OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 1 of 44
BRIEF FACTS OF THE CASE
M/s P.C.Snehal Construction Co., Pravesh Appt. Mahadevnagar
Society, Nr. Sardar Patel Statue, Stadium road, Naranpura, Ahmedabad380014 (hereinafter referred to as the “the said assessee” for the sake of
brevity) is engaged in providing taxable service viz. “Commercial and
Industrial Construction Services” as defined under clause 25(a) of section
65 of the Finance Act, 1994. They have taken service tax registration
bearing
STC
No.
Commissionerate,
AACFP6233AST001
Ahmedabad,
under
from
the
the
service
Service
Tax
category
of
‘Construction Services’ in respect of Commercial or Industrial Buildings
and Civil Structures.
2.
An intelligence was gathered by the Directorate General of Central
Excise Intelligence, (hereinafter referred to as DGCEI for the sake of
brevity) Ahmedabad Zonal Unit, [AZU] that the said assessee had
provided Commercial and Industrial Construction Services to M/s
Torrent Power Limited, Ahmedabad (here-in-after referred to as M/s TPL
for the sake of brevity) and had not paid appropriate service tax leviable
thereon. The said assessee appeared to have wrongly availed the benefit
of exemption Notification No. 15/2004- S.T. as amended and Notification
No. 1/2006 S.T. dated 01.03.2006 as amended, by incorrectly availing
67% abatement from the value of the “Commercial or Industrial
Construction Services” provided by it, without satisfying the conditions of
the said exemption Notification. It appeared that they have not fulfilled
the condition pertaining to inclusion of the value of all the goods and
materials, supplied or provided or used by it, in the gross amount
charged from the clients, for providing the commercial or industrial
construction services. Investigation against the said assessee was
initiated under summons proceedings.
3. Provisions of levy of Service Tax:3.1
Service
Tax
on
construction
services
was
introduced
w.e.f
10.09.2004 by the Finance Act 2004. During the period 10.09.2004 to
15.06.2005, the service was called as the construction services, which
was defined under Section 65(30a) of the Act. As per Section 65(30a)
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during the said period, the definition of the construction services reads
as:‘Construction Service’ means;a.
repair, alteration, renovation or restoration of, or similar
services in relation to, building or civil structure.
which is ;(i)
used, or to be used, primarily for; or
(ii)
occupied, or to be occupied, primarily with; or
(iii)
engaged, or to be engaged, primarily in, commerce or industry, or
work intended for commerce or industry, but does not include such
services pre vided in respect of roads, airports, railways, transport
terminals, bridges, tunnels, long distance pipelines and dams,’
3.2
With effect from 16.6.2005, the scope of construction service was
expanded and service was rechristened as ‘Commercial or Industrial
Construction Service’. Section 65(25b) inserted by the Finance Act, 2005
defines the service as follows :commercial or industrial construction service” means ;a.
construction of a new building or a civil structure or a part thereof;
or
b.
construction of pipeline or conduit; or
c.
completion and finishing services such as glazing, plastering,
painting, floor and wall tiling, wall covering and wall papering, wood and
metal joinery and carpentry, fencing and railing, construction of
swimming pools, acoustic applications or fittings and other similar
services, in relation to building or civil structure; or
d.
repair, alteration, renovation or restoration of, or similar services
in relation to, building or civil structure pipeline or conduit,
which is(i)
used, or to be used, primarily for; or
(ii)
occupied, or to be occupied, primarily with; or
(iii)
engaged, or to be engaged, primarily in, commerce or industry, or
work intended for commerce or industry, but does not include such
services provided in respect of roads, airports, railways, transport
terminals, bridges, tunnel- and dams,;
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3.3
Page 3 of 44
Further, the definition of taxable service under the Clause (zzq) to
sub-section 105 of Section 65 read as under (during 10.09.2004 to
15.06.2005) :“taxable service means an service provided to any person, by a
commercial concern, in relation to construction service”
However, this definition of taxable service was substituted by Section 88
of the Finance Act, 2005 w.e.f 16.06.2005, so as to read as under:“taxable service means any service provided to any person, by a
commercial concern, in relation to (commercial or industrial)
construction service”
3.4
The value of taxable service shall be the gross amount charged by
the service provider of such service provided or to be provided by him.
3.5
The Central Government issued a Notification No.15/2004 Service
tax dated 10.09.2004 which exempted the taxable service provided by a
commercial concern to any person in relation to commercial or industrial
construction services from so much of the service tax leviable thereon
under section 66 of the said Act as in excess of the service tax calculated
on a value which is equivalent to thirty three percent of the gross amount
charged from any person by such ‘commercial concern’ for providing the
said taxable service. The said exemption was not applicable in cases
where:(i)
the credit of duty paid on inputs or capital goods has not been
taken under the provisions of the Cenvat Credit Rules, 2004; or
(ii)
the commercial concern has not availed the benefit under the
notification of No. 12/2003-Service Tax dated 20.06.03.
(iii)
the taxable services provided are only completion and finishing
service in relation to a building or civil structure referred to in subclause( c) of clause 25b of Section 65 of the Act.
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3.6 An explanation to the aforesaid Notification was inserted by
Notification No. 4/2005 dated 01.03.2005, which reads as follows:Explanation - For the purpose of this Notification, the gross amount
charged shall include the value of goods and material supplied or
provided or used by the provider of the construction service for
providing such services”.
3.7
The Central board of Excise & Customs vide its Circular
80/10/2004 dated 17.09.04 clarified as:“The gross value charged by the building contractors includes the material
cost, namely, the cost of cement, steel, fittings and fixtures, tiles etc. Under
the Cenvat Credit Rules, 2004, the service provider can take credit of
excise duty paid on such inputs. However, it has been pointed out that
these materials are normally procured from the marker and are not
covered under the duty paying documents. Further, a general exemption is
available to goods sold during the course of providing service (Notification
No. 12/2003-ST) but the exemption is subject to the condition of
availability of documentary proof specially indicating the value of the
goods sold. In case or a composite contract, bifurcation of value of goods
sold is often difficult. Considering these facts, an abatement of 67% has
been provided in case of composite contracts where the gross amount
charged includes the value of material cost. (refer notification No.15/04-ST,
dated 10.09.2004) This would, however, be optional subject to the
condition that no credit of input goods, capital goods and no benefit (under
notification no. 12/2003-ST) of exemption towards cost of goods are
availed”.
3.8
The Notification No.15/2004 S.T dated 10.09.2004 as amended
was rescinded vide notification No.2/2006 -ST dated, 01.03.2006 and a
new notification No.1/2006 - Service Tax dated 01.03.2006 was issued
allowing abatement from the gross amount charged on the construction
service. The new notification allowed exemption of abatement on the
same conditions and explanation as provided in Notification No.15/2004
S.T dated 10.09.2004. In the Notification No.1/2006 S.T. dated
01.03.2006, an additional provision was added for availing abatement
which is reproduced as under:-
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“Provided that this notification shall not apply in cases where, (i)
the CENV AT credit of duty on inputs or capital goods or the CENVAT credit
of service tax on input services, used for providing such taxable service, has been
taken under the provisions of the CENVAT Credit Rules, 2004;”
Thus from 01.03.2006, the service provider was also not eligible to avail
Cenvat on input services.
3.9
Thus, Notification No.15/2004-ST dated 10.09.04 provided an
abatement of 67% from the levy of Service Tax on account of the value of
materials used in the construction service in case of composite contracts.
A composite contract involves the sale of goods along-with the provision
of services. The aforesaid exemption Notification was issued on the
presumption that in composite contract for the construction of a building
or a civil structure, the ‘supply element’ constitutes 67% of the total
value of the contract and the service element 33% of the total value of the
contract. In a composite contract, the service provider has to supply all
the goods and materials used for providing construction service. The
Notification also stipulates that no Cenvat credit on inputs or capital
goods should be taken by the service provider. Generally, the service
provider purchases the inputs such as cement and steel from the open
market. In a composite contract all the inputs are to be supplied by the
service provider. If service provider has received such inputs free of cost
from the clients, the cost of such inputs needs to be added for arriving at
the value of composite contract and 33% of such value should consider
the cost of all free supplies materials used in the construction services
for charging Service Tax.
3.10 The explanation in Notification No.15/2004. ST dated 10.09.04
added vide Notification No.4/2005-ST dated 01.03.2005 and Notification
No.1/2006-ST dated 01.03.2006, gave the effect that the gross amount
charged shall include the value of goods and materials supplied or
provided or used by the provider of the commercial or industrial
construction services for providing such service. The words used are
‘supplied or provided or used’ which implies that the gross amount
charged shall include the value of all the goods and materials used for
providing such construction service. The materials supplied by the
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Page 6 of 44
clients are also used by the service provider for providing construction
service. Therefore, the value of goods and materials supplied by the client
free of cost should be included in the gross amount charged on 33%
value of which service tax is to be levied.
3.11 In case the service providers fails to comply with the conditions of
a Notification, the benefit of abatement under the above Notifications is
not available to the service provider.
4.
Information provided gathered from the service provider and
service recipients:4.1.1 The said assessee vide their letter dated 27.11.2006, submitted the
copy of their ST-3 returns for the financial year 2005-06. The returns
revealed that there was no mention in the returns regarding the benefit
of Notification claimed by them. In case the said assessee was availing of
benefit of concessional abatement, he was required to show the same in
the returns.
