a Cab Operator services” as per
definition discussed below.
26.
M/s IRM has categorized such services provided by them to Cadila under the category
of Rent-a-Cab Service. I discuss the definition of Rent-a-Cab service and the taxable service as
under: As per Section 65(91) of the Finance Act, 1994, Rent-a-cab scheme operator” means
any person engaged in the business of renting of cabs. As per the above definition, Rent-a-cab
Scheme Operator means (i) any person (ii) engaged in renting the cabs and (iii) as a business
activity.
27
Further Section 65(105)(o) of the Act defines taxable service as under: Taxable service
means any service provided or to be provided to any person by a rent-a-cab scheme operator in
relation to the renting of a cab. According to the above definition, a service becomes taxable as
service of renting of cab, when:
27.1
1.
The service is provided in relation to renting of a cab
2.
The service is provided ( or to be provided) by a rent-a-cab scheme operator
3.
The service is provided to any person
Further the meaning of Cab is defined under Section 65(105)(o) of the Finance Act,
1994 “Cab means a motorcab or a maxicab or any motor vehicle constructed or adapted to
carry more than twelve passengers, excluding the driver for hire or reward, provided that the
maxicab or motor vehicle referred to above when rented for use by an educational body
imparting skill or knowledge or lessons on any subject or field, other than a commercial training
or coaching centre shall not be included within the meaning of cab”.
28.
In view of the above a service provider may provide rent-a-cab service in two ways.
Either the service provider has his own cabs or it provides by way of hiring it from other person.
In the instant case the assessee is neither owning his own buses nor has he hired from other
person. All the buses were given to them by M/s Cadila free of any charge and they were
providing only manpower supply like driver, conductors, cleaners etc for which they were
charging some fixed amount to M/s Cadila as is evidenced from annexure 1 of the agreement.
Further, when ownership of buses lies with M/s Cadila, they cannot be renting their own buses.
Thus the services categorized by M/s IRM certainly do not fall under the category of Rent-a-cab
service.
29.
I find that as per the agreement M/s IRM was supposed to provide manpower for the
purpose of transportation of employees. The manpower to be provided by them were drivers,
conductors, cleaners, loaders, helpers etc. In this regard, I refer to Manpower Recruitment or
Supply Agency” and discuss the same as below:
The term “Manpower Recruitment or Supply Agency” is defined under Section 65(68) of
the Finance Act, 1994 w.e.f. 16.06.2005 as follows: “manpower recruitment or supply agency”
means any commercial concern engaged in providing any service, directly or indirectly, in any
manner for recruitment or supply of manpower, temporarily or otherwise, to a client”
The statutory definition has been amended with effect from 16.05.2008 so as to read as
follows:
“manpower recruitment or supply agency” means any person engaged in providing
any service, directly or indirectly, in any manner for recruitment or supply of manpower,
temporarily or otherwise, [to any other person]”.
16
29.1
Further as per Section 65(105)(k) of the Act Taxable Service means any service
provided or to be provided to any person by a manpower recruitment or supply agency in
relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner.
30.
Co-relating the above definition with the activity of M/s IRM Ltd. it is seen that the activity
performed by IRM clearly falls under Manpower Recruitment & Supply Agency Service.
31.
It is further noticed that M/s IRM have admitted during the course of statement that
apart from the agreement dated 01.03.2008 there was no other agreement between IRM and
Cadila. In other words
there was no agreement between their company and M/s. Cadila
before 01.03.2008, however, the said bus services were in existence from the beginning. They
also admitted that that their company is providing requisite number of manpower like drivers,
conductors, cleaners, loaders, helpers, etc. (hereinafter refer to as” Manpower”) in r/o
buses,
owned by M/s. Cadila and besides this their company is also incurring the expenditure towards
fuel and the cost towards maintainance of the buses. Thus it is crystal clear that the said
agreement dated 01.03.2008 is only related to Manpower supply.
32.
Thus, from the above discussion an important question arises as to the amount charged
by the assessee to M/s Cadila per bus per month as per Annexure 1 of the agreement, viz for
what service the remunerations were paid by M/s Cadila to the assessee. Had it been in
relation to rent a cab service the assessee should have either rendered such service on the
strength of their own buses or hired from some other person, which is not the case here. The
Amount charged by the assessee was mainly on account of supplying manpower like drivers,
conductors, cleaners etc. as per the terms & conditions of the agreement and not for providing
the buses.
