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Page 1 of 19
BRIEF FACTS OF THE CASE
M/s Meghmani Dyes & Intermediates Ltd., Unit II, Plot No. 99,
100/A, 102, Phase II, GIDC, Vatva, Ahmedabad 382445 (hereinafter
referred to as the “assessee”) are manufacturer of dyes and dyes
intermediates. Simultaneously they are
holding service tax registration
bearing No. AABCM6639DST002 under the category of “Goods Transport by
Road” & “Business Auxiliary Service”.
2.
The audit of the records maintained by M/s Meghmani Dyes &
Intermediates Ltd., Unit II, Plot No. 99, 100/A, 102, Phase II, GIDC, Vatva,
Ahmedabad 382445 was conducted at their premises by the officers of Audit
Branch,
Service Tax, Ahmedabad.
During the course of audit, it was
noticed that the said assessee had exported dyes and dyes intermediates
manufactured by them from India and for the purpose of export they had
hired the services from a person who was a non-resident and who do not
have any office in India for procuring and executing orders. The service
provided by the said person were in the nature of commission agent as
defined under section 65(19) of the Finance Act,1994 i.e under the category
of “Business Auxiliary Services. The said services are liable for service tax
from
01.07.2003.
However,
vide
Notification
No.
13/2003-ST
dated
26.06.2003 commission agent were exempted from the Service Tax. The
said notification was withdrawn from 09.07.2004 and the service of
commission agent has been made liable for service tax. Hence, in the case
the services were liable for service tax. Since the person providing the
services had no office in India, as per the provision of Notification No.
12/2002-ST dated 01/08/2002 clause ( iv ) was inserted to sub rule (d)
to Rule 2 of the Service Tax Rules, 1994, wherein it was inserted that :
“any taxable service provided by any person by a person who is a nonresident or is from outside India, does not have any office in India, the
person receiving taxable service in India shall be liable for Service
Tax.”
“Rule 2 (i) (d) (iv), in relation to any taxable service provided or
to be provided by any person from a country other than India and received
by any person in India under Section, the recipient of such services”
Subs. By Notification No. 10/2006 ST dated 19.04.2006 w.e.f 18.04.2006.
OIO No. 26 & 27/STC-AHD/ADC(MKR)/ 2011-12
3.1
Page 2 of 19
In view of the above Rule 2 (i) (d) (iv) of Service Tax Rules
1994, the said assessee will be liable for service tax for the taxable service
provided by a person who does not have any office in India.
Thereafter, w.e.f 16.06.2005 explanation to Section 65 (105)
was inserted which reads as under : Prior to substitution of *rule 2 (i)(d)(iv),
read as under:
“For the removal of doubts, it is hereby declared that where’ in
relation to any taxable service provided or to be provided by a person, who
has established a business or has a fixed establishment from which the
service is provided or to be provided, or has his permanent address or usual
place of residence, in a country other than India and such service provider
does not have any office India, the person who received such service and
has place of business or, fixed establishment, permanent address or, as the
case may be, usual place of residence, in India,”
3.2
Thereafter, with effect from 18.04.2006 new rules called
Taxation of service (provided from outside India and received in India)
Rules, 2006 were inserted and the recipient of the services was liable for
service tax.
3.3
In view of the Notification No. 12/2002-ST dated 01.08.2002,
explanation to Section 65 (105) inserted from 16.06.2005 and Taxation of
Services (provided from outside India and received in India) Rules, 2006
effective from 19.04.2006 the assessee was liable for service tax from
09.07.2004 on the commission paid as the service provider had no office in
India.
4.
Further, it appeared that the said assessee had received the
taxable service under the category of Business Auxiliary Services from the
service provider residing abroad having no office in India however they had
not paid any service tax leviable thereon as a recipient of the service under
as discussed above.
5.
Here, in this case M/s Meghmani Dyes & Intermediates Ltd., had
received services from foreign based service provider having no offices in
India and paid commission to such service provider and have not paid
service tax as per the table below.
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The details of commission paid on such taxable services on
which no service tax paid were as under:
Year
2004-05
2005-06
2006-07
Total
6.1
Amount of
Commission paid
(in Rs.) to foreign
person
24,05,663
1,30,48,809
1,75,66,572
Amount of
Service Tax
payable
( In Rs.)
2,40,566
13,04,880
21,07,989
36,53,435
Education
Cess
Payable
(In Rs.)
4,811
26,098
42,160
73,069
Total Service
Tax payable
(In Rs.)
