OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 1 of 30
BRIEF FACTS OF THE CASE
1.1
M/s Bleach Marketing Pvt. Ltd, 701, Shivalik, Opp. Centre Point,
Panchwati, C. G. Road, Ambawadi, Ahmedabad 380 006 (hereinafter
referred to as the “said Service Provider”) is engaged in providing taxable
services as “Business Auxiliary Service” and registered with Service Tax
Department
having
Registration
Number
AABCB1722CST001
dated
14.12.2004. The said service provider had filed their first ST-3 return i.e. for
the period from April 2004 to Sept 2004 on 10.01.2005.
1.2
The nature of business of the said service provider appeared to be that
of a wholesale trader and Commission Agent, dealing in various chemicals
and LDO and were dealing with companies like M/s. Reliance Industries Ltd
and M/s Gujarat Petcoke & Petro Product Supply Pvt. Ltd. The service of sale
/ purchase of goods as a “Commission Agent” by the said service provider
falls under the purview of Service Tax Category of “Business Auxiliary
Service”. The said service provider started paying service tax under the
category “Business Auxiliary Service” from August 2005.
1.3
During the course of Review of ‘Business Auxiliary Services’, the CERA
Audit party had raised H.M. 69 vide their audit report CERA P.V/ST
Review/BAS AR.2007-08/HM 69, dtd. 05.03.08, under which they had
pointed out in respect of the said service provider that there was non-levy of
Service Tax due to non submission of returns by them, as compared to the
figures shown in profit & loss account for the year 2004-05 which resulted
into non/short payment of service tax to the tune of Rs.9,34,368/-.
Therefore, a letter was issued by the Range Superintendent vide F.No.
STC/CERA/AR-13/HM.69/07-08 dtd. 19.03.2008, requesting them to pay up
the short paid / not paid Service Tax along with interest.
1.4
The said service provider submitted their reply vide their letter dtd.
08.04.2008, wherein they submitted that they have been registered with the
Department under category of “Business Auxiliary Service” as a commission
receiver w.e.f 09.07.2004; that they have filed ST-3 return for 2004-05
declaring Nil value as they have not received any commission during that
period; that they are wholesale trader dealing in chemicals and LDO.
1.5
Further the Superintendent, Service Tax, Range – XIII, Division – III,
Ahmedabad
vide
letter
F.No.
SD
03/R-XIII/HM
69(3)/07-08,
dated
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
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10.09.2008 and reminder letters dated 25.11.08, 24.04.09 & 08.07.09
issued to the said service provider, requested them to produce copies of
balance sheet along with profit & loss account for the Financial Year 2005-06
to 2007-08 for further verification and also requested them to pay up the
amount of Service Tax along with interest on the differential amount, if any
and produce payment particular at the earliest. The said service provider
vide their letter dtd 08.10.2008 gave reference of their earlier letter dtd.
08.04.2008 and submitted a photo-copy of the same.
1.6
The said service provider vide their letter dated 23.07.2009 submitted
the copies of Balance Sheet along with Profit & Loss Account for the period
2005-06 to 2007-08; and submitted that they pay service tax as and when
payments are received, while in profit and loss account the commission
income is accounted as per accrual system of accounting.
1.7
The Range Superintendent, vide letter dated 27.10.2009 requested
the said service provider to submit copies of Bank Statement for the F.Y.
2004-05 to 2007-08 for further verification.
1.8
The said service provider vide their letter dated 30.10.2009 had stated
that basically they are the wholesale trader in chemical and their main
business is trading in chemical and not as a commission agent. For
wholesale trading in chemical they get the profit from the said activity. They
had also stated that their business is only of commission agent, it is very
easy to check the entries of commission from the bank statement, but in
their case main business is of trading activity and there are entries of
purchase and sale as well in the bank statement and with these argument
they had not submitted copies of Bank statement for the F.Y. 2004-05 to
2007-08.