33.
Their argument that they were maintaining buses and incurring the cost of fuels and so
they were providing rent a cab service only is unacceptable as in this regard no evidence
regarding the cost of fuels incurred by them has been provided. Thus the argument of the
assessee has no force and is without any evidence which does not absolve them from the
allegation of short payment of service tax by way of availment of abatement provided in the
Rent-a-cab service.
34.
In fact the agreement dated 01.03.2008 revels that they were providing only manpower
supply for smooth operation of transport service and all the charges received by them from M/s
Cadila were only related to manpower supply.
35.
I am therefore convinced that the assessee has wrongly classified the above service
under “Rent-a-cab operator scheme service” and has discharged their service tax liability by
availing abatement of 60 % under Notification No. 01/2006-ST dtd.01.03.2006 on the gross
amount charged / received from M/s. Cadila. As per Section 67 of the Finance Act, 1994,
taxable value as regards the “Manpower Recruitment and Supply Agency Service” shall be the
gross amount charged by the assessee and no abatement is notified for this service. Hence,
the abatement, taken by the assessee under Notification No.1/2006 dated 01.03.2006, by misclassifying their service under “Rent-a-cab operator service” is in-admissible and the same is
required to be disallowed.
17
36.
In view of the above discussions I find that various decisions relied upon by the
assessee are irrelevant and are not applicable to this case as the nature of the same is very
different. The cases mentioned by them involve lump sum agreements, which did not involve
utilization of services of individuals. This is not the case here as can be seen from the terms of
their agreement with M/s Cadila.
37.
Now we come to the second issue that whether extended period is invoked in this case
on ground of suppression is justified. In this regard the assessee was in full knowledge of the
nature of agreement that they were only providing manpower supply and to evade payment of
service tax liability on the gross income they classified the service under Rent-a-cab service
according to their own convenience for the sole sake of availing abatement benefit, by willful
misstatement with intent to evade payment of service tax. For
availing any abatement
notification they must have approached the Department to seek clarification regarding its
applicability or inapplicability with reference to the services rendered by them. The assessee did
not bother to seek any clarification and availed the abatement on thier own by misclassifying the
very nature of service. Thus when the Department finds error in the availment of abatement
benefit by them and observes that there has been willful intention behind misclassification and
charges the assessee with suppression of facts,
the assessee has no scope to deny the
allegation since the assessee has been vested with power of self-assessment and therefore it is
the obligation of the assessee that every facts related to assessment of tax should be declared
to the Department. In the instant case the assessee did not bother to inform the department
about the agreement entered into with M/s Cadila. Had the audit of the assessee’s company not
been conducted, such mistake in the availment of abatement by mis-classification would have
gone unnoticed.
38.
In this regard I place my reliance to the judgment in the case involving Aircel Digilink
India Ltd. v/s Commissioner of Central Excise, Jaipur, as reported in 2006 (3) STR 386 (Tri.Del) and the case involving Bharti Cellular Ltd. v/s Commissioner of Central Excise, Delhi, as
reported in 2006 (3) S.T.R. 423 (Tri.-Del). In both the cases,
the Hon. Tribunal upheld
invocation of extended period after taking note of the fact that appellants had not disclosed
certain details and mode of computation in their ST-3 details and that there was nothing on
record to suggest that appellants ever approached the office of the service tax authorities to
ascertain the details of their liability to pay the service tax. Similarly, in case of Insurance &
Provident Fund Department v/s. Commissioner of Central Excise, Jaipur-I, 2006 (2) S.T.R. 369
(Tri.-Del.), Hon. Tribunal held that non-disclosure of full amount of premium collected would
attract invocation of extended period. The ratio of the above judgments can be applied to the
present case also as M/s IRM had kept the Department in dark about the agreement entered
into between M/s IRM and M/s Cadila and availed abatement on their own by mis-classifying the
service under the category of Renting of Cab Service and never bothered to approach the
Department to seek any clarification in respect of its applicability or inapplicability and therefore,
they not only suppressed the material facts from the department but also failed to comply with
law and procedures, including payment of service tax.
39.
In view of the above, I hold that in the facts and circumstances of the present case,
proviso to section 73 (1) of Finance Act, 1994, is rightly invoked for raising the demand for
service tax against M/s IRM. As already discussed in above paras, M/s IRM had purposefully
short paid service tax by resorting to
availment of abatement benefit by way of mis-
classification of their service under the category of Renting of Cab service.