2,45,377
13,30,978
21,50,149
37,26,504
It also appeared that out of the total amount of Service Tax of
Rs.36,53,435/- & Ed. Cess of Rs.73,069/-, the assessee has already paid
Rs.8,17,455/- + Rs.16,349/- Ed. Cess + Rs.8,797/- ( Interest ) vide T.R 6
challan No. 01/2006-07 dated 24.02.2007 and T.R 6 Challan No. 02/200607 dated 24.02.2007. Therefore, outstanding amount of Rs.28,35,980/(S.T) + Rs.56,720/- ( Ed. Cess ) = Total Rs.28,92,700/- was recoverable
from the said assessee.
6.2
It also appeared that the said assessee did not declare in their
returns ST-3, the correct actual amount of taxable service received from
person who do not have their office in India and actual amount paid for
receiving such taxable service. Thus by resorting to suppression of material
facts and data in the above manner, the said assessee had evaded Service
Tax to the tune of Rs.37,26,504/-. It therefore appeared that the extended
period of limitation under proviso to Section 73 (1) (a) of Finance Act, 1944
as amended was invocable for recovery of Service Tax short paid / not paid.
7.
Accordingly, M/s Meghmani Dyes & Intermediates Ltd., Unit II,
Plot No. 99, 100/A, 102, Phase II, GIDC, Vatva, Ahmedabad 382445 were
issued a show cause notice bearing F.No. STC/75/O&A/SCN/JC/MDI/08-09
dated 30.01.2009 asking them as to why:
(i)
service tax amounting to Rs.36,53,435/- + Rs.73,069/- Ed. Cess =
Total Rs.37,26,504/- should not be demanded / recovered, under
proviso to Section 73 (1) (a) read with Rule (7) (2) of STR, 1944 by
invoking the extended period of limitations. As the amount of
Rs.8,17,455/- Service Tax + Rs.16,349/- Ed. Cess already paid by
them towards their Service Tax liability why the same should not be
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appropriated under the provision of Section 68 of the Finance Act,
1944 read with Section 73 (1) of the Finance Act, 1944;
(ii)
interest at appropriate rate for delayed payment of Service Tax under
section 75 of the Finance Act, 1944 should not be charged and
recovered. As the amount of Rs.8,797/- interest already paid by them
why the same should not be appropriated against their interest
liability;
(iii)
penalty should not be imposed upon them under Section 76 of the
Finance Act, 1994, for the failure to make payment of Service Tax
payable by them;
(iv) penalty should not be imposed upon them under Section 77 of the
Finance Act, 1944 for the failure to file prescribed Service Tax return
for the above period; and
(v)
penalty should not 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.
DEFENCE REPLY
8.1
The service provider filed their reply vide their letter dated
18.02.2009 and 14.07.2009.
8.2
They submitted that from the show cause notice it appeared
that there are allegations against them that they have exported goods
from India and for the said purpose they had taken Services from a
person who is a non-resident, who do not have any office in India for
procuring and executing orders; that the service provided were in
nature of Commission Agent as defined under Section 69(19) of the
Finance Act, 1994 and such services were liable for Service Tax from
01.07.2003
but
vide
Notification
No.13/2003-ST,
dt.26.06.2003
Commission Agent were exempted from the Service Tax and said
Notification was withdrawn from 09.07.2004 and the service of
Commission Agent was liable for Service Tax; that since the person
providing the Services had no office in India as per provision of Noti.
No.12/2002-ST, dt. 01.08.2002 clause (iv) was inserted to Sub-Rule
(d) to Rule 2 of Service Tax Rules, 1994 wherein it was inserted that ;
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“any taxable service provided by any person by a person who is a nonresident or is from outside India, does not have any office in India, the
person receiving taxable service in India shall be liable for Service
Tax.”
“Rule 2(1)(d)(iv) in relation to any taxable service provided or
to be provided by any person from a country other than India
and received by any person in India under Section the recipient
of such services”.
Subs. By Notification No.10/2006-ST, dt.19.04.2006 w.e.f. 18.04.2006.
8.3
They further submitted that in view of above Rule 2(1)(d)
(iv) of STR 1994, they will be liable for Service Tax for the taxable
service provided by a person who does not have any office in India;
that w.e.f 16.06.2005 explanation to Section 65(105) was inserted
which reads as under:
Prior to Substitution of Rule 2(1)(d)(iv) is read as under:
“For the removal of doubts, it is hereby declared that where in
relation to any taxable service provided or to be provided by a
person,
who
has
established
a
business
or
has
a
fixed
establishment from which the service is provided or to be
provided, or has his permanent address or usual place of
residence, in a country other than India and such service
provider does not have any office India, the person who
received such service and has place of business or, fixed
establishment, permanent address or, as the case may be,
usual place of residence, in India,”
;that
thereafter
w.e.f.