1.9
On going through the copies of Profit & Loss Account / Balance Sheet
and periodical ST-3 returns filed with this Department, it was noticed that
there is difference in value as reported in Balance Sheet and value shown in
ST-3 returns and thereby there is short payment of Service Tax amounting
to Rs.9,82,609/- for the year 2004-05, 2005-06 and 2007-08 (no short
payment during 2006-07) as mentioned below: -
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Page 3 of 30
PERIOD :- 2004-05, 05-06 AND 2007-08 - [COMMISSIONBAS]
Service
Tax
Value as per Rate of
Value as
Payable on
Period
Profit & Loss Service
per ST-3
the value
Account
Tax
Return
declared in
P & L A/C
Service Tax paid
CASH
CENVAT
TOTAL
Difference
2004-05
COMMISSION
(BAS)
9160474
10.2
934368
0
0
0
0
7386
18414
22915
8430
48095
0
255635
12929
754
1503
1907
688
3924
0
20860
1318
0
375
431
172
981
0
5214
0
754
1878
2338
860
4905
0
26074
1318
373804
30954
7173
38127
2005-06
April-05 to
July-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
COMMISSION
(BAS)
834424
10.2
85111
0
0
18000
2000
0
0
18000
2000
June-07 to
March-08
COMMISSION
(BAS)
0
27995
10022893
12.36
3460
1022939
2203
203
2203
1257
40330
982609
391804
Tax with effect from 01.07.2003 vide Notification No 07/2003-ST, dated
20.03.03. The Business Auxiliary Services is defined under Section 65 (19)
of the Finance Act, 1994.
1.11 As per Section 65 (19) of the Finance Act, 1994, the Business
Auxiliary Service means:promotion or marketing or sale of goods produced or provided by or
belonging to the client; or
(ii)
promotion or marketing of service provided by the client; or
(iii)
any customer care service provided on behalf of the client; or
(iv)
procurement of goods or services, which are input for the client;
Explanation- For the removal of doubts, it is hereby declared that
for the purposes of this sub-clause, “inputs” means all goods or
services intended for use by the client
(v)
46984
203
1.10 The Business Auxiliary Service was brought under the net of Service
(i)
934368
0
2007-08
Apr-07
May-07
G.TOTAL
0
production or processing of goods for, or on behalf of, the client; or
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
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(vi)
provision of service on behalf of the client; or
(vii)
a service incidental or auxiliary to any activity specified in subclauses (i) to (vi), such as billing, issue or collection or recovery of
cheques, payments, maintenance of accounts and remittance,
inventory management, evaluation or development of prospective
customer or vendor, public relation services, management or
supervision, and includes services as a commission agent, but does
not include any information technology service and any activity that
amounts to “manufacture” within the meaning of clause (f) of
section 2 of the Central Excise Act, 1944.
Explanation – For the removal of doubts, it is hereby declared that
for the purposes of this clause,
(a)
“Commission agent” means any person who acts on behalf
of another person and causes sale or purchase of goods, or
provision or receipt of services, for a consideration, and includes
any person who, while acting on behalf of another person –
(i)
deals with goods or services or documents of title to
such goods or services; or
(ii)
collects payment of sale price of such goods or services;
or
(iii)
guarantees for collection or payment for such goods or
services; or
(iv)
undertakes any activities relating to such sale or
purchase of such goods or services;
(b)
information technology service “means any service in
relation to designing, developing or maintaining of computer
software,
or
computerized
data
processing
or
system
networking, or any other service primarily in relation to
operation of computer systems.
1.12 Further, as per Section 65 (105) (zzb), the taxable service means any
service provided or to be provided to a client, by any person in relation to
business auxiliary service.
1.13 As per Provision of Section 68 of Finance Act, 1994 read with Rule 6 of
Service Tax Rule 1994 as amended, every person providing taxable service
to any person is liable to pay service tax at the rate prescribed in Section 66
to Central Government by the 5th of the month / quarter immediately
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following the calendar month / quarter in which the payments are received
towards the value of taxable services (except for the month of March which
is required to be paid on 31st March).
1.14 It appeared that the said service provider has not declared the correct
value received by them for rendering taxable services which appeared in
their Profit & Loss Account of respective year and also not discharged their
service tax liability on the said amount for the financial year
2004-05,
2005-06 and 2007-08 by declaring less value in periodical ST 3 returns and
thereby, they have contravened the provisions of Section 67 of the Finance
Act 1994 in as much as that they failed to determine the correct value of
taxable service provided by them, Section 68 of the Finance Act 1994 read
with rule 6 of The Service Tax Rules 1994, in as much as that they failed to
determine and pay the correct amount of service tax.
1.15 According to Section 70 of the Finance Act, 1994 every person liable to
pay service tax is required to himself assess the tax due on the services
provided by him and thereafter furnish a return to the jurisdictional
Superintendent of Service tax by disclosing wholly & truly all materials facts
in ST-3 returns.
Whereas the said service provider had not disclosed full,
true and correct information about the value of the service provided by
them, and thus, it appeared that there is a deliberate withholding of
essential and material information from the department about service
provided and value realized by them.
information
have
been
concealed
It appeared that all these material
from
the
department
deliberately,
consciously and purposefully to evade payment of service tax. Therefore, in
this case all essential ingredients existed to invoke the extended period in
terms of Section 73 (1) of Finance Act 1994 to demand the Service tax short
paid.