4.1.2 The said assessee was asked to inform the name of the clients to
whom the taxable services were provided by them. The said assessee vide
their letter dated 07.11.2008 informed the names of the clients to whom
the taxable services were provided by them from September, 2004 to
March, 2008. The information revealed that they had provided such
services to two clients viz. M/s Torrent Power Limited and M/s AIA
Engineering Limited. They also informed that they had paid service tax
amount after availing benefit of Notification No. 1/2006. The information
provided revealed that the said assessee was providing taxable services to
M/s Torrent Power Limited. In case of M/s AIA Engineering Limited, it
was informed that service tax was paid without availing benefit of
Notification No.15/2004-ST or Notification No.1/2006 S.T.
4.2.
The said assessee had not fulfilled the conditions of Notification
No. 1/2006- ST dated 01.03.2006, they were asked to pay service tax
short paid by them. The said assessee vide their letter 12.11.2008
informed that in their letter dated 07.11.2007, gross amount of services
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 7 of 44
received is included material value which is used, provided and supplied
in construction Service, and provided the break up details. The break up
showed that they had received Rs.4,44,38,423/- towards taxable services
and Rs.92,23,989/- was shown towards cost of material.
4.3.1 To verify the validity of the contents of the said assessee,
information was called from M/s TPL, who provided information of
details of work-order wise value of material given by them to the said
assessee alongwith item wise breakup of quantity and amount of the
material given.
4.3.2 Following information was again called by DGCEI from M/s TPL
regarding the said assessee:i.
Copies of the bills raised by the said provider from September,
2004 to March, 2008.
ii.
Copies of the work orders specifying the nature of work and
details of material to be consumed by service provider and provided by
the service provider in completion of the work order.
iii.
Quantity and Amount of the free issue material supplied to the
contractor to be used in the work order.
iv.
Copy of ledger print out
4.3.3 M/s TPL vide their letter dated 21.02.09 and 21.04.09 provided
information regarding the said assessee which revealed that seven work
orders were issued by M/s TPL in which cement, steel and bricks were
supplied by M/s TPL which were used by the said assessee to carry out
the construction work. The details are summarized as under:Material supplied by M/s TPL to the client M/s P
2008
Work Order No.
Description
Value
of
of work
Cement
Vastral sub
SCCVL/0030/09-07
4484688
station
Sub station
SCCVL/0037/06-07
at
Apparel 1313749
Park
Sub station
SCCVL/0043/06-07
1304185
at Gota
Pile
foundation
SCCVL/0046/06-07
123653
for tower line
from Nikol -1
C Snehal Construction Co., till March
Value
Steel
of
Value
Bricks
of
Total
8543929
746684
13775301
1832255
324256
3470260
1621432
321798
3247415
0
0
123653
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
POMD/0923/06-07
POMD/0508/06-07
POMD/0812/06-07
TOTAL
to Nikol - 2
Sub station
at Raipur
Pile
foundation
for tower line
from
Sabarmati to
Airport
Pile
foundation
for shifting of
GETCO
Tower Line
Page 8 of 44
1338719
1949070
370158
3657947
1409872
60411
64256
2078238
205384
1023545
0
1228929
10180250
15574341
1827152
27581743
4.4.1 As the information received by DGCEI from M/s TPL did not tally
with the information submitted by the said assessee, they were
summoned to make statement on correctness of the facts, and the
information received from M/s TPL was sent to them vide letter dated
21.04.09. They were informed that as per the information received from
M/s TPL it appeared that they are not eligible for the benefit of
Notification No. 1/2006-ST. The summon was replied by the said
assessee vide their letter dated 18.05.09, requesting time for submission
of their reply.
4.4.2
As per their reply another summon dated 23.07.09 was issued
asking them to appear on 06.08.2009, the said assessee informed that
their consultant and advocate is out of station and requested time for
another 10 days. The said assessee vide their letter dated 19.08.2009
submitted with regard to payment of service tax in connection with
Commercial or Industrial Construction Services, they have awarded
contracts to various sub-contractors on back to back basis, and have
asked information regarding payment of service tax from various subcontractors and they require further five days to submit the details.
4.4.3
As per their request another summon dated 04.09.2009 was
issued asking them to appear on 12.09.2009, in reference to summons
dated 04.09.2009, they informed that they have been provided copy of
letters of Torrent Power Limited dated 21.02.2009, the said details are
not showing details of quantity, rates or site/contract. Therefore, they
are unable to reconcile with the details given by their letter dated
07.11.2008 and 12.11.2008. The said assessee also submitted that they
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Page 9 of 44
have tried to get the break up of details from M/s TPL, but they could not
get it. They also submitted that the value of material freely supplied is
not required to be added and supply of the information is without
prejudice to any such contention.
4.4.4 Further summon was issued on 14.09.2009 for appearance on
21.09.2009 and summon dated 03.11.2009 was issued for appearance
on 05.11.2009 and to submit the copies of ST -3 returns file by them.
The said assessee vide their letter dated 06.11.2009 informed that they
have been repeatedly issued summons for same purpose without noticing
their letter dated 16.09.2009 wherein they had explained their position,
wherein they have not been supplied the details required by them. It is
pertinent here to mention that in the summons referred above they were
only asked to submit the copies of ST-3 returns filed by them and to
make a statement.
4.5.1 As the assessee had not responded to summons and furnished
copies of ST- 3 returns filed by them, DGCEI, collected the copies of ST-3
returns
from
the
jurisdictional
service
tax
office.
The
Deputy
Commissioner, Service Tax Division- III, Service Tax Commissionerate,
Ahmedabad vide his letter No.STC/DEM/Misc/82/Div-lII/09-10 dated
16.11.2009 informed that the said assessee has been filing returns from
October, 05 and forwarded copies of ST-3 returns filed by the said
assessee from October, 05 to March, 2009.
4.5.2 The returns revealed that the said assessee have discharged their
service tax liability from October, 2005 to March, 2008 under
Commercial or Industrial Construction Service claiming abatement
under Sr. No. 7 of Notification No. 01/2006- ST.
4.5.3 They have discharged their service tax liability from April- 2008
March, 2009 under the Works Contract Service.
5.1.
From the above discussion it is evident that the said assessee did
not include the value of free issue material in the gross amount as
defined and clarified in explanation in Notification No.15/2004-ST
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Page 10 of 44
inserted by Notification No.4/2005- ST dated 01.03.2005 and as
provided in explanation to Notification No.1/2006-ST dated 01.03.2006.
The explanation clarifies that the gross amount charged shall include the
value of goods and materials supplied or provided or used by the provider
of the commercial or industrial construction service for providing such
service. Here the words are ‘supplied or provided or used’, which implies
that the gross amount charged shall include the value of all the goods
and materials used for construction service. The materials supplied by
the client are also used by the service provider for providing construction
service. Therefore, the value of goods and materials supplied by the client
free of cost should also be included in the gross amount charged for the
purpose of payment of Service Tax.
5.2
An exemption notification has to be strictly construed. The
conditions for taking benefit have to be strictly followed. It is a settled law
that to avail the benefit of a notification, the unit must strictly comply
with the conditions of the notification. It is the cardinal rule of the
interpretation of the exemption notification that where a notification
provides that a particular thing should be done in a particular manner, it
should be done in the manner prescribed and not in any other way. It is
also a settled law that the notification has to be interpreted in terms of
the wordings. In the case of M/s Sarabhai M Chemicals vs. CCE
2005(179) ELT 3 (SC), it was observed by the Apex Court that it is well
settled that an exemption notification has to be strictly interpreted. The
conditions for taking the benefit of the exemption have to be strictly
interpreted.
5.3.
In the instant case, explanation to Notification No.15/2004-ST
dated 10.09.2004 [superseded by Notification No.1/2006-ST dated
01.03.2006] provides: “For the purpose of this notification, the gross
amount charged shall include the value of goods and materials supplied
or provided or used by the provider of the commercial or industrial
construction service for providing such service. Thus, the meaning of the
wordings of the Notification is very clear and unambiguous that for the
purpose of this notification, the gross value shall include the value of
materials used by the provider of the commercial or industrial
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Page 11 of 44
construction service for providing such service. This meaning of gross
value is only for the purpose of this notification. The exemption can not
be claimed as a matter of right when conditions subject to which
exemption is admissible are not complied with. Here, the notification has
laid down a condition that for claiming the benefit of abatement under
the notification, the ‘gross amount charged’ shall include the value of
goods and materials supplied or provided or used by the provider of the
commercial or industrial construction service for providing such service.
The ‘inclusive meaning of the ‘gross amount charged’ is only for the
purpose of this notification which is also evident from the wordings ‘for
the purposes of this notification’.
5.4
The availment of the benefit under an exemption Notification is
optional. The following options are given by the Government to a Service
provider providing services in relation to “Commercial or Industrial
Construction Service”:(i)
Avail CENVAT credit for the duty paid on the goods and materials
(input and capital goods) and on the input services used in the
construction and pay service tax on 100% value of the service charges,
Or
(ii)
Avail benefit of the general exemption available in respect of goods
sold during the course of providing service (Notification No.12/2003-ST)
subject to the condition of availability of documentary proof particularly
indicating the value of the goods sold.
Or
(iii)
Avail abatement to the extent of 67% of the gross value of the
services (under Notification No.15/2004-ST dated 10-09-2004) subject to
the non-availment of CENVAT credit on inputs and non-availing of
general exemption under Notification No.12/2003 ST. While exercising
this option, the value of goods supplied free of cost by the service
provider or the recipient of the service shall be includible in the gross
value of service charges.
5.5
The said assessee has opted for the third option in respect of
service provided to M/s TPL as is evident from their submission.