18.04.2006
new
rules
called
Taxations of Services (provided from outside India and received in
India) Rules, 2006 were inserted and the recipient of the services is
liable for service tax; that in view of Notification No.12/2002-ST, dt.
01.08.2002,
explanation
to
Section
65(105)
inserted
from
16.06.2005 and Taxation of Services (provided from outside India
and received in India) Rules, 2006 effective from 18.04.2006, they
were liable for service tax from 09.07.2004 on the Commission paid
as the service provider has no office in India; that it is further alleged
that they had received the taxable services under the category of
Business Auxiliary Services from abroad and have not paid any service
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Page 6 of 19
tax leviable as a recipient of the service under Rule 2(1)(d)(iv) of STR1994.
8.4
They further submitted that it is stated in the show cause
notice that they have paid commission to foreign person to the extent
of Rs.24,05,663/-, Rs.1,30,48,809/- and Rs.1,75,66,572/- during the
year 2004-05, 2005-06 and 2006-07 respectively and accordingly
they
were
required
to
pay
service
tax
of
Rs.2,45,377/-,
Rs.13,30,978/- and Rs.21,50,149/- respectively; that it was further
stated that out of the total amount of service tax of Rs.37,26,504/they have paid Rs.8,23,804/- and balance amount is recoverable; that
it was also alleged that since they have not declared in their returns
the correct actual amount of taxable services received from person
who do not have office in India by resorting to suppression of material
facts the extended period was invocable in this case; that with the
above allegations they have been served show cause wherein the
service tax of Rs.37,26,504/- has been demanded, interest under
Section 75 has been proposed and Penalty under Section 76, 77 & 78
have also been proposed.
8.5
They further submitted that they denied the allegations
that they were required to pay Service Tax for the year 2004-05 and
2005-06 as Section 66 A of Finance Act, 1994 was enacted w.e.f.
18.04.2006, which provides recipient in India liable to Service Tax for
service received from abroad; that the amount of service tax paid by
them was for the period after 18.04.2006 and hence not liable for
payment of Service Tax as proposed in the show cause notice; that
they relied on the case law as reported in 2009 (13) S.T.R. 235 (Som)
in support of their contention, wherein it is held that “Import of
Services - liability of recipient- Rules can not be made to make service
recipient liable when Finance Act, 1994 make service recipient liable Rule 2 (1)(d)(iv) of Service Tax Rules, 1994 is invalid”.
;that in view of above submissions they were not liable to
pay Service Tax as proposed in the show cause notice and they have
paid Service Tax w.e.f 18.04.2006 required to be paid, therefore all
proposed actions in the show cause notice is require to be vacated.
8.6
The assessee further filed another defence reply on 14.07.2009
in connection to show cause notice No. STC-188/O&A/SCN/MDI/R-IX/D-II/
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Page 7 of 19
08-09 dated 08.06.2009, wherein they submitted that they have received
another show cause notice bearing F.No.STC/75/O&A/SCN/JC/MDI/08-09,
dt.30.01.2009 for demand of Service Tax amounting to Rs.37,26,504/covering the period 2004-05 to 2006-07 issued by Joint Commissioner,
Service Tax, Ahmedabad; that this is a second show cause notice issued for
the period covered in the previous show cause notice, therefore the same
was not maintainable in law.
8.7
They further submitted that they have submitted their reply to
show cause notice dt.30.01.2009 vide their letter dt.16.02.2009; that the
same
may
be
considered
as
reply
to
present
show
cause
notice
dt.08.06.2009 and matter may be decided on the basis of submissions made
in reply to show cause notice dt.30.01.2009; that they were not liable to pay
Service Tax before the enactment of Section 66 A of Finance Act, 1944 i.e.
prior to 18.04.2006, therefore the show cause notice may be vacated since
they have started paying service tax from services received from 18.04.2006
and onwards.
PERSONAL HEARING
9.
Vide this office letter dated 07.06.2011, the assessee was
requested to appear for personal hearing on 15.06.2011, but the assessee
did not appear for personal hearing but requested for adjournment. Next
date of personal hearing was extended on 13.07.2011. Shri Manohar
Maheshwari, G.M (Commercial) appeared for personal hearing and reiterated
the
argument
communicated
vide
their
letter
dated
18.02.2009
&
14.07.2009. He also submitted copies of Case Laws reported at 2011 (23)
STR 15 (Guj) & 2009 (13) STR 235 (Bom) in support of their defence.