1.16 As per Section 75 ibid every person, liable to pay the tax in accordance
with the provisions of Section 68 or rules made there under, who fails to
credit the tax or any part thereof to the account of the Central Government
within the period prescribed , shall pay simple interest (at such rate not
below ten per cent and not exceeding thirty six per cent per annum, as is for
the time being fixed by the Central Government, by Notification in the
Official Gazette) for the period by which such crediting of the tax or any part
thereof is delayed.
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1.17 Whereas from the above paras it appeared that, the said service
provider has contravened the provisions of:
(i)
Section 67 of the Finance Act, 1994 in as-much-as they have
suppressed the value of taxable for making payment of Service Tax as
discussed in foregoing paras for the period
2004-05, 2005-06 and
2007-08;
(ii)
Section 68 of the Finance Act, 1994 read with Rule 6 of the Service
Tax Rules, 1994 in as-much-as they had failed to make the payment
of Service tax amounting to Rs.9,82,609/- as discussed in foregoing
paras for the period 2004-05, 2005-06 and 2007-08 to the credit of
the Government within the stipulated time limit;
(iii)
Section 69 of the Finance Act, read with Rule 4 of the Service Tax
Rules, 1994 in as-much-as they had failed to got registered with
Service Tax Department within the stipulated time i.e. since April
2004.
1.18 Thus, they had rendered themselves liable for penal action under the
provision of Section 76, 77 & 78 of the Finance act, 1994 as amended from
time to time.
1.19 The government has from the very beginning placed full trust on the
service provider so far service tax is concerned and accordingly measures
like Self-assessments etc., based on mutual trust and confidence are in
place.
Further, a taxable service provider is not required to maintain any
statutory or separate records under the provisions of Service Tax Rules as
considerable amount of trust is placed on the service provider and private
records maintained by him for normal business purposes are accepted,
practically for all the purpose of Service tax.
All these operate on the basis
of honesty of the service provider; therefore, the governing statutory
provisions create an absolute liability when any provision is contravened or
there is a breach of trust placed on the service provider, no matter how
innocently.
From the evidence, it appeared that the said service provider
had not taken into account all the incomes received by them for rendering
taxable services for the purpose of payment of service tax and thereby
minimize their tax liabilities. The deliberate efforts to mis-declare the value
of taxable service in ST-3 returns and not paying the correct amount of
service tax in utter disregard to the requirements of law and breach of trust
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 7 of 30
deposed on them such outright act in defiance of law appeared to had
rendered them liable for stringent penal action as per the provisions of
Section 78 of Finance Act 1994 for suppression or concealment or furnishing
inaccurate value of taxable service with intent to evade payment of service
tax.
1.20 Accordingly, M/s Bleach Marketing Pvt. Ltd, 701, Shivalik, Opp. Centre
Point, Panchwati, C. G. Road, Ambawadi, Ahmedabad 380 006 were issued a
show cause notice bearing F.No. STC-101/O&A/SCN/JC/BMPL/R-XIII/DIII/09 dated 08.01.2010 asking them as to why:(i)
the total value of Rs.1,00,22,893/- shown in their Profit & Loss
Account as discussed above, for the Financial Year 2004-05, 2005-06
and 2007-08 for Business Auxiliary Service should not be considered
as taxable value and service tax thereupon as calculated at appropriate
rate prevailing during the relevant time as discussed in the foregoing
paras amounting to Rs.9,82,609/- towards rendering of taxable
services as Business Auxiliary Services should not be demanded
and recovered from them under the proviso to Section 73 (1) read with
Section 68 of the Finance Act, 1994, invoking the larger period of five
years as discussed herein above;
(ii)
interest as applicable rate on the amount of Service Tax liability of
Rs.9,82,609/- as above should not be charged and recovered from
them, under Section 75 of the Finance Act, 1994;
(iii)
penalty should not be imposed upon them under Section 76 of the
Finance Act 1994, for the failure to the make the payment of Service
Tax in prescribed time limit;
(iv) penalty should not be imposed upon them under Section 77 of the
Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 in as
much as they have failed to take registration within the stipulated time
limit at the relevant time i.e since April 2004; and
(v)
Penalty should not be imposed upon them under Section 78 of the
Finance Act, 1994 for suppressing the value of taxable services
provided by them before the department with intent to evade payment
of Service Tax.
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Page 8 of 30
DEFENCE REPLY
2.1
The service provider filed their defence reply vide their letter dated
03.02.2010, wherein they submitted that they have not been provided the
copy of H. M. issued by CERA vide their audit report No. CERA/P.V/ST
Review/BAS/A.R.2007-08/H.M. No. 69 dated 05.03.2008 which is a relied
upon document.