Accordingly, they were required to fulfill all the conditions of the said
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notification. Once the option of availment of exemption under a
particular notification is exercised by a service provider, all the
conditions under said option are to be fulfilled by him. Since they had
failed to fulfill the conditions of notifications, they were required to pay
service tax on the full value charged by them. Thus the assessee was not
eligible for the benefit of Notification No.15/2004 S.T dated 10.09.2004
as amended and Notification No.1/2006 ST dated 01.03.2006 since they
had not fulfilled the conditions stipulated in the Notifications.
5.6
The Service tax liability of the said assessee in respect of
“Commercial or Industrial Construction Service” on the gross amount
charged for the period from October, 2005 to Match, 2008, wherein they
had discharged their service tax liability claiming abatement, prepared
on the basis of their information and value declared in their ST-3 returns
is tabulated as below:-
Month
Gross
Total Service Tax paid Paid through Cenvat
Amt. of in Cash
Credit
Value
of
Services
materials
received
shown
as
E.
H.E.
Edu. H.E.
as per S.Tax
additional
S.Tax
Cess Cess
Cess Cess
ST
3
consideration
returns
Oct. 05
Mar. 05
Aug. 06
Sept. 06
Mar. 07
Apr. 07
May 07
June 07
Jul. 07
Aug. 07
Sept. 07
Oct. 07
Nov. 07
Dec. 07
Feb. 08
Mar. 08
Total
1359866
103366
454000
100000
15533597
2865005
5869389
3826198
336303
1735101
3770564
2003080
1765724
2157031
2953328
1623103
46455655
135987
0
0
0
206251
10802
60167
31664
799
8802
51477
2136
21306
11794
137196
77130
755211
2719
0
0
0
8313
212
1203
631
16
176
1030
43
426
236
2744
1543
19292
0
0
0
0
0
106
602
316
8
88
515
21
213
118
1372
771
4130
0
10337
54480
12000
482015
125543
218747
150257
15182
73650
127701
93050
62601
90708
3146
0
1519417
0
207
1090
240
9640
2511
4375
3005
304
1473
2554
1861
1252
1814
63
0
30389
0
0
0
0
0
1255
2187
1503
152
736
1277
931
626
907
31
0
9605
0
0
0
0
3106179
573001
1173877
765239
67261
347020
754113
400616
353145
431406
590666
324621
8887144
It is evident from the above table that the said assessee claiming
the
benefit
10.09.2004,
of
abatement
as
amended
under
and
Notification
Notification
No.15/04-ST
dated
No.1/2006-ST
dated
01.3.2006, discharged their service tax liability on taxable value of
Rs.4,64,55,655/-. They have added additional consideration i.e. value of
free supply material of Rs.88,87,144/- only, whereas their client M/s TPL
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Page 13 of 44
have informed that they have supplied free value of goods of
Rs.2,75,81,743/- as discussed in Para 4.3.3 supra. Thus, they have misdeclared the value of free issue material. The assessee was asked to
explain the difference between the value of the supplied material
included by them and the value furnished by M/s TPL. However, they
could not furnish the reason for the difference. As it is the material
supplied by M/s TPL, they know the correct value of the material.
Accordingly, the value of the free supply material furnished by M/s TPL
had been taken into account to work out the service tax liability. The
said assessee had also availed Cenvat Credit on input services against
the proviso to Notification No. 1/2006 ST dated 01.03.2006. As the party
failed to include full value of material supplied to work out the “gross
value”, and took Cenvat credit on inputs they were not entitled to the
benefit of Notification No. 15/2004 as amended and Notification No.
1/2006-ST. dated 01.03.2006. They were thus required to pay service
tax of Rs.38,53,888/-
(Rs.37,61,888/- as Service Tax and Rs.71,049/-
as Education Cess and Rs.20,951/- as higher education cess) short paid
on the “Commercial or Industrial Construction Services” provided by
them as detailed in Annexure -A to the show cause notice. The value
declared for the month of October, 2005 in their ST-3 return do not tally
with information submitted by them vide their letter dated 12.11.2007,
hence the value declared in their letter dated 12.11.2010 was taken for
quantification of service tax short paid by them.
5.7
The said assessee is registered with Ahmedabad Service Tax
Commissionerate for “Commercial or Industrial Construction Service”.
They have provided “Commercial or Industrial Construction Service” to
M/s TPL. Initially, they have neither declared the Notification No. under
which service tax has been paid by them nor the actual gross amount in
their periodical returns. They were fully aware that the gross amount
charged for the purpose of abatement under Notification No. 15/2004ST. as amended and Notification No. 1/2006-ST includes the value of
material used during provision of services. This is evident from the fact
that they have added part value of the supply materials in the gross
value. However they did not ascertain correct value of materials. As they
failed to pay Service Tax on the correct “gross value” of services rendered,
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Page 14 of 44
they were not eligible for the exemption provided under Notification No.
15/2004 as amended and Notification No. 1/2006 ST dated 01.03.2006
and hence they are not entitled for 67% of abatement from the gross
value provided in the Notification. Thus, they were liable to pay service
tax
on
the
gross
value
received
by
them
without
abatement.
Consequently they had short paid service tax of Rs.38,53,888/- short
paid by way of willful suppression of facts, mis-statement and in
contravention of provision of Finance Act, 1994 relating to levy and
collection of Service Tax and Rules, made thereunder with an intent to
evade payment of Service Tax. The Service Tax short paid by them is
therefore recoverable from them by invoking extend period of five years
as per first proviso to sub- section (1) of Section 73 of the Finance Act,
1994. They were also liable to pay interest at appropriate rate for the
period from due date of payment of Service Tax and Education Cess till
the actual date of payment, as per provision of Section 75 of the Finance
Act, 1994.
6.1
Section 68 of the Finance Act, 1994 provides that every person
providing taxable service to any person shall pay service tax at the
specified rates and in such manner and within such period as may be
prescribed. Rule 6 of the Service Tax Rules, 1994 stipulates that service
tax shall be paid to the credit of the Central Govt., by the 5th of the
month immediately following the calendar month, in which the payments
are received, towards the value of taxable services.
6.2
Section 70 of the Finance Act, 1994, provides that every person
liable to pay the service tax, shall himself assess the tax due on the
services provided by him and shall furnish to the Superintendent of
Central Excise, a return in such form and in such manner and at such a
frequency as may be prescribed. Rule 7 of the Service Tax Rules, 1994,
prescribes that every assessee shall submit a half-yearly return in form
ST-3 or ST-3A, as the case may be, alongwith a copy of the form TR-6, in
triplicate for the months covered in the half-yearly return. Further subrule [2] thereto also states that “every assessee” shall submit the half
yearly return by the 25th of the month following the particular half-year.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 15 of 44
6.3 In view of the above, it appeared that the said assessee had
contravened the provisions of :
Section 68 of the Finance Act, 1994, read with Rule 6 of the
Service Tax Rules, 1994, in-as-much as they have failed to make the
payment of service tax as detailed above to the credit of the Government
account;

Section 70 of the Finance Act, 1994, read with rule 7 of the Service
Tax Rules, 1994, in as much as they had not declared the correct
amount of charges paid by them in lieu of taxable services received by
them from their clients.
6.4
It also appeared that the said assessee did not pay Service Tax on
the services rendered by them during the relevant period as discussed
above and thus contravened the provisions of Section 68 of the Finance
Act, 1994 and hence rendered themselves liable to penal action under
Section 76 of the Act, ibid. The said assessee was fully aware that the
services provided by them to M/s TPL is a taxable service and when they
have availed a conditional notification, they have to fulfill all the
conditions of the said notification. The Service Tax was not paid by them
by way f suppression of facts, willful mis-statement and contravention of
the provisions of Finance Act, 1994 relating to Service Tax and Rules
made thereunder with intent to evade payment of Service Tax. It
therefore, appeared that the said assessee is liable to penal action under
Section 78 of the Act, ibid.
7
Accordingly M/s P.C. Snehal Construction Co. Ahmedabad were
issued a Show Cause Notice by Additional Director, DGCEI, AZU,
Ahmedabad bearing F.No. DGCEI/AZU/36-112/09-10 dated 17.12.2009
asking them as to why:
(i)
the Service Tax amounting to Rs.38,53,888/-[Rupees thirty eight
lakhs fifty three thousand eight hundred eighty eight only]
(Rs.37,61,888/-
as
Service
Tax
and
Rs.71,049/-
as
Education
Cess and Rs.20,951/- as higher education cess) short paid by them,
should not be recovered from them under the provisions of Section 73 of
the Finance Act, 1994 by invoking the extended period of five years as
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 16 of 44
per proviso or clause (a) of Sub-Section (l) of Section 73, as the case may
be;
(ii)
Interest at the appropriate rates as prescribed under Section 75 of
the Finance Act, 1994 should not be recovered from them from the due
date on which the Service Tax was liable to be paid till the date on which
the said Service Tax is paid;
(iii)
Penalty as prescribed under Section 76, and 78 of the Finance Act,
1994 should not be imposed upon them for non-payment of Service Tax
during the relevant date and for suppressing and concealing the value of
'Construction and Industrial Construction Service' provided by them.
DEFENCE REPLY
8.1 The assessee filed their defence reply vide their letter dated
12.08.2010, wherein; they denied the charges and allegations leveled in
the Show Cause Notice and submitted that they have not violated the
conditions of the said Notification during the disputed period and
therefore, there is no requirement for payment of disputed Service Tax;
that in terms of the said Notification, whatever the amount of Service Tax
was required to be paid, had been paid through cash without availment
of Cenvat Credit during the disputed period; that since there is no
violation of the conditions of the said Notification, the charges and
allegations made in the Show Cause Notice cannot be sustained and
therefore, the same is required to be dropped in the interest of justice.