DISCUSSION & FINDINGS
10.
I have gone through the records of the case including the
submissions made by the assessee in their written reply dated 18.02.2009 &
14.07.2009 as well as the discussion I had during the course of personal
hearing.
11.1
Further, I observe that the assessee vide their letter dated
14.07.2009 has informed that they have received a similar show cause notice
issued by Additional Commissioner of Service Tax, in-charge of Division II
issued
from
F.No.
STC-188/O&A/SCN/ADC/MDI/R-IX/D-II/08-09
dated
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Page 8 of 19
08.06.2009 demanding service tax of Rs.28,09,985/- covering the period
2004-05 to 2006-07 (Upto August 06’). I have gone through both the show
cause notices and have observed that the present show cause notice has been
issued by Joint Commissioner, in-charge of Service Tax, Division III on
30.01.2009 & the another show cause notice has been issued by Additional
Commissioner, in-charge of Service Tax, Division II on 08.06.2009. I find that
in both the show cause notice, the Service Tax Registration No. & Address are
same. Not only that the issue involve is also same and Identical one. The only
difference is that the present show cause notice has been issued for the period
2004-05 to 2006-07, whereas the other show cause was issued covering the
period 2004-05 to 2006-07 (Upto August 06’).
11.2
In any way, what I find is that both the show cause notices are
issued to the same assessee are found identical and cover the same period.
However, the show cause notice dated 30.01.2009 taken up for adjudication
covers entire period of 2004-05 to 2006-07 as the same was issued prior to
show cause notice dated 08.06.2009 covering period 2004-05 to 2006-07
(Upto August 06’); herein after I proceed to decide and discuss the show
cause notice issued on 30.01.2009 and find that show cause notice dated
08.06.2009 is liable to be vacated on the ground of duplication of demand.
12.
I
observe
that
the
assessee
have
obtained
Service
Tax
Registration and paid Service Tax on overseas commission in case services
rendered after 18.04.2006. I find that the assessee has nowhere disputed the
receipt of service from the foreign based dealers/agents who were helping
them to market their products in order to boost their sales in the overseas
countries. They have even not disputed the making of payment of
commission/incentive remitted/given to those dealers/agents.
13.1
As per the provisions of Section 65(19) of the Finance Act, 1994,
the term ‘Business Auxiliary Service’ means any service in relation to:
(i)
promoting or marketing or sale of goods produced or provided by or
belonging to the client; or
(ii)
promoting or marketing of service provided by the client; or
(iii)
any customer care service provided on behalf of the client;
or…………………………….
13.2
I also find that in view of the difficulties faced by the Government
in collecting the service tax in the cases where the service provider residing
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Page 9 of 19
out side Inida, amendment was made in the Service Tax Rules, 1994 by the
Government of India by inserting a sub-clause (iv) in the clause (d) of sub-rule
(1) of Rule 2 by the Notification No. 12/2002 dated 01.08.2002 effective from
16.08.2002. As per the amendment, in relation to taxable service provided by
a person who was a non resident or a person from outside India, who does not
have any office in India, the person receiving the taxable service in India shall
be the person liable for paying the service tax. The assessee has contended
that there was no charging provisions was available in Section 66 and no
provision for levy of Service Tax on import of service prior to introduction of
Section 66A w.e.f. 18.04.2006 the demand of non payment of service tax by
the recipient of service is not tenable and therefore not acceptable. In this
regard I have gone through the decision of Laghu Udyog Bharti Vs Union of
India reported in 1999 (112) ELT, 365, the Hon’ble Supreme Court cited by
the assessee
wherein I find that the Hon’ble Supreme Court of India had
quashed the levy of service tax on goods transport operators service and
clearing & forwarding agents on the ground that the levy of service tax and
not on the person rendering the service, but the person to whom or for whom,
the service was rendered was clearly illegal and unsustainable in Law. But The
Hon’ble Supreme Court however, did not held that the levy of service tax was
illegal on the aforesaid services, the Hon’ble Court only struck down those
provisions in which the burden of tax was shifted from service provider to the
service recipient. Also, after the above judgment, Section 66 was amended
from
16.10.1998
to
the
effect
that
“there
shall
be
levied
a
tax…………………………………and collected in such manner as may be prescribed” in
place of “there shall be charged a tax……………………………..which are provided to
any person by the persons responsible for collected the service tax.” Thereby,
through the above amendment provisions were made even to levy service tax
on the person receiving the service tax. In view of the above amendment
w.e.f. 16.08.2002 as per Rule 2(1)(d)(iv) provision related to the registration,
payment of service tax, filing of returns etc were made applicable to the
person who was the receiver of the services. Also, the foreign companies
rendering the services in India who does not have office in India, service tax
was to be paid by the recipient of the services.