2.2
They further submitted that the Service Tax Liability has been duly
paid, for all the commission income that they have received for all the
Financial
Years
i.e
2004-05,
2005-06,
&
2007-08
and
no
amount remains payable by them now as the rest of the amount
credited in the Profit and Loss Account relates to the cash discounts,
quantity discounts, other discounts on purchase of goods by them and
the amount of commission not received by them; that it is sad and
shocking that they were served with the SCN without considering their
reply dated 08.04.2008 clearly stating that the amount is not received
towards commission but is a discount; that they had also submitted
ledger account for the year 2004-05; that though repeatedly stated in
their replies to the department that the amount of income shown in the
Profit and Loss Account represents commission as well as discount, it is
absolutely unfair, illegal and unwarranted to demand service tax on the
discount amount as also on the commission amount which is not
received.
2.3
They further submitted that they have paid all the due service tax
on commission income which is taxable under the category of business
auxiliary service; that the discount received by them on purchase of
goods as they are also trading in goods can, by no stretch of
imagination, be treated as commission which the SCN proposes to do;
that further, their representation to the department that the income as
per P&L Account includes discount allowed by their suppliers does not
find any mention in the SCN; that this fact shows clear unfairness on the
part of the department that hides the crucial fact because discount is not
taxable under Finance Act, 1994; that they have not suppressed any
value of taxable service as wrongly alleged in the SCN since value of
entire commission received by them is shown in their ST-3 returns and
discount against purchase of goods is not required to be shown as value
of taxable service; that there is no contravention of Section 67 of the
Finance Act, 1994 as wrongly alleged; that they have paid their due
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 9 of 30
service tax on commission received by them and service tax is not
payable on discount and hence there is no short payment or nonpayment of service tax on their part; that accordingly there is no
contravention of Section 68 of the Finance Act, 1994 as wrongly alleged;
that they are registered with the department on 14.12.2004 and they
have not received any commission prior to that date; that accordingly,
there was no requirement on their part to get themselves registered
prior to this date; that there is no contravention of Section 69 as
wrongly alleged in the SCN; that the SCN is issued without looking into
the facts on record which clearly show that they have not received any
commission prior to this date.
2.4
They further submitted that they give below details of how taxable
amount of commission is arrived at by them that proves that the total value
of taxable service on which service tax is payable during this period of 200405,
2005-06
and
2007-08
will
not
be
Rs.1,00,22,893/-
as
wrongly alleged in the SCN but it will be Rs.3,91,804/- which is the value
shown by them in their periodical returns filed within due dates.
Comm. &
Discount as per
P&L A/c
Less. : Discount
Less : Comm.
income not rec.
Add. : Comm. of
earlier year
received
Comm. income
received
Value as per ST3
Balance Value on
which S.Tax
payable
2.5
2004-05
91,60,474/-
2005-06
8,34,424/-
2006-07
19,73,140/-
2007-08
27,995/-
Total
11996,033/-
91,60,474/0
0
4,60,620/-
0
2,77,156/-
0
9,995/-
9160474
747771
0
0
4,60,620/-
0
460620
0
3,73,804/-
21,56,604/-
18,000/-
2548408
0
3,73,804/-
21,56,604/-
18,000/-
2548408
0
0
0
0
0
They had categorically stated in their reply to the department that they
used to keep Commission and Discount Account that also included apart from
Commission, the amount of discounts received by them during the year
2004-05. Further, they had also informed that in the books of accounts
maintained as per accrual system, commission is recorded when it
accrues but the service tax is payable only when the commission is
received in cash. This representation is also totally ignored by the department
as
is
evident
from
the
contents
of
the
SCN.
Looking at the above figures, it is crystal clear that there is no short payment
of service tax on their part. In view of this, they earnestly request to drop
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 10 of 30
the demand and proceedings under the SCN.
2.6
They also submitted copy of the 'Commission and Discount' account
for the year 2004-05 along with documents in support of the discounts which
are credited to this account.
2.7
1.
They further submitted that service tax is not payable on
discount received by them on purchase of goods as opined by
Hon. Trtbunal in case of Popular Vehicles and Services Ltd. v.
CeE, i(,cel·j [2009 (14) STR 654 (Tri.-Bang.) and Tata Motors
Insurance Services Ltd. v. CST, Bangalore [2008 (9) STR 176
(Tri.- Bang.)]
2.
CBEC has also clarified vide Circular No. M.F. (D.R.) F. No.
354/81/2000-TRU, dated 30-6-2000 that discount of any type
or description given on any normal price payable for any
transaction will not form part of the transaction value for the
goods.