18
40.
As regards imposition of simultaneous penalty, I place my reliance on the judgment of
Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central Excise v. Krishna
Poduval as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present case. I
find that the imposition of penalty under sections 76 and 78 of the Act is for non payment of
service tax and suppression of value of taxable service respectively which are two distinct and
separate offences attracting separate penalties. I find that the said assessee has committed
both the offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are
imposable on the said assessee for the period upto 9.5.2008.
41. As regard imposition of penalty under Section 77 of the Finance Act, 1994, I find that M/s
IRM have not correctly assessed the taxable value and thus not included the correct taxable
value in their ST-3 Returns. Therefore, penalty under Section 77 has rightly been proposed to
be imposed.
42.
As regards their contention for invoking Section 80 of the Finance Act, 1994 for waiver of
penalty, I find that IRM have not produced any reasonable cause for the failure to pay service
tax. They purposely did not declare the exact nature of the agreement with explicit intent to
evade payment of service tax. Therefore, I consider it appropriate to hold M/s IRM liable to
penalty under Section 76 and 78 of the Finance Act, 1994.
43.
My above findings are further strengthened by the judgement of Hon’ble Supreme Court
in the case of M/s Mc DOWELL AND COMPANY LTD Vs COMMERCIAL TAX OFFICER,
ANDHRA PRADESH as reported in 2002-TIOL-40-SC-CT . In the said case the Apex Court has
observed that “Tax planning may be legitimate provided it is within the framework of law. It is the
obligation of every citizen to pay the taxes honestly without resorting to subterfuges”.“Colorable
devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it
is honorable to avoid the payment of tax by resorting to dubious methods”.
44.
Having regard to the facts and circumstances of the case as discussed hereinbefore, I
pass the order as follows:
ORDER
(i)
I consider the amount of Rs. 9,80,46,418/- received by M/s IRM from M/s Cadila
Pharmaceuticals Ltd. during the period 2007-08 to 2011-12 for providing Bus Service by
deploying manpower such as drivers, conductors, cleaners, loaders, helpers etc. as
taxable value by categorizing the
service provided by them under the category of
“Manpower Recruitment and Supply Agency Service”, defined under Section 65(105)(k)
of the Finance Act, 1994.
(ii)
I confirm the service tax amounting to Rs. 66,21,729/- ( Rs. Sixty Six Lakhs Twenty One
Thousand Seven Hundred Twenty Nine) short paid by the assessee under proviso to
Section 73(1) of the Finance Act, 1994 by invoking extended period of five years.
(iii)
I direct the assessee to pay interest as applicable on the amount of service tax liability
for the delay in making the payment under Section 75 of the Finance Act, 1994, as
amended.
(iv)
I impose a penalty upon them at the rate of Rs. 200/- (Rupees Two Hundred only) per
day or at the rate of 2% of the service tax amount per month, whichever is higher, under
the provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay
Service Tax and Education Cess within the stipulated period. The penalty under the
19
Section 76 should be calculated upto 9.05.2008. However, the penalty imposed under
this Section shall not exceed the confirmed service tax amount.
(v)
I impose penalty of Rs 10,000/- upon them under Section 77 of the Finance Act, 1994 .
(vi)
I also impose a penalty of Rs. 66,21,729/- 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. However, if the service tax and
interest is paid within thirty days from the date of communication of order the amount of
penalty under Section 78 shall be reduced to 25% of the service tax amount, provided
that the benefit of reduced penalty shall be available only if the amount of penalty so
determined has also been paid within the period of thirty days.
(Tejasvini P. Kumar)
Commissioner,
Service Tax, Ahmedabad
F.No.STC/4-45/O&A/12-13
Dated : 24/08/2013
BY RPAD / Hand Delivery
To,
M/s. IRM Limited,
5/6, Sun Complex, Near Stadium Circle,
C.G. Road, Navrangpura,
Ahmedabad-9
Copy to:
1.
The Deputy Commissioner, Service Tax, Div-II, Ahmedabad
2.
The Superintendent, AR-X, Div-II, Service Tax, Ahmedabad alongwith additional
copy of the order to be delivered to the assessee and to
acknowledgement.
3.
Guard File.
submit dated