8.2
They further submitted that during the disputed period, they had
received the Work Orders from M/s Torrent Power Ltd., and M/s AIA
Engineering Ltd., for real estate construction in terms of various Works
Orders; that in respect of services provided to M/s AIA Engineering Ltd,
it is stated that they paid Service Tax without availment of benefit of
Notification
No.15/2004-ST
dated
10.09.2004
and/or
Notification
No.1/2006-ST (supra); that there is no dispute in respect of the said
services provided to M/s AIA Engineering Ltd; that in the present case,
dispute is in respect of services provided to M/ s. Torrent Power Ltd.
(hereinafter referred to as "TPL"); that out of 7 (seven) contracts, they
awarded 4 contracts to various sub-contractors on back to back basis on
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 17 of 44
which the sub-contractors paid Service Tax; that they crave leave to refer
to and rely upon the documents in respect of payment made by the subcontractors towards service tax as and when required; that the Show
Cause Notice alleges that one of the conditions of the said Notification is
that the service provider should not avail Cenvat credit of duty paid on
inputs or capital goods and Service Tax paid on input services; that since
they availed the Cenvat credit in respect of Service Tax paid by the subcontractors, it is alleged that they have violated the condition of the said
Notification; that as stated above, out of 7 contracts, they themselves
did work of constructions for 3 contracts and provided services to M/s
TPL without awarding the contracts to Sub-Contractor; that in these 3
contracts, they had not availed the CENVAT Credit of service tax paid by
Sub-Contractors and therefore, there is no violation of the conditions of
the said Notification; that in respect of the rest of the contracts, they had
awarded the contract to their Sub-Contract who paid service tax under
the said Notification; that as per the said Notification, the Assessee is
required to pay Service Tax on 33% of the gross value of the Contact;
that the said amount of Service Tax needs to be paid through cash
without availment of CENVAT credit; that in the present case, service tax
was paid on 33% of value of the Contract out of cash without taking into
consideration of CENVAT Credit; that they attached a Copy of the
statement showing calculation of service tax paid by them and SubContractors through cash as Annexure-I to the defence reply which
shows that service tax has been paid as per the said Notification; that
intention of the Legislature for introduction of the said Notification is
that when the assessee is not in position to bifurcate the amount
material and services, the assessee is given an option to go into
composition scheme and pay Service Tax after availment of benefit of the
said Notification; that the purpose of the said Notification is that service
tax should be paid by way of cash without availment of CENVAT Credit;
that in the present case, service tax paid by them through cash including
paid by Sub-Contractor, it comes to service tax which is equivalent to
service tax on 33% of the gross value of the Contract.
8.3
They further submitted that the Show Cause Notice discussed
three options under which service provider can pay Service Tax in
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 18 of 44
relation to “Commercial or Industrial Construction Service”; that in the
present case, service tax has been calculated in terms of Option No. (i)
set out in Para No.5.4 of the Show Cause Notice; that since it was a new
service which came into force w.e.f. 10.09.2004 and their Accountant
under ignorance of the law availed the CENVAT credit based on the
invoices given to them by the Sub-Contractors; that there was no mala
fide intention on their part to violate the condition of Notification; that
after receipt of the Show Cause Notice, they collected all the relevant
documents which show the amount of materials used in the above
referred contracts; that Notification No.12/2003-ST dated 20.06.2003
provides that the value of goods and materials sold by the Service
Provider to the recipient of service is exempt from service tax subject to
the condition that credit of duty paid on goods and materials has not
been taken under the provisions of the Cenvat Credit Rules, 2004; that
they are entitled to get benefit of the above referred Notification since
they have not availed the CENVAT credit on the materials used for
providing the above service; that based on these materials, Option No (ii)
is more beneficial to them and therefore, in terms of Option No. (ii), their
liability of the Service Tax comes to Rs.5,84,736/-which they have paid
alongwith interest; that they have attached Copies of challan and GAR-7
showing the proof of payment of Service Tax and interest; that they have
also attached a statement showing calculation of Service Tax in terms of
Option No.(ii); that they submitted that documents in respect of
materials used for the above contracts are also annexed separately but
the same are not attached with their defence reply; that they
requested to depute any person for examination of the above documents.
8.4
They further submitted that Show Cause Notice has erred in
stating that the value of materials supplied by the TPL at free of cost
should be included while computing the value of gross receipts in terms
of the explanation to the said Notification; that in terms of the following
decisions, the value of material supplied by the service receiver at free of
cost should not be included while computing Service Tax in terms of
Notification:
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 19 of 44

Cemex Engineers Vs. CST 2010 (17) STR 534 (T)

Era Infra Engineers Ltd Vs UOI 2008 (11) STR 3 (T)

Larsen & Toubro Ltd Vs UOI 2007 (7) STR 123 (Mad)
8.5
They further submitted that the Show Cause Notice is barred by
limitation; that the SCN sought to invoke the extended period of
limitation under the proviso to Section 73(1) of the Act; that the SCN
raises a demand for Service tax not paid for the period from October
2005 March 2008; that in terms of settled law, the extended period of
limitation can be invoked only where an evasion of tax has been
occasioned by the suppression, omission or failure to disclose wholly or
truly all material facts required by the assessee or when the assessee
had an intention to evade the payment of tax; that the extended period of
limitation can be invoked only on those grounds which are specifically
provided under the Statute; that if the Department sought to invoke the
extended period of limitation on grounds other than those mentioned in
the Statute, then such an invocation of extended period of limitation is
bad in law; that in the present case, larger period has been invoked on
the premise that they had not declared the said Notification No. under
which service tax has been paid nor the actual gross amount in the
periodical return field by them; that the allegation is baseless, incorrect
and frivolous since they declared the Notification No. in the return filed
by tem from time to time; that they also mentioned the amount of Cenvat
credit availed by them for discharging the Service Tax liability in the said
returns; that despite the above disclosures, the Department had never
objected and denied the benefit of Notification; that they submitted the
copies of the returns for the disputed period which shows the correct
position; that in respect of gross amount charged, there are various
decisions in which it is held that value of free supply materials cannot be
included in the gross amount in terms of the Explanation to the said
Notification; that in these circumstances, they had not shown the value
of goods supplied free of cost by Torrent Power Limited in the returns;
that the above facts shows that there was no mala fide intention on their
part for not to pay Service Tax in terms of said Notification; that in view
of the above facts and circumstances, larger period cannot be invoked.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 20 of 44
8.6 They further submitted that the proviso to Section 73 of the
Finance Act, 1994 is in pari materia with Section 11A of the Central
Excise Act, 1944; that reference in this regard is made to the decision of
this
Hon’ble
Tribunal
in
Mahakoshal
Beverages
Pvt.
Ltd.
vs.
Commissioner of Central Excise, Belgaum reported in 2007 (6) STR 148,
wherein it has inter alia been held that the proviso to Section 73 of the
Act was promulgated by Finance Act 2004 but adding proviso which is in
pari materia with Section 11A of the Central Excise Act. The Hon'ble
Supreme Court in Pahwa Chemicals Private Limited vs. Commissioner of
C. Ex., Delhi reported in 2005 (189) E.L.T. 257 (S.C.) held that mere
failure to declare does not amount to willful mis-declaration or willful
suppression. There must be some positive act on the part of the party to
establish either willful mis-declaration or willful suppression.
8.7
They further submitted that there was no deliberate intention on
their part, either not to disclose correct information or to evade the
payment of any tax; that there is no positive act on their part to evade
the payment of any Service tax nor has any proof towards this end been
adduced by the Revenue; that there was no deliberate intention on their
part not to disclose correct information or to evade payment of Service
tax and hence there arises no question of willful-misstatement by them
as alleged in the Show Cause Notice; that as none of the conditions
necessary for invoking the extended period of limitation were satisfied in
the present case, the extended period of limitation cannot be invoked and
the demands are barred by limitation.
8.8
They further submitted that for the reasons set out hereinabove,
the entire demand itself is unsustainable, as there can be no liability to
Service tax for the period in dispute; that hence the imposition of penalty
and interest also cannot be sustained; that in the absence of liability of
service tax, penalties cannot be imposed; that in the case of C.C.Ex. Vs
HMM Ltd reported in 1995 (76) ELT 497 (BC), it was inter alia held by the
Hon'ble Supreme Court that where the demand is unsustainable, the
imposition of penalty cannot sustain. It has also been similarly held by
the Hon'ble Supreme Court in the case of C.C.Ex. Aurangabad Vs
Balakrishna Industries (2006) (201) ELT 325 (SC) and by the Hon'ble
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 21 of 44
Tribunal in the case of Hyva India Pvt. Ltd Vs C.C.Ex reported in 2008
(226) ELT 264 and Godrej Soaps Vs C.C.Ex reported in 2004 (174) ELT
25 (Tri- LB).