Penalty under Section 78 of the Finance Act, 1994 for suppressing the
value of taxable service is leviable wherein it is a case of service tax not
being levied or not paid or short-levied or short- paid or erroneously
refunded either by reason of: 1. fraud, 2. collusion, 3. wilful misstatement,
4. suppression of facts, 5. contravention of any of the provisions of service
tax or of the rules made thereunder with intent to evade payment of service
tax, that In absence of any of these ingredients in their case, penalty under
section 78 cannot be imposed, that They had disclosed full, true and correct
value of COMMISSION INCOME earned in all our ST-3 returns filed
periodically with the department, that they were under bonafide belief that
service tax under Business Auxiliary Service is payable only on commission
received and the same is not payable on discount allowed by supplier of
goods against purchase of goods by us. Discount against purchase can not
be
treated
as
commission
by
any
stretch
of
imagination.
No
material information which is required to be disclosed is deliberately,
consciously and purposefully concealed by us and there is no violation of any
provisions of Finance Act, 1994 as wrongly alleged in the SCN and hence the
question of levy of penalty does not arise, that they earnestly requested not
to impose any penalty under Section 76, 77 & 78 as proposed in the SCN in
absence of any violation on their part taking into account the law laid down
by the following judgements.
1. CCE, Mumbai-IV v. Damnet Chemicals P. Ltd.[2007
(216) ELT 3 (SC)]. Hon. Supreme Court has held that
when there has been no suppression whatsoever, the question
of
imposition
of
penalty
does
not arise.
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Page 11 of 30
2. Smitha Shetty v. CCE, Bangalore [2003(156) ELT (84)
(Tri.-Bang.)]. When there is technical or judicial breach of the
provisions of Act 01- where the breach follows from a bona
fide belief that the offender not liable to act in the
manner
prescribed
by
the
statute then in such circumstance, in the light of Apex
Court judgments, penalty was not imposable. The Tribunal
noted that the discretion of impose penalty is to be exercised
judicially
after
considering the relevant circumstances. The ruling of Apex Court
rendered in the case of Hindustan Steel v.State of Orissa
[1978 (2) EL T (J1S9) (S.C.)] w"as considered wherein it
was held that an order imposing penalty for failure to carry out
the statutory obligation is the result of quasi-criminal
proceedings
and
penalty
will
not ordinarily be imposed unless the party obliged either acted
deliberately in defiance of law or was guilty of conduct
contentions or dishonest or acted in conscious disregard of its
obligation.
3. Cement Marketing Co. - 1980 (6) ELT 295 (SC): Where
assessee does not include a particular item in the taxable
turnover under a bona fide belief that he is not liable so to
include it, it would not be right to condemn the return as a false
return inviting imposition of penalty. In this case, Hon. Supreme
Court
held
that
penalty cannot be imposed when assessee raises a bona
fide contention.
4. The purpose of imposing a penalty is to penalise the defaulter.
However, payment of penalty is not mandatory under service tax
provisions. In CCE V. Pioneer Plastic Products it was held
that' the penalty under Sections 76 & 77 of the Finance
Act,
1994 is not mandatory.
5. In N. C. Maheshwari & Co. v. CCE, the appellant, by
mistake, showed higher figures in the half-yearly return
submitted to the department but in actuality there was
no short payment in as much as the 'billed amount' was
repeated as 'amount received'. The appellant's records
also vouched for the fact that the amount received was
much less. Under the circumstances when short levy
demand was made based on the wrong entries made in
the return and the appellant paid the differential tax,
and
there
was
no
other
evidence
indicative
of
suppression of receipt, the imposition of penalty for
making late payment was not justified.
6. CC v. Seth Enterprises [1990(49) ELT 619 (Tri.Del.)]
Imposition
of
penalty
is
quasi-criminal
proceeding and hence penalty cannot be imposed in the
absence of means rea i.e. mental state of criminal
intention and the requirement of action done willfully,
maliciously,
fraudulently,
recklessly,
negligently,
corruptly, wantonly on the part of appellant, imposition
of penalty is unfair, illegal and unwarranted.
When any person committing default has a clear
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 12 of 30
intention to do a thing which is specifically prohibited
by the concerned law, a contravention will emerge.
Something 'done' or 'not done' unintentionally can not
be construed as contravention. In no case Section 77
should be an instrument of harassment in the hands of
authorities. Therefore, it should be kept in view that
because of invoking of this provision no assessee
should feel harassed.
2.8
They further stated that Service tax is a new levy and even the
experts at times are not able to correctly interpret: the law leaving
ambiguity. Under the circumstances, penalty cannot be imposed
even
if
there
is
violation
of
any
statutory
obligation
based
on genuine or bona fide belief.