13.3
As regard to the submission of the said assessee that service tax
on commission paid to foreign agents is not leviable prior to 18.04.2006 in
view decisions cited as 2011 (23) STR 15 (Guj) & 2009 (13) STR 235 (Bom)
in support of their defence. I wish to examine whether the demand is
sustainable in the light of the above submissions of the assessee.
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13.4
Page 10 of 19
The assessee has contended that in view of the judgments of
Hon’ble Bombay High Court in the case of M/s Indian National Ship owners
Association (INSA) vs Union of India (2009(13) STR 235 (Bom)), service tax
is not leviable on commission paid to overseas agents prior to 18.04.2006
i.e., the date on which Section 66A was enacted. Further, as regards the
decision cited as 2011 (23) STR 15 (Guj) delivered by Hon’ble High Court of
Gujarat in the case of Commissioner vs. Quintiles Data Processing Centre (I)
P. Ltd. I find that the said decision is also delivered by the Hon’ble High
court of Gujarat relying on the decisions delivered by Hon’ble Bombay High
Court in the case of M/s Indian National Ship owners Association (INSA) vs
Union of India (2009(13) STR 235 (Bom)), wherein I find that the facts of
the case was that taxable service received out side India by a person,
who is resident in India or has place of business, business establishment in
India, the service liability arises w.e.f. from 18.04.2006, as is in the case of
INSA, where services were received outside India for use in the ships and
vessels located outside India.
13.5
Whereas in the present case the facts of the case is that taxable
service provided by a non resident, not having office/establishment in India,
and received in India, the service tax liability arises w.e.f. from 1.1.2005,
on reverse charge basis on the recipient of service in India.
13.6
In light of this finding and facts of the case on hand I notice
that this judgement is applicable to cases where the services are received
outside India by a person who is resident in India. It may be noted
that the aforementioned judgement in the case of M/s INSA vs Union of
India does not apply to cases where taxable service, provided by a nonresident not having any office/establishment in India is received in India.
The levy of service tax on such services has been examined in the cases of
(i) M/s Hindustan Zinc Ltd. vs CCEx. Jaipur, by the larger Bench of CESTAT
(2008 (11)STR 338(T.LB) and (ii) UOI vs M/s Aditya Cement by the Hon’ble
High Court of Rajasthan (2008(10)STR228(Raj)] where in it has been held
that service tax liability on service received in India from a non-resident
arises from 1.1.2005 consequent upon issuance of Notification No.36/2004
ST dated 31.12.2004, under section 68(2) of Finance Act, 1994 read with
rule 2(1)(d)(iv) of Service Tax Rules, 1994. This view has been confirmed by
Central Board of Excise & Customs (CBEC) vide letter F. No.275/7/2010-
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Page 11 of 19
CX8A dated 30.06.2010. The relevant portion of the clarification is reproduced
below ;
“However, it may be noted that the aforementioned judgment in the
case of M/s INSA Vs Union of India does not apply to the cases where
taxable service, provided by a non resident, not having any office /
establishment in India, is received in India. The levy of service tax on
such services has been examined in the cases of (i) M/s Hindustan Zinc
Ltd Vs Commissioner of Central Excise, Jaipur by the larger Bench of
CESTAT [2008 (11) STR 338 (T-LB)], and (ii) UOI Vs M/s Aditya Cement
by the Hon’ble High Court of Rajasthan [2008 (10) STR (Raj)], wherein
it has been held that service tax liability on services received in India
from a non resident arises w.e.f 01.01.2005………..”
13.7
Thus, the present case, as the service has been received in
India, the aforesaid judgement of Hon’ble Bombay High Court is not
applicable. Therefore, I hold that the assessee’s view of non-sustainability of
demand prior to 18.04.2006 fails and so the demand of service tax raised on
commission paid to overseas agents for the entire period from 2005-06
under the category of Business Auxiliary Service is sustainable.
13.7
In the present case taxable service has been provided by a non
resident, not having any office / establishment in India, and has been received
in India and thus the Service Tax liability of the service provider arises w.e.f
01.01.2005 onwards and not from April 2004’ as demanded in show cause
notice. The issue involved in the present case and that of INSA are different.
In the case of INSA, the service were received outside India and thus not
applicable to the present case. The clarification issued by CBEC from F.No.