8.9
They further submitted that there was no intention to evade
payment of Service tax; that in such circumstances, the imposition of
penalty is clearly unsustainable; that in the case of Tamil Nadu Housing
Board Vs CCE reported in [1994 (74) ELT 9 (SC)], it was held that an
intent to evade payment of tax is not a mere failure to pay the tax, it is
much more; that the person alleged to have evaded payment of a tax
must be proved to be aware of the taxability of the transaction and must
deliberately have avoided payment of the tax. The Hon'ble Supreme
Court further held that the word evade in the context of the phrase
‘intent to evade’ means defeating the provisions of law of paying the tax,
and it is made more stringent by the use of the word ‘intent’. Thus, intent
to evade payment of a tax is, in law, much more than a mere failure to
pay the tax; that it is settled law, inter alia, by the judgment of the
Hon'ble Supreme Court in Hindustan Steel Ltd Vs State of Orissa
reported in [1978 (2) ELT 159 (SC)], that in the absence of an intent to
evade payment of duty, a penalty should not be imposed; that it is settled
law, inter alia, by the various judgments of the Hon'ble Supreme Court,
that the burden of establishing intent to evade payment of a tax is that of
the Revenue and must be established with cogent, positive evidence; that
it does not emanate from a mere preponderance of probability; that in
the present case, the Department failed in bringing on record any
positive evidence of intent to evade payment of Service tax; that having
failed to discharge its burden, the Department cannot place the onus of
establishing the lack of intent to evade payment of tax on them; that in
any event, there was no intent to evade the payment of tax and hence
there can be no imposition of penalty; that in a case where there was no
mala fide intent to evade the payment of duty, no penalty should be
imposed in terms of Section 76 and 78 of the Act.
8.10 They further submitted that Section 80 of the Act provides that “no
penalty shall be imposed ... under Sections 76 and 78, if there was a
reasonable cause for the failure of the assessee in complying with the
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 22 of 44
relevant provisions”; that the said provision being constructed by the use
of the word ‘shall’ is mandatory, and the Department was bound, in law,
to consider the same; that due to bona fide mistake on the part of the
Accountant, they discharged liability of service tax after availment of
CENVAT credit; that since there was reasonable cause for failure of
payment of service tax in terms of the said Notification, they are therefore
entitled to the benefit of Section 80 of the Act and no penalty should
have been imposed on them; that they relied on the case of ETA
Engineering Ltd. vs. Commr. of C. Ex reported in 2006 (3) S.T.R 429, it
has inter alia been held that: “Since they were under the bona fide doubt
regarding their activity whether covered by Service tax or not, therefore,
there was a reasonable cause on their part in not depositing the Service
tax in time. Therefore, we are of the view that notwithstanding anything
contained in Sections 76 and 78 of the Finance Act, 1994, the appellants
are entitled for the benefit of Section 80 of the Finance Act and
accordingly, we hold that no penalty should be imposed on the
appellants.”
8.11 Lastly, they requested for personal hearing before the case was
adjudicated.
PERSONAL HEARING
9.1
Vide this office letter dated 17.02.2011, the assessee was
requested to appear for personal hearing on 03.03.2011. Shri Hardik
Modh, Advocate appeared for personal hearing on behalf of the assessee
& reiterated the argument communicated vide their letter dated
12.08.2010 and requested to permit them to produce some documents in
support of their defence.
9.2
Vide this office letter dated 17.03.2011, the assessee was again
requested to produce the documents but till date the same has not been
produced by them. Another hearing in the matter was given on
30.05.2011.
In response to which Shri Hardik Modh Consultant and
Shri Anish Gunvantbhai Patel, Advocate on behalf of the said assessee
remained present and they reiterated their earlier written submission
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 23 of 44
dated 12.08.2010.They also requested that they wish to give further
written submission within ten days. Accordingly vide their letter dated
27.06.2011, they further submitted the additional submission with some
details as under.
9.3
In their additional submission they further submitted that in their
defence reply dated 12th August, 2010, out of 7 contracts awarded to
them by Torrent Power Ltd (TPL), they had done work of construction for
three contracts whereas they had sub-contracted to sub contractors on
back to back basis in respect of four contracts. Notification No.12/2003ST dated 20.06.2003, as amended from time to time, provides exemption
from service tax leviable under Section 66 of the Finance Act, 1994 to the
extent of value of goods and materials sold by the service providers to the
recipients of service. In the present case, TPL awarded composite
contracts which include value of materials and services. They and the
Sub-Contractors paid VAT under composition scheme to the extent of
value of materials consumed in the contracts.
9.4
They enclosed total paper books 9 (Nine) contain documents viz.
purchase invoices, challans and other documents related to the
materials consumed in each of the contracts and marked as Annexure
II. Each of the paper books contains the above documents contract
wise.
It
is
submitted
that
in
respect
of
Work
Order
No.
SCCVLl0030106-07 of sub-station at Vastral, TPL awarded the
contract with projected cost of Rs.2,42,32,335/- (Rupees Two crores,
forty two lacs, thirty two thousand three hundred thirty five only). As
per contract, service tax was required to be paid at 12.24% on 33% of
Work Order. TPL paid Rs.2,13,78,706/- till completion of work
inclusive of service tax based upon completion certificate. Since
contract involves high value of Aluminum materials cost and labour
cost was very low due to structural work, total material cost of
Rs.2,06,41 ,610 (Rupees Two Crore Six Lacs Forty One Thousand Six
Hundred Ten Only) was involved in total contract value of Rs.2,
13,78,706/-.
(Rupees
Two
Crore
Thirteen
Lacs
Seventy
Eight
Thousand Seven hundred Six Only) However, they have computed the
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 24 of 44
value of service @ 33% of Rs.2,13,78,706/-. (Rupees Two Crore
Thirteen Lacs Seventy Eight Thousand Seven hundred Six Only)
Liability of service tax has been computed on value of service of Rs.
8,71,995/-. (Rupees Eight Lacs Seventy One Thousand Nine Hundred
Ninety Five Only)
9.5
In view of the above facts, it is submitted that service tax is
required to be paid only on the service component and therefore, after
issuance of Show Cause Notice, they have computed value of services
for the contracts under dispute and paid service tax alongwith interest
as per their calculation. A statement showing calculation of service tax
has already been enclosed with the defence reply dated 12.08.2010.
In the following case laws, benefit of Notification of 12/2003-ST dated
20.06.2003 was extended even though value of materials was not
shown separately in the invoices raised to the service receivers. The
Hon'ble Court equated the consumption with sale for the purpose of
above Notification No.12/2003 and held that value of goods consumed
in the provision of service could not be included in the taxable value
for levy of service tax:
i.
ii.
iii.
iv.
9.6
Shobha Developers Vs. C.C.Ex. - 2010 (19) STR 75 (T)
Savithri Digital Lab Vs. C.C.Ex. - 2009 (16) STR 462 (T)
Chakita Ranjini Udyam Vs. C.C.Ex. - 2009 (16) STR 172 (T)
Soma Enterprise Ltd. Vs. C.C.Ex. - 2009 (15) STR 559 (T)
They further submitted that liability of service tax would arise
under the category of "Works Contract" in terms of nature of contracts
under dispute. Category of "Woks Contract" was introduced with effect
from 1st June, 2007 and all 7 contracts in the present case were
awarded to them before 1st June, 2007 and therefore, in view of ABB
Ltd Vs CST reported in 2010 (20) STR 610, liability of service tax will
not arise on the contracts for service rendered before 1 st June, 2007.
In view of the above facts, it is requested that the charges made in the
Show Cause Notice may be dropped in the interest of justice.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 25 of 44
DISCUSSION & FINDINGS:10.1 I have gone through entire records of the case on hand, content of
show cause notice, written submission of the said assessee and record of
personal hearing.
10.2 The central issue in the case is whether the benefit of abatement
of taxable value claimed by the said assessee under Notification No.15/04
ST dated 10.09.2004, as amended and Notification No.1/2006 ST dated
01.3.2006 is correct or not.
10.3 In this regard, I find that there is no dispute with regard to the
classification of service in the impugned show cause notice, therefore
hence forth the discussion in this order is concentrated with regard to
the value of taxable service of “Construction Service” or “Commercial or
Industrial Construction Service”.
10.4 With regard to the taxable value, it is alleged in the show cause
notice that the said benefit is not available to the said assessee as;
(i)
the said assessee have availed Cenvat Credit of the
service tax paid on inputs under Cenvat Credit Rules,
2004, and
(ii)
the said assessee had not included the value of free
issue material which were supplied by their customer
on whose behalf construction activities have been
carried out by the said assessee.
10.5 As alleged in the show cause notice the aforesaid act on the part
of the said assessee is in gross violation of the conditions stipulated
in the said notifications and therefore it was proposed in the show
cause notice that
abatement of 67 % from the taxable value as
claimed is not available to them.
10.6 Accordingly, the impugned show cause notice proposed recovery
of service tax of Rs. 38,53,888/- i.e.
(Rs.37,61,888/- as Service Tax
and Rs.71,049/- as Education Cess and Rs.20,9511- as higher education
cess).
10.7.1
To examine the issue I would like to have look at the
history of the notification No.15/04 ST dated 10.09.2004, as amended
and Notification No.1/2006 ST dated 01.3.2006 which is as under.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 26 of 44
The text of Notification No. 15/2004-ST dated 10.09.2004:In exercise of the powers conferred by sub-section (1) of section 93 of the Finance
Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the
public interest so to do, hereby exempts the taxable service provided by a commercial
concern to any person, in relation to construction service, from so much of the service tax
leviable thereon under section 66 of the said Act, as is in excess of the service tax
calculated on a value which is equivalent to thirty-three per cent. of the gross amount
charged from any person by such commercial concern for providing the said taxable
service :
Provided that this exemption shall not apply in such cases where (i)
the credit of duty paid on inputs or capital goods has been taken under the
provisions of the Cenvat Credit Rules, 2004; or
(ii)
the commercial concern has availed the benefit under the notification of the
Government of India, in the Ministry of Finance, (Department of Revenue) No. 12/2003Service Tax, dated the 20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003].
10.7.2
The aforesaid notification was amended vide notification No.
4/2005-ST dated 01.03.2005 whereby explanation to the said notification
was added. The text of the said notification is as under.
Construction Services — Amendment to Notification No. 15/2004-S.T.