2.9
They further submitted that the SCN is issued to them on 08-01-
2010 for the years 2004-05,2005-06 and 2007-08, that they had filed
all returns on or before due date of filing thereof and in absence of any
suppression on their part, the demand under the SCN is time barred
since the same was issued beyond a period of one year' from the
relevant date. In absence of any fraud, collusion, willful misstatement,
suppression or violation of any of the provisions of the Finance Act,
1994, or the rules made thereunder with intent to evade payment of
duty, extended period of limitation cannot be invoked. Further, the
SCN also does not state that they had violated any provisions with
intent to evade payment: of duty, that in absence of any allegation or
evidence of intent to evade payment of duty, the SCN issued beyond a
period of one year is not sustainable and
requested
to drop the
proceedings under the SCN on the ground of limitation as well, that they
had
filed
on
Superintendent
08-04-2008
their
letter
with
dated
the
Office
08-04-2008
of
the
stating
commission is received during the Year 2004-05, that
Range
that
no
The amount
appearing on credit of P & L Account is discount and not commission
and therefore service tax is not payable. Commission and CD & QD
account: was also supplied by them along with that letter, that
having satisfied with the facts of the case that there was no
commission income, serving SCN after about 2 years in 2010 is
unfair and unwarranted, that this clearly shows that the demand is
time barred since the information was available with the department
long back and there was no suppression on their part, that they
rely
on the following judgments which clearly lay down that under such
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 13 of 30
circumstances extended period of limitation cannot be invoked.
1. In Bridgestone Financial Services v. CST, Bariqalor e
[2007 (8)
STR
505 (Tri.-Bang.)]
holding that where
statements and
records were given,
bonafide belief
of
non-liability as per statement was claimed, there was no
finding
of
willful
suppression
with
intent
to
evade
payment of service tax, demand was not sustainable on
ground of time bar as the SCN was issued after normal
period.
2. Hon.
Supreme
Court
has,
in
its
decision
in
Tamilnadu Housing Board v. CCE - 1994 (74) ELT 9
(SC), held that where there was scope of doubt whether duty
was payable or not, it is not 'intention to evade payment of
duty'.
3. Suppression
means
not
providing
information
which
the
person is legally required to state, but is intentionally or
deliberately not stated. In our case we have disclosed all
the information as required and there is no suppression.
Hon.
Supreme
Court,
in
the
case
of
Collector
v.
Chemphar Drugs - 1989 (40) ELT 276 (SC), held that mere
inaction or failure on part of manufacturer will not amount to
suppression of facts. Conscious or' deliberate withholding of
information when the manufacturer knew otherwise, is required to
be established, before saddling a manufacturer with liability for
extended period.
4.
Hon.
Gujarat
high
Court
has,
in
the
case
of
Apex
Electricals (P) Ltd. v. UOI - 1992 (61) ELT 41:;,
(Guj.) held that there can be no suppression if facts
which are not required to be disclosed are not disclosed.
5. Pahwa Chemicals P. Ltd. v. CCE, Delhi [2005 (189)
ELT 257 (S.C.)] It was held that mere failure to declare
does not amount to misdeclaration or willful suppression·
Some positive act on part of party to establish either
willful misdeclaration or willful suppression is must
6. Continental
Foundation
Jt.
Venture
v.
CCE,
Chandigarh-I
[2007
(216)
ELT
177
(SC)]:
Extended
period
not
invokable
for
mere
omission
to
give
correct
information
Incorrect
statement
not
equivalent to willful misstatement.
7. Dalveer Sing v. CCE, Jaipur [2008(9) STR 491 (Tri.Del.)]
wherein
it
was
held
that
in
the
absence
of
suppression
0(mis-declaration
of
facts
with
intent
to
evade
payment
of
service
tax,
extended
period
of
limitation cannot be invoked.
8. Collector v. HMM Ltd. [2002-TIOL-120-SC-CX] is squarely
applicable
in
our
case
as
the
SCN
does
not
allege
contravention of law with intent to evade payment of
duty. In the result, proviso to section 11A( 1) of the
Central Excise Act, 1944 is wrongly applied and extended
period of limitation cannot be invoked when there is not
even a whisper of intent to evade payment of duty
in the SCN. In the instant case, there is no specific
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 14 of 30
allegation of fraud, collusion, or willful mis-statement /
suppression of facts or contravention of law with intent
to evade payment of duty. The SCN does not give any
plausible evidence of intention to evade payment of service tax on
our
part
and
routinely
alleges
the
same
in
total disregard of the facts on record. The facts clearly
show that discount against purchase of goods cannot be
considered as value of taxable service.
9.Chandra
Shipping
&
Trading
Services
v.