275/7/2010-CX.8A dated 30.06.2010 specifically states that “………in view of
these judgments, levy of service tax on taxable services received in India
which are provided by a non resident, not having office / establishment in
India arises on reverse charge basis w.e.f 01.01.2005”. The clarification
further affirms that in case of taxable service provided by a non resident, not
having any establishment in India and received in India, the Service tax
liability arises w.e.f 01.01.2005 and in case of taxable service received outside
India by a person, who is resident of India or has place of business /
establishment in India, the Service Tax liability arises w.e.f 18.04.2006, as in
the case of INSA.
14.1
In view of the above discussion, I hold that the service provider is
liable to pay service tax w.e.f 01.01.2005 and not from April 2004 as
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Page 12 of 19
demanded in show cause notice and accordingly the revised calculation will be
as under;
Month
Jul-04
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
2005-06
2006-07
Commission
Paid
S.Tax
Payable
including
Edu. Cess as
per SCN
0
0
2,52,525/0
2,14,478/13,97,867/0
0
5,40,793/1,30,48,809/1,75,66,572/37,26,504/-
14.2
S.Tax liable
to be
dropped
0
0
25,757/0
21,876/1,42,583/0
0
0
0
0
1,90,216/-
S.Tax liable to
be confirmed
0
0
0
0
0
0
0
0
55,161/13,30,978/21,50,149/35,36,288/-
From the above discussion & findings, it is ample clear that the
services provided by the assessee falls under the category of “Business
Auxiliary Services” and the Service Tax amounting to Rs.35,36,288/(including Edu. Cess) needs to be confirmed and service tax amounting to
Rs.1,90,216/- demanded for the period prior to 01.01.2005 is liable to be
dropped.
15.1
Further, the assessee has relied on the following judgments ;
 Commr. of Service Tax Vs Quintiles Data Processing Centre (I) Pvt. Ltd.,
reported in 2011 (23) STR 15 (Guj)
 Foster Wheeler Energy Ltd., Vs Commr. of C.Ex. & Cus., Vadodara II
reported in 2007 (7) STR 443 (Tri. Ahmd.)
 Unitech Ltd., Vs Commissioner of Service Tax, Delhi reported in 2009
(15) STR 385 (Del.)
 Indian National Ship Owners Association Vs Union of India reported in
2009 (13) STR. 235 (Bom).
15.2
In this connection, I would like to quote the honorable Supreme
Court, who in the case of Commissioner of Central Excise Bangalore
versus Shri Kumar Agencies has held in 2009 (13) STR 3 that reliance
should not be placed on decisions without discussing as to how the factual
situation fitted in with the factual situation of the decision on which reliance is
placed. Observations of the quotes are neither to be read as Euclid theorems
nor as provisions of the statute and that too, taken out of the context. These
observations must be read in the context in which they appear to have been
stated. Judgments of quotes are not to be construed as statutes. To interpret
OIO No. 26 & 27/STC-AHD/ADC(MKR)/ 2011-12
Page 13 of 19
words, phrases and provisions of a statute, it may become necessary for
judges to embark into lengthy discussions. But the discussions are meant to
explain and not to define. Judges interpret statutes, they do not interpret
judgments. They interpret words statutes, their words are not to be
interpreted as statutes. The honorable Supreme Court further adds at Para
five of the same judgment that circumstantial flexibility, one additional or
different fact, may make a world of difference between conclusions in two
cases. Disposal of cases by blindly placing reliance on a decision is not proper.
Secondly, both the judgment quoted are a remand order and interim decision
respectively. Accordingly, I am not bound to follow the judgments / case laws,
quoted by the party in their defense reply.
16.1
The assessee further submitted that no penalty was imposable
when the demand does not survive. I find that the assessee has not paid the
service tax. Had the department not found out regarding the taxable service,
the same would have been escaped assessment and resulted into non
payment of the service tax. Hence, I find the assessee has suppressed the
facts, taxable value and the nature of taxable service from the department
with an intent 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 as amended, by invoking
extended period of five years. I also find that the above contraventions of the
provisions of Section 68, Section 69 and Section 70 of the Finance Act, 1994
read with Rule 4, Rule 6 and Rule 7 of Service Tax Rules, 1994 on the part of
the assessee has rendered themselves liable for penalty Under Section 76,
Section 77, Section 78 of the Finance Act, 1994.
16.2
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 have suppressed the taxable
value and also failed to make payment of service tax of Rs.35,36,288/[including Education Cess] on such suppressed value under the category
Business Auxiliary Service, such amount of service tax is required to be paid
by them alongwith interest as per Section 73 & 75 of the Finance Act, 1994.