In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of
1994), the Central Government, on being satisfied that it is necessary in the public interest so to do,
hereby makes the following amendment in notification of the Government of India in the Ministry of
Finance (Department of Revenue) No. 15/2004-Service Tax, dated the 10th September, 2004 which
was published in the Gazette of India, Extraordinary, vide number G.S.R. 589 (E), dated the 10th
September, 2004, namely :In the said notification, the following Explanation shall be added at the end, namely : ‘Explanation. - For the purposes of this notification, the “gross amount charged” shall include the
value of goods and materials supplied or provided or used by the provider of the construction service
for providing such service.’.
10.7.3
The
said
notification
was
further
amended
vide
Notification No. 19/2005-S.T., dated 7-6-2005 as under:S.
No.
3.
Notification
number and date
15/2004-Service
Tax, dated the 10th
September, 2004
[G.S.R. 589 (E),
dated the 10th
September, 2004]
Amendments
In the said notification, (i) for the words “construction service”,
occurring at two places, the words
“commercial or industrial construction
service” shall be substituted;
(ii) in the proviso, for clause (ii), the following
shall be substituted, namely :“(ii) the commercial concern has availed the
benefit under the notification of the
Government of India, in the Ministry of
Finance, (Department of Revenue) No.
12/2003-Service Tax, dated the 20th June,
2003 [G.S.R. 503 (E), dated the 20th June,
2003]; or
(iii) the taxable services provided are only
completion and finishing services in relation
to building or civil structure, referred to in
sub-clause (c) of clause (25b) of section 65
of the Finance Act, 1994.”.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
10.7.4
Page 27 of 44
The aforesaid notification rescinded vide Notification No. 2
/2006-S.T., dated 1-3-2006 and in place new notification No. 1/2006 ST
dated
01.03.2006 was introduced. The relevant text of the said
notification for the purpose of availing benefit of abatement for Commercial
or industrial construction service is as under.
No.
Sub-clause
of clause
(105) of
Section 65
7.
(zzq)
S.
Description of taxable service
Commercial or industrial
construction service.
Conditions
Percentage
This exemption shall
not apply in such cases
where the taxable
services provided are
only completion and
finishing services in
relation to building or
civil structure, referred
to in sub-clause (c) of
clause (25b) of section
65 of the Finance Act.
33
Explanation. - The
gross amount charged
shall include the
value of goods and
materials supplied
or provided or used
by the provider of the
construction service
for providing such
service.
Provided that this notification shall not apply in cases where, (i)
the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of
service tax on input services, used for providing such taxable service, has been taken under
the provisions of the CENVAT Credit Rules, 2004; or
(ii)
the service provider has availed the benefit under the notification of the
Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003Service Tax, dated the 20th June, 2003 [G.S.R. 503 (E), dated the 20th June, 2003].
[emphasis is provided]
10.7.5
Thus, it is amply clear from the aforesaid history of the
governing notifications with regard to the abatement of taxable value for
“Construction Service” or “Commercial or Industrial Construction
Service” is not available in the following cases:In the case if service provider have availed
(i) the CENVAT credit of duty on inputs or capital goods or the
CENVAT credit of service tax on input services, used for providing
such taxable service, has been taken under the provisions of the
CENVAT Credit Rules, 2004;
or
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 28 of 44
(ii)
the service provider has availed the benefit under the
notification of the Government of India in the Ministry of Finance
(Department of Revenue), No. 12/2003-Service Tax, dated the 20th
June, 2003.
10.7.6
In addition to the aforesaid stipulations, with effect from
01.03.2005
to
till
date,
impugned
notifications
contains
following
explanation with regard to the gross amount charged by the service
provider
‘Explanation. - For the purposes of this notification, the “gross amount charged”
shall include the value of goods and materials supplied or provided or used by
the provider of the construction service for providing such service.’.
[emphasis is provided]
10.8 In the instant case it is evident from the Annexure A to the show
cause notice that during the period October, 2005 to March, 2008 the
said assessee have discharged service tax amounting to Rs.15,59,411/through Cenvat Credit Account, and Rs.7,86,633/- have been paid in cash
against the abated value of Rs.4,64,55,655/-. It is further evident from the
show cause notice that they have added additional consideration i.e. value
of free supply material of Rs.88,87,144/- only, whereas their client M/s
TPL have informed that they have supplied free value of goods of
Rs.2,75,81,743/- to the said assessee, however the said value is not
included in the taxable value. Thus, it is proved beyond doubt that
(i)
the said assessee have availed and utilized Cenvat Credit for the
payment of service tax on the abated value, thereby violated
conditions stipulated in the impugned notifications, and
(ii)
The said assessee have not included value of free issue material
supplied by their client in the gross amount of taxable service as
envisaged in the explanation to the impugned notifications.
10.9 Therefore, it is absolutely clear that the said assessee have availed
benefit of impugned notifications in violation of the condition stipulated in
the said notification in as much as they availed cenvat credit and in
violation of the explanation provided below the impugned notifications in
as much as they have not included the value of free issue material in the
gross value of the taxable service for the purpose of availing benefit under
the impugned notification. Therefore, the contention of the said assessee
that they have not violated the conditions of the said Notification during
the disputed period and there is no requirement for payment of disputed
Service Tax is not found to be correct.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
10.10
Page 29 of 44
It is further argued by the said assessee that they received the
Work Orders from M/s Torrent Power Ltd., and M/s AIA Engineering Ltd.,
for real estate construction in terms of various Works Orders;that in respect of services provided to M/s AIA Engineering Ltd, it is stated
that they paid Service Tax without availment of benefit of Notification
No.15/2004-ST dated 10.09.2004 and/or Notification No.1/2006-ST
(supra); that there is no dispute in respect of the said services provided to
M/s AIA Engineering Ltd;that in the present case, dispute is in respect of
services provided to M/ s. Torrent Power Ltd. (hereinafter referred to as
"TPL"); that out of 7 (seven) contracts, they awarded 4 contracts to various
sub-contractors on back to back basis on which the sub-contractors paid
Service Tax; that they crave leave to refer to and rely upon the documents
in respect of payment made by the sub-contractors towards service tax as
and when required; that the Show Cause Notice alleges that one of the
conditions of the said Notification is that the service provider should not
avail Cenvat credit of duty paid on inputs or capital goods and Service Tax
paid on input services; that since they availed the Cenvat credit in respect
of Service Tax paid by the sub-contractors, it is alleged that they have
violated the condition of the said Notification; that as stated above, out of
7 contracts, they themselves did work of constructions for 3 contracts and
provided services to M/s TPL without awarding the contracts to SubContractor; that in these 3 contracts, they had not availed the CENVAT
Credit of service tax paid by Sub-Contractors and therefore, there is no
violation of the conditions of the said Notification; that in respect of the
rest of the contracts, they had awarded the contract to their Sub-Contract
who paid service tax under the said Notification; that as per the said
Notification, the Assessee is required to pay Service Tax on 33% of the
gross value of the Contact; that the said amount of Service Tax needs to be
paid through cash without availment of CENVAT credit; that in the present
case, service tax was paid on 33% of value of the Contract out of cash
without taking into consideration of CENVAT Credit; that they attached a
Copy of the statement showing calculation of service tax paid by them and
Sub-Contractors through cash as Annexure-I to the defence reply which
shows that service tax has been paid as per the said Notification; that
intention of the Legislature for introduction of the said Notification is that
when the assessee is not in position to bifurcate the amount material and
services, the assessee is given an option to go into composition scheme
and pay Service Tax after availment of benefit of the said Notification; that
the purpose of the said Notification is that service tax should be paid by
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 30 of 44
way of cash without availment of CENVAT Credit; that in the present case,
service tax paid by them through cash including paid by Sub-Contractor,
it comes to service tax which is equivalent to service tax on 33% of the
gross value of the Contract.
10.11
If the aforesaid contention is even accepted, the fact of the
case is that at none of the stage while discharging service tax, by availing
benefit under the impugned notification, the said assessee have not
included the value of the free issue materials in the gross amount charged
for the purpose of availing benefit under impugned notification as
envisaged in he explanation appended under the said notification. The
said explanation states that “ for the purposes of this notification, the “gross
amount charged” shall include the value of goods and materials supplied or
provided or used by the provider of the construction service for
providing such service”. Thus, from the submissions of the said service
provider it clearly transpires that they have not given any explanation in
this regard. Therefore, abatement availed by the said assessee is again in
violation of the conditions read with the explanation appended to the
impugned notification.
10.12.
With regard to their submission that the Show Cause Notice
discussed three options under which service provider can pay Service Tax
in relation to “Commercial or Industrial Construction Service”; that in the
present case, service tax has been calculated in terms of Option No. (i) set
out in Para No.5.4 of the Show Cause Notice; that since it was a new
service which came into force w.e.f. 10.09.2004 and their Accountant
under ignorance of the law availed the CENVAT credit based on the
invoices given to them by the Sub-Contractors; that there was no mala fide
intention on their part to violate the condition of Notification; that after
receipt of the Show Cause Notice, they collected all the relevant documents
which show the amount of materials used in the above referred contracts;
that Notification No.12/2003-ST dated 20.06.2003 provides that the value
of goods and materials sold by the Service Provider to the recipient of
service is exempt from service tax subject to the condition that credit of
duty paid on goods and materials has not been taken under the provisions
of the Cenvat Credit Rules, 2004; that they are entitled to get benefit of the
above referred Notification since they have not availed the CENVAT credit
on the materials used for providing the above service; that based on these
materials, Option No (ii) is more beneficial to them and therefore, in terms
of Option No. (ii), their liability of the Service Tax comes to Rs.5,84,736/which they have paid alongwith interest; that they have attached Copies of
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 31 of 44
challan and GAR-7 showing the proof of payment of Service Tax and
interest; that they have also attached a statement showing calculation of
Service Tax in terms of Option No.(ii); that they submitted that documents
in respect of materials used for the above contracts are also annexed
separately but the same are not attached with their defence reply;
10.13
I have gone through the aforesaid contention and option (ii)
mentioned at para 5.4 of the show cause notice which state as under.