CCE,
Visakhapatnam-II
[2009
(13)
STR
655
(Tri.Bang.)]
holding
that
when
cenvat
credit
returns
are
regularly filed, demand for normal period is sustainable,
larger period cannot is not invocable and penalties are
also set aside.
2.10 They further submitted that the facts of their case are similar to
the facts in the above. In view of these facts, they vehemently deny the
charge or suppression and state that the demand is barred by limitation
also and is not sustainable. They request to drop the demand on this
ground also.
2.11 They further submitted that since service tax on ALL COMMISSION
INCOME received by them is paid, there is no question of payment of any
interest. No interest can be demanded on the tax paid when there was no
liability as held in Tebma Shipyards Ltd. V CCE [2006 .. TIOL-138CESTAT-Mad]. In view of this, they requested to drop the demand for interest
as well.
2.12 They finally submitted that for all these reasons and the fact that there
was no contravention of any of the provisions of the Finance
Act,1994 and rules made thereunder, they requested
to drop
the proceedings under SCN thus render- justice.
Personal Hearing
3.1
The personal hearing in this case was granted on 13.05.2011 vide this office letter
dated 05.05.2011 . Shri Ashwin H. Shah Chartered Accountant appeared on 13.05.2011 and
reiterated their reply submitted vide their letter dated 02.02.2010 and submitted copy of some
judgements. Further hearing was granted on 23.11.2011 vide this office letter dated
10.11.2011. Shri Ashwin H. Shah, Chartered Accountant appeared for hearing on 23..11.2011 on
behalf of the said assessee. They reiterated the argument communicated vide their letter
dated 02.02.2010 and 13.05.2011. He also submitted that he has further deposited
Rs. 29310/- on 19.08.2011 towards differential tax on their own assessment against
the present demand. They further submitted debit note & credit note vide their letter
dated 21.12.2011.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 15 of 30
Discussion & finding
4.1
I have gone through the case records and content of impugned Show
Cause Notice, written submissions given by the said assessee and record of
personal hearing.
4.2
At the outset, I observe that this audit objection (H.M.) of CERA has been
contested by the department and it appears that same has also not been
converted into SOF/DAP; hence as per the instruction of Board vide F.No.
206/02/2010-CX6 dated 03.02.2010, I decide the case on merit.
4.3
I
find
that
the
entire
show
cause
notice
is
based
on
the
non
payment/short payment of service tax arising on account of CERA objection
under H.M. No. 69 dated 05.03.2008 on commission income. The demand of
service tax is as under:-
PERIOD :- 2004-05, 05-06 AND 2007-08 - [COMMISSION-BAS]
Value as
per Profit
& Loss
Account
Period
2004-05
2005-06
2007-08
G.TOTAL
4.4
9160474
834424
27995
10022893
Rate of
Service
Tax
10.2
10.2
12.36
Service
Tax
Payable
on the
value
declared
in
P&
L A/C
934368
85111
3460
1022939
Value as
per ST-3
Return
Service Tax paid
CASH
0
373804
18000
0
30954
2000
391804
32954
CENVAT
0
7173
203
7376
Difference
TOTAL
0
38127
2203
934368
46984
1257
40330
982609
There is no dispute that the assessee is wholesale trader dealing in
chemicals and LDO on behalf of number of companies including Reliance
Industries Ltd., and Gujarat Petcoke & Petro Product Supply Pvt. Ltd. There
can not be any dispute that there is practice in the trade to allow various
types of discounts, in the instant case the discounts which the said assessee
is talking about are Quantity Discounts, Cash Discounts and Trade
Discounts.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 16 of 30
Factual Evaluation:4.5
Further, I find that CERA, Ahmedabad conducted review of Business
Auxiliary Service, and objected the difference of Income shown in the
Balance sheet and ST-3 Returns filed by the said assessee for the period
2004-05 to 2007-08 which has resulted into the impugned show cause
notice.
4.6
In this regard therefore it will be pertinent to have look to the Balance
sheets for the said period how the income towards commission & discounts
have been recorded in their Profit and Loss Accounts forming part of the
Balance sheet of the respective year. The perusal of the same is revealed as
under.
4.6.1
Scrutiny of P & L Accounts for the year 2004-05.
Sales and purchase have been recorded
separately in the P & L Account.
Income of Rs.91,60,474/- have been shown under the head “Commission
& Discount.” This amount is alleged to be not included in the ST-3 returns
as per objection raised by CERA, Ahmedabad. Therefore the same is forming
part of show cause notice whereon service tax of Rs.9,34,368/- at the rate
of 10.2% have been demanded. Closer look reveals that the said assessee
had recorded Commission and Discounts under same head. It is obvious that
no service tax is leviable on discounts. Therefore proper recourse would
have been to bifurcate commission and discounts from this Income shown
under this head
Which does not appeared to have been carried out while
issuing show cause notice.