Penalty under Section 76:
17.1
I further observe that during the relevant period M/s Meghmani
Dyes & Intermediates Ltd., have defaulted in payment of service tax which
has been established as not paid, in accordance with the provisions of
OIO No. 26 & 27/STC-AHD/ADC(MKR)/ 2011-12
Page 14 of 19
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 Meghmani Dyes & Intermediates Ltd., have not paid the service
tax, hence imposition of mandatory penalty under Section 76 is once again
justified.
17.2
Accordingly, I hold that M/s Meghmani Dyes & Intermediates
Ltd., 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)
17.3
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
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.
OIO No. 26 & 27/STC-AHD/ADC(MKR)/ 2011-12
3.
17.4
Page 15 of 19
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 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.”
17.5
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.).
OIO No. 26 & 27/STC-AHD/ADC(MKR)/ 2011-12
Page 16 of 19
Penalty under Section 77 :
18.
I further find that the service provider has failed to file
prescribed ST–3 returns & hence they are liable for penalty under Section 77
for not filing service tax returns.
Penalty under Section 78 :
19.1
I further observe that the show cause notice also proposes
imposition of penalty under Section 78 of the Finance Act, 1994. I find that
fraud, suppression of facts and wilful mis-statement on the part of M/s
Meghmani Dyes & Intermediates Ltd., has been established beyond doubt as
discussed and concluded in the earlier part of this order. Accordingly, I hold
that M/s Meghmani Dyes & Intermediates Ltd., are also liable to penalty
under the provisions of Section 78 of the Finance Act, 1994.
19.2
As it is already proved that the service provider had suppressed
the facts, the consequences shall automatically follow. Hon’ble Supreme
Court has settled this issue in the case of U.O.I Vs Dharmendra Textile
Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the
case of U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Hon’ble
Supreme Court has said that the presence of malafide intention is not
relevant for imposing penalty and mens rea is not an essential ingredient for
penalty for tax delinquency which is a civil obligation.
19.3
I, therefore, hold that they have rendered themselves liable to
penalty under Section 78 of the Finance Act, 1994. My above view gets
support from below mentioned case laws ;
 Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680
(Tri. Ahmd.)
 CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40
(Tri. Ahmd.)
 Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010
in
the
case
of
M/s
Bajrang
Security
Services
Vs
CST,
Ahmedabad.
 Order
No.
A/1937/WZB/AHD/2010
dated
08.10.2010
/
20.12.2010 in the case of M/s Dhaval Corporation Vs CST,
Ahmedabad.
19.4
I further observe that recently hon’ble High Court of Punjab &
OIO No. 26 & 27/STC-AHD/ADC(MKR)/ 2011-12
Page 17 of 19
Haryana, in the case of CCE Vs Haryana Industrial Security Services
reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal to
service tax imposed under Section 78 of the Finance Act, 1994. Hon’ble
Karnataka High Court has also taken similar view in the case of CCE,
Mangalore Vs K Vijaya C Rai reported at 2011 (21) STR 224 (Kar.)
Both Penalty under Section 76 & 78 – Justified:
20.1
I also find that penalty under Section 76 ibid is provided for
failure to pay service tax whereas penalty under Section 78 ibid is for
suppressing value of taxable service. In the instant case, service tax liable to
be paid in terms of Section 68 read with Rule 6 of the Service tax Rules,
1994, have not been found paid as well as service tax has not been paid /
short paid by suppressing value of taxable service by reason of wilful misstatement and suppression of facts. 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 was also considered by the Hon’ble
High Court of Kerala in the case of Assistant Commissioner, C.Ex. Vs
Krishna Poduval – 2006 (1) STR 185 (Ker). I also find that the Hon’ble
Mumbai Tribunal in the case of Golden Horn Container Services Pvt. Ltd.
v/s Commr. of C. Ex., Raipur reported at 2009 (16) S.T.R. 422 (Tri.Mumbai), has held that Section 76 provides for a penalty who commits
default simpliciter in payment of the tax whereas section 78 is a more
stringent penal provision, which provides harsher penalty who commits
default with mens rea. Since in this case also, M/s Meghmani Dyes &
Intermediates Ltd has committed default with mens rea, the decision of the
tribunal is squarely applicable.