(ii)
Avail benefit of the general exemption available in respect of goods
sold during the course of providing service (Notification No.12/2003-ST)
subject to the condition of availability of documentary proof particularly
indicating the value of the goods sold.
10.14
In this regard I would like to have closer look at the
Notification No. 12/2003 ST dated 20.03.2003 which is as under.
In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994),
the Central Government, being satisfied that it is necessary in the public interest so to do,
hereby exempts so much of the value of all the taxable services, as is equal to the value of
goods and materials sold by the service provider to the recipient of service, from the
service tax leviable thereon under section (66) of the said Act, subject to condition that
there is documentary proof specifically indicating the value of the said goods and materials.
2. This notification shall come into force on the 1st day of July, 2003.
10.15
However, the said notification was further amended vide
notification No. 12/2004 dated 10.09.2004 .The relevant portion of the
notification is as under.
S.
Notification
No. number and
date
6.
12/2003Service Tax,
dated the 20th
June, 2003
[G.S.R. 503(E),
dated the 20th
June, 2003]
Amendments
In the said notification, in the opening
paragraph, the following proviso shall be
inserted at the end, namely :“Provided that the said exemption shall apply
only in such cases where (a) no credit of duty paid on such goods and
materials sold, has been taken under the
provisions of the Cenvat Credit Rules,
2004; or
(b) where such credit has been taken by the
service provider on such goods and
materials, such service provider has paid
the amount equal to such credit availed
before the sale of such goods and
materials.”
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
10.16
Page 32 of 44
Thus, on combined reading of the aforesaid notification it
clearly transpires that for the purpose of availing benefit under notification
number 12/2003 ST as amended, the said service provider should have
not availed Cenvat credit and if availed the same should have been paid
before the sale of such goods. Where as from the submission it clearly
transpires that they have availed Cenvat credit at the material time for
rendering service, hence on this count also such benefit can not be
allowed, particularly, after raising the present show cause notice for denial
of benefit of
Notification No. 15/2006 ST and 1/2006 ST. Further,
notification No.15/2006 ST and 1/2006 ST also stipulate that benefit
under this notification shall not be available if the service provider availed
the benefit of Notification No. 12/2003 ST. Thus, if they intend to avail
notification 12/2003 then also benefit of Notification No.15/2006 ST and
1/2006 ST is not available to them. Under the circumstance, denial of
benefit of Notification No.15/2006 ST and 1/2006 ST and consequently
the demand for the service tax as proposed in the show cause notice is
sustained. Thus, their contention in this regard is also not acceptable.
10.17
Further, para 5.4 of the show cause notice only discusses
three types of assessment procedures available to the service provider. The
contention of that para is that when three options for assessments were
available the assessee has to consciously exercise choice over the various
options available before they discharge their service tax liabilities. Once
they choose the assessment procedure for the purpose of payment of
service tax, and subsequent change in the choice at this stage is not
permissible. They have already filed ST-3 returns from time to time
indicating taxable value under notification No. 15/2004 ST and 1/2006
ST. Even no revise returns filed within 90 days of filing of such returns,
with regard to change of choice of assessment procedure. Therefore, I find
that it does not give option to the said service provider at this stage to
sideline the proceedings initiated against them for denial of the benefit of
Notification No.15/2006 ST and 1/2006 ST under the present show cause
notice. Therefore, I find that reference of three options discussed in para
5.4 of the show cause notice is grossly
mis-constructed by the said
assessee by reading para 5.4 in isolation of other paras and material facts
and evidences put forth in the show cause notice. Further, I find that had
it been their intention, the provision of filing revised ST-3 returns with in
90 days of filing regular ST-3 is prescribed under Rule 7B of Service Tax
Rules,1994, which also they have not followed. Therefore, I am unable to
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 33 of 44
accept their plea that their assessment of taxable service be governed
under notification No. 12/2003. Therefore, I am unable to accept requantification of taxable value under notification No. 12/2003-ST and
subsequent payment service tax of Rs.5,84,736/- on 09.08.2010 against
the present show cause notice dated 17.12.2009 issued after completion
of investigation.
10.18.1
The said assessee further submitted that Show Cause
Notice has erred in stating that the value of materials supplied by the TPL
at free of cost should be included while computing the value of gross
receipts in terms of the Explanation to the said Notification; that in terms
of the following decisions, the value of material supplied by the service
receiver at free of cost should not be included while computing Service Tax
in terms of Notification:

Cemex Engineers Vs. CST 2010 (17) STR 534 (T)

Era Infra Engineers Ltd Vs UOI 2008 (11) STR 3 (T)

Larsen & Toubro Ltd Vs UOI 2007 (7) STR 123 (Mad)
10.18.2
In this regard I have gone through the aforesaid decisions. I
find that decision in the case of Cemex Engineers Vs. CST 2010 (17) STR
534 (T) delivered by Hon’ble Banglore Tribunal is based on the decision
delivered in the case of Larsen & Toubro Ltd Vs UOI 2007 (7) STR 123
(Mad) by Hon’ble High Court of Madras.
10.18.3
As regard the decision delivered in he case of Era Infra
Engineers Ltd Vs UOI 2008 (11) STR 3 (T) delivered by the Hon’ble High
Court of Dehli in connection with the stay application filed by M/s Era
Infra Engineers Ltd. The said decision has been deffered and disagreed by
Hon’ble High Court of Calcutta in the case of Simplex Infrastructures
Ltd.Vs CST, Kolkata cited as 2011 (21) S.T.R.11 (Cal.) and 2011 (263)
E.L.T. 195 (Cal.) wherein
09.07.2010
while dismissing stay application
on
and writ petition filed by M/s Simplex Infrastructures Ltd
was finally dismissed where in it was held that :Stay/Dispensation of pre-deposit - Modification of stay order - Single Judge order
modifying earlier order by extending time for depositing Rs. 3.68 crore while
holding that free supplies not includible in taxable value while extending abatement
under Notification No. 1/2006-S.T. - Direction for deposit assailed in present appeal
- Not open to petitioner to challenge modification order passed based on their plea No scope for staying operation of exemption or granting exemption on modified
term in revenue matters when notification challenged as ultra vires - Injunction if
granted based on mere prima facie case without considering balance of
convenience, prejudicial to interest of nation - No ground to interfere with
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 34 of 44
discretion exercised by Singe Judge in directing deposit of admitted amount if writ
petition failed - Appeal dismissed - Articles 14 and 226 of Constitution of India.
[paras 3, 6, 10, 11, 13, 14, 17]
Recovery of dues - Stay when not grantable - Revenue matter where provision
challenged as ultra vires the Constitution - High Court on mere finding of prima
facie case not to grant unconditional injunction restraining collection of revenue
without making adequate protection for realization of such revenue if challenge by
petitioner fails. [para 15]
Precedent - Binding nature of interim order - Unconditional interim order in similar
demand for previous year sought to be followed as precedent - Revenue not bound
by decision in respect of demand for subsequent year for not filing appeal against
an erroneous interim order in respect of demand of previous year. [para 16]
Order - Modification order - Benefit of extension of time for depositing amount
sought and granted in modification order - Not open to challenge such order
modifying original order based on such prayer of appellant. [para 14]
Appeal dismissed
10.18.4
In the said proceedings following two cases were also cited
which are also cited in the present case by the said assessee. The Honb’ble
Kolkota High Court have disagreed with both the cases.
Era Infra Engineering Ltd. v. Union of India — 2008 (11) S.T.R. 3 (Del.) —
Disagreed [Para 15]
Larsen and Toubro Ltd. v. Union of India — 2007 (7) S.T.R. 123 (Mad.) —
Disagreed [Para 15]
10.18.5
Thus, I find that all the decisions cited by the said assessee
are not applicable to the present case.
10.19
I have also gone through their additional submission dated
27.06.2011 in respect of 7 contracts of M/s TPL given claiming benefit of
notification No12/2003 St dted 20.06.2003 is also not considered in light
of above discussions. I have also gone through the decisions cited in this
submissions, however find that the said decisions are related to availment
of benefit of notification 12/2003 ST and for allowing deduction of material
value and charging service tax on service portion. Therefore, I find that
these all four decisions are not relevant in the case on hand.
10.20
However, the amount of Rs. 5,84,736/- paid by them against
their claim under Notification No.12/2003 ST is liable to be appropriated
against the present demand being confirmed as discussed above.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
11.
Page 35 of 44
Suppression of Facts and Limitation:-
11.1 The said assessee further submitted that the Show Cause Notice is
barred by limitation under proviso to section 73(1) of the Finance
Act,1994; and defended that the SCN raises a demand for Service tax not
paid for the period from October 2005 March 2008; that in terms of settled
law, the extended period of limitation can be invoked only where an
evasion of tax has been occasioned by the suppression, omission or failure
to disclose wholly or truly all material facts required by the assessee or
when the assessee had an intention to evade the payment of tax; that the
extended period of limitation can be invoked only on those grounds which
are specifically provided under the Statute; that if the Department sought
to invoke the extended period of limitation on grounds other than those
mentioned in the Statute, then such an invocation of extended period of
limitation is bad in law; that in the present case, larger period has been
invoked on the premise that they had not declared the said Notification
No. under which service tax has been paid nor the actual gross amount in
the periodical return field by them; that the allegation is baseless,
incorrect and frivolous since they declared the Notification No. in the
return filed by tem from time to time; that they also mentioned the amount
of Cenvat credit availed by them for discharging the Service Tax liability in
the said returns; that despite the above disclosures, the Department had
never objected and denied the benefit of Notification; that they submitted
the copies of the returns for the disputed period which shows the correct
position; that in respect of gross amount charged, there are various
decisions in which it is held that value of free supply materials cannot be
included in the gross amount in terms of the Explanation to the said
Notification; that in these circumstances, they had not shown the value of
goods supplied free of cost by Torrent Power Limited in the returns; that
the above facts shows that there was no mala fide intention on their part
for not to pay Service Tax in terms of said Notification; that in view of the
above facts and circumstances, larger period cannot be invoked.
11.2 I find that the aforesaid contention and submissions of the said
assessee is not at all correct. I have gone through the ST-3 returns filed by
the said assessee which are relied upon by the officers of the DGCEI, and
find that the said noticee have not shown any notification No. under which
abatement have been claimed. They have also availed and utilised Cenvat
Credit under Cenvat Credit Rules, 2004. Further, the value of free issue
material supplied by M/s Torrent Power Limited is not included in the
gorss value charged in terms of Explanation to notification No. 15/2004
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 36 of 44
ST and 1/2006 ST as discussed in the show cause notice. Further, as
regard the intention to evade service tax I find that Notifications No
12/2003 ST, 15/2004 ST, 1/2006 ST were all existed prior to they started
payment of service tax. When they availed the benefit of notification No.
15/2004 ST, 1/2006 ST, they must ensured that all the conditions
stipulated therein has to be strictly followed. Therefore, contention of the
said assessee that there was no intention to evade service tax is not
acceptable. All this facts clearly establishes beyond doubt that there exists
suppression of material facts and therefore I am unable to accept their
contention that the show cause notice is hit by the limitation.
In the
present case I find that charge of suppression of material facts
convincingly established. In this regard I have also gone through the
various decisions cited by the said assessee, however none of the decisions
are applicable to the present case in light of aforesaid findings. Hence, I
conclude that Show cause notice survives on the ground of extended
period also.
11.3
I find that the charge of suppression of material facts with
intention to evade service tax had been conclusively established herein
above. Had the department not investigated, the said taxable value would
have escaped assessment and might have resulted in non payment of
service tax. They were aware of the facts regarding payment of service tax
on the above services rendered by them but have not paid/short paid or
has not disclosed before the department and therefore the contention of
the assessee that due to ignorance and lack of knowledge they have not
paid service tax, is not acceptable in this case. The suppression with an
intent to evade payment, on part of the assessee, is proved beyond doubt
and proviso to Section 73(1) of the Finance Act, 1994 has rightly been
applied in the instant case and therefore, by their such act of omission
and commission, the assessee has rendered themselves liable for penalty.
Further, how the extended period is to be computed has been clarified by
various judgments. I rely on the following judgments of Hon’ble Supreme
Court & Tribunals ;
 Mathania Fabrics Vs CCE, Jaipur reported in 2008 (221) ELT
481 (SC)
 CCE, Ahmedabad I Vs M Square Chemicals reported in 2008
(231) ELT 194 (SC)
 Salasar Dyg & Ptg. Mills (P) Ltd., Vs CCE, Surat reported in 2009
(235) ELT 93 (Tri-Ahmd.)
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 37 of 44
 Associated Cement Companies Ltd., Vs CC reported in 2001
(128) ELT 21 (SC)
Hon’ble High Court of Gujarat in the case of CCE, Surat – I
11.4
Vs Neminath Fabrics Pvt. Ltd., reported at 2010 (256) ELT 369
(Guj), while deciding the similar issue in Central Excise, has held that
proviso can not be read to mean that because there is knowledge,
suppression
which
stands
knowledge, by no stretch
– suppression not
established
disappears
–
concept
of
of imagination, can be read into provisions
obliterated, merely because department acquired
knowledge of irregularities. The relevant para is reproduced below ;
“20. Thus, what has been prescribed under the statute is that upon the
reasons stipulated under the proviso being satisfied, the period of
limitation for service of show cause notice under sub-section (1) of
Section 11A, stands extended to five years from the relevant date. The
period cannot by reason of any decision of a Court or even by
subordinate legislation be either curtailed or enhanced. In the present
case as well as in the decisions on which reliance has been placed by the
learned advocate for the respondent, the Tribunal has introduced a
novel concept of date of knowledge and has imported into the proviso a
new period of limitation of six months from the date of knowledge. The
reasoning appears to be that once knowledge has been acquired by the
department there is no suppression and as such the ordinary statutory
period of limitation prescribed under sub-section (1) of Section 11A
would be applicable. However such reasoning appears to be fallacious
inasmuch as once the suppression is admitted, merely because the
department acquires knowledge of the irregularities the suppression
would not be obliterated.”
12.
Penalty under Section 78
12.1 As regards to imposition of penalty, I find that the said assessee
failed to pay service tax on the correct taxable value of services provided by
them. It can not be said that it was a new levy and a person providing
such services was unaware of his service tax liability. It is, thus, clear
that omission did not occur due to any misunderstanding of law or
ignorance of law but non payment of service Tax was with intent of
tax evasion. If they had any reasonable doubt regarding liability of service
tax, they should have approached Service Tax department for immediate
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 38 of 44
clarification and guidance. However, no such effort was made by the said
service provider to resolve any such doubt. The evasion of service tax
was detected by the department as a result of investigation. The
circumstances of the case establish that the said service provider did
not discharge their statutory obligations deliberately, with the intent
to avoid payment of service tax.
As it is already proved that the service provider had
12.2
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.
12.3
They have rendered themselves liable to penalty under Section
78 of the Finance Act, 1994, as they were not paying service tax inspite of
the facts that they were providing the taxable service. 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.
12.4
I further observe that recently hon’ble High Court of Punjab &
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.).
13.
Penalty under Section 76
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Page 39 of 44
13.1 Since the said assessee had not discharged service tax liability on
time on the amount of taxable service 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
mandatory penalty under Sections 76 of Finance Act 1994.
13.2 Accordingly, I find that M/s P C Snehal Construction Co., are liable
to pay mandatory penalty under Section 76 of the Finance Act, 1994 for
failure to pay Service Tax on time till final payment. My conclusion is also
based on below mentioned decision of Hon’ble High Courts & Tribunals,
which have settled the issue of imposition of penalty under Section 76;
 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)
I further observe that the Hon’ble CESTAT in a recent judgment
13.3
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.
3.
Accordingly, the appeal is rejected.”
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
13.4
Page 40 of 44
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.”
13.5
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. 36/STC-AHD/ADC(MKR)/11-12
Page 41 of 44
Both Penalty under Section 76 & 78 – Justified:
14.1
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 willful mis-statement 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 P.C.Snehal Construction Co. has
committed default with mens rea, the decision of the tribunal is squarely
applicable.
14.2
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 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.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 42 of 44
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.).
15.
Under the circumstances, their claim under section 80 of the
Finance Act, 1994 did not survive and I am unable to accept the same.
16.
In view of the above discussions and findings, I pass the following
order
ORDER
(i)
I confirm
the
demand
of
Service Tax
amounting to
Rs.38,53,888/-[Rupees thirty eight lakhs fifty three
thousand
eight hundred eighty eight only] (Rs.37,61,888/- as Service Tax
and Rs.71,049/- as Education Cess and Rs.20,951/- as higher
education cess) short paid by them, under the provisions of
Section 73(2) of the Finance Act, 1994
amount of Rs. 5,84,736/-
and I appropriate an
against the said confirmed demand
which they have paid on 09.08.2011 and order to recover
remaining amount.
(ii)
I also order that M/s
P.C.Snehal Construction Co. shall pay
Interest at the appropriate rates as prescribed under Section 75
of the Finance Act, 1994 from the due date on which the Service
Tax was liable to be paid till the date on which the said Service
Tax is paid;
(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 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.
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
(iv)
Page 43 of 44
I also impose a penalty of Rs.38,53,888/-[ Rupees thirty lacs fifty
three thousands eight hundred eighty eight only) upon them
under Section 78 of the Finance Act, 1994. If the service tax
amount is paid along with appropriate interest as applicable,
within 30 days from the date of receipt of this order, then the
amount of the penalty shall be reduced to 25% of the service tax
amount, provided the penalty is also paid within such period of
30 days.
-Sd-
[DR. Manoj Kumar Rajak]
Additional Commissioner
Service Tax, Ahmedabad.
F.No.STC-110/O&A/SCN/JC/PCS/R-15/D-III/09
By R.P.A.D.
To,
M/s. P C Snehal Construction Co.,
Pravesh Appt. Mahadevnagar Society,
Nr. Sardar Patel Statue, Stadium Road,
Naranpura, Ahmedabad- 380014
Date : 14/10/2011
OIO NO. 36/STC-AHD/ADC(MKR)/11-12
Page 44 of 44
Copy to :1. The Commissioner, Service Tax, Ahmedabad. (Atten. Review Cell).
2. The Director General of Central Excise Intelligence, Ahmedabd Zonal
Unit, Ahmedabad, For information.
3. The Assistant Commissioner, Service Tax, Division-III, Ahmedabad.
4. The Superintendent, Service Tax, AR-XV, Division-III, Ahmedabad
along with an extra copy of OIO to be delivered to the assessee and
submit the acknowledgement to this office.
5. Guard File/Office Copy.