20.2
Therefore, I am of the view that in the facts and circumstances
of the case, it is justifiable, if the penalty is imposed under the provisions of
Section 76 and 78 of the Finance Act, 1994, separately, following the
decisions of Hon’ble Kerala High Court and Mumbai tribunal (supra). My
views are also further supported by various decisions of tribunals in the
cases of ;
a) Shiv Network v/s Commissioner of Central Excise & Customs,
Daman reported at 2009 (14) S.T.R. 680 (Tri.-Ahmd.)
b) Commissioner of Central Excise, Vapi v/s Ajay Sales Agencies
OIO No. 26 & 27/STC-AHD/ADC(MKR)/ 2011-12
Page 18 of 19
reported at 2009 (13) S.T.R. 40 (Tri.-Ahmd.), and
c) Mett Macdonald Ltd. v/s Commissioner of Central Excise, Jaipur
reported at 2001 (134) E.L.T. 799 (Tri.-Del.).
d) M S Shah & Co., Vs CST, Ahmedabad – Order No. A/1328/
WZB/ Ahd/ 2010 dated 30.06.2010 / 26.08.2010.
e) Bajarang Security Services Vs CST, Ahmedabad – Order No.
A/745/ WZB/Ahd/2010 dated 09.06.2010 / 23.06.2010.
f) CESTAT, Principal Bench, New Delhi in the case of Bajaj Travels
Ltd., Vs CCE, Chandigarh – 2009 (16) STR 183 (Tri. Del.)
21.
In view of the above discussions and findings, I pass the
following order:
-: O R D E R :(i)
I confirm the service tax amounting to Rs.35,36,288/- (including
Edu. Cess) [Rupees Thirty Five Lakhs Thirty Six Thousand Two
Hundred Eighty Eight Only] for the period 01.01.2005 to 2006-07
under Section 73 (2) and appropriate the service tax of Rs.8,33,804/already paid by them vide Challan No. 1 & 2 dated 24.02.2007;
(ii)
I drop the demand of Rs.1,90,216/- (including Education Cess)
(Rupees One Lakh Ninety Thousand Two Hundred Sixteen Only)
for the reasons as discussed above;
(iii)
I direct M/s Meghmani Dyes & Intermediates Ltd., to pay the interest as
applicable on the amount of their service tax liability for the delay in
making the payment under Section 75 of the Finance Act, 1994 and
appropriate the interest of Rs.8,797/- already paid by them against their
interest liability;
(iv)
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 and Education
Cess 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;
(v)
I impose penalty of Rs.5,000/- under Section 77 of the Finance Act,
1994 for failure to take registration & to file prescribed Service Tax
Returns within the stipulated time; and
OIO No. 26 & 27/STC-AHD/ADC(MKR)/ 2011-12
(vi)
Page 19 of 19
I also impose a penalty of Rs.35,36,288/- (including Edu. Cess)
[Rupees Thirty Five Lakhs Thirty Six Thousand Two Hundred
Eighty Eight Only] 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
under the category Business Auxiliary Service. If the service tax amount
is paid alongwith appropriate interest as applicable, within 30 days from
the date of receipt of this order, then the amount of penalty under
Section 78 shall be reduced to 25% of the service tax amount, provided
if such penalty is also paid within such period of 30 days.
(vii) I vacate the show cause notice STC-188/O&A/SCN/ADC/MDI/R-IX/DIII/08-09 dated 08.06.2009 on the ground of duplication of Demand of
service tax.
The
show
cause
notice
bearing
No.
STC-75/O&A/SCN/JC/
MDI/08-09 dated 31.01.2009 & STC-188/O&A/SCN/ADC/MDI/R-IX/D-III/0809 dated 08.06.2009 are disposed of accordingly.
-Sd-
( Dr. Manoj Kumar Rajak)
Additional Commissioner,
Service Tax :Ahmedabad.
F.No. STC/75/O&A/SCN/JC/MDI/08-09
Date: 18/08/2011
BY R.P.A.D
To,
Meghmani Dyes & Intermediates Ltd.,
Unit II, Plot No. 99, 100/A, 102,
Phase II, GIDC, Vatva,
Ahmedabad 382445
Copy to :1.
2.
3.
4.
5.
The Commissioner, Service Tax, Ahmedabad. (Attention Review Cell).
The Assistant Commissioner (Audit) CAAP, Service Tax, Ahmedabad.
The Assistant Commissioner, Service Tax, Division III, Ahmedabad.
The Assistant Commissioner, Service Tax, Division II, Ahmedabad.
The Superintendent Range- XIII, Divn.-III, Service Tax, Ahmedabad
with a extra copy of OIO to be served to the assessee & obtain the dated
acknowledgement & submit the same to this office.
6. The Superintendent Range- IX, Divn.-III, Service Tax, Ahmedabad.
7. Copy to be placed in F.No.STC-188/O&A/SCN/ADC/MDI/R-IX/D-II/08-09
8. Guard File