4.6.2
Scrutiny of P & L Accounts for the year 2005-06.
Sales and purchase have been recorded separately in the P& L Account.
Income of Rs. 8,34,424/- have been shown under the head “Commission”.
This
is
subject
matter
of
show
cause
notice.
Further,
Income
of
Rs.94,06,832/- have been shown against head “Cash & Quantity Discount”.
No service tax is demanded on this portion as the service tax is not leviable
on cash & Quantity discount. In fact it is very reason that why this portion
have not been objected by CERA, Ahmedabad.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
4.6.2.1
Page 17 of 30
However, In this balance sheet previous years of 2005-06 i.e.
2004-05 figures are also reflected which indicates as under.
4.6.2.2
Sales and purchase for the year 2004-05 are also in conformity
with the P&L Account shown in the balance sheet of 2004-05 discussed in
para 4.6.1. However, in the balance sheet of 2005-06 “Commission” head
and Cash& Quantity discount are separated for the year 2004-05 which was
combined under head “Commission & Discounts in the P& L Account for the
year 2004-05 as discussed in para 4.6.1. Therefore, if I deduct Cash &
Quantity Discount income shown for the year 2004-05 shown in the P& L
Account of the year 2005-06, from the combined figure shown under head
“Commission & Discounts in the Profit & Loss Account for the period 2004-05
as discussed in para 4.6.1, I can derive
separate
income on account of
commission. The Income shown under common head in the year 2004-05 is
Rs.91,60,474/-, the Cash & Quantity Discount for the year 2004-05 shown
in the P& L Account of 2005-06 is Rs.64,54,118/-. Thus commission for the
period 2004-05 could be derived to be Rs. 27,06,356/-. Close look in the
P& L account for the year 2005-06 under the column Previous year reveals
the same fact i.e. commission amount for the year 2004-05 is shown as Rs.
2628370+Rs.77986/-( written with pen). This difference of Rs.77986/which is written with pen is evident when Total Income
of Rs.
52,32,25,164/- shown in P & L account for the year 2004-05 as against the
same is shown as Rs. 52,31,47,178/- in the P& L Account of 2005-06 under
the column Previous year. Thus
Rs.52,32,25,164/- is subtracted from Rs.
52,31,47,178/- it will give difference of Rs.77,986/-.
4.6.3
of
Thus I conclude that the said assessee have earned commission
Rs.27,06,356/-in the year 2004-05 which is forming part of combined
Income of “Commission & Discount” shown as Rs. Rs.91,60,474/-, in the
Profit & Loss Account for the year 2004-05. Thus, the correct demand of
service tax should have been on the commission amount of Rs.27,06,356/which comes to Rs. 2,76,048/- @ of 10.2% for the year 2004-05 as against
Rs.934368/-. This has resulted into excess demand of Rs. 658320/-. Thus I
find that out of total demand of Service tax of Rs.9,82,609/- Rs. 658320/- is
required to be deducted and further discussion is required for balance
amount of Rs.3,24,289/-.
The figures shown in Commission ledger for the year 2004-05 are
contradictory to the figure of Balance Sheet of 2005-06 (Previous year
column for the year 2004-05) , hence not acceptable.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
5.1
Page 18 of 30
I have also gone through the defence reply with regard to the
quantification of the service tax. It is the main submission of the assessee
that they are recording their transaction on accrual basis and not on receipt
basis. Whereas
in view of rule 6(1) of the Service Tax Rules,1994 the
service tax is payable on receipt of payment against service provided. The
meaning
of
Accounting
on
Accrual
Basis
as
explained
in
site
http://www.investopedia.com/terms/a/accrualaccounting.asp#axzz1hMMXcs
UB is as under.
Definition of 'Accrual Accounting'
An accounting method that measures the performance and position of a
company
by
recognizing
economic
events
regardless
of
when
cash
transactions occur. The general idea is that economic events are recognized by
matching revenues to expenses (the matching principle) at the time in which the
transaction occurs
method allows
rather
the
than
current
when
payment
is
made
cash inflows/outflows to
be
(or
received).
combined
This
with future
expected cash inflows/outflows to give a more accurate picture of a company's
current financial condition.
Investopedia explains 'Accrual Accounting'
Accrual accounting is considered to be the standard accounting practice for most
companies, with the exception of very small operations. This method provides a
more accurate picture of the company's current condition, but its relative complexity
makes it more expensive to implement. This is the opposite of cash accounting,
which recognizes transactions only when there is an exchange of cash.
The need for this method arose out of the increasing complexity of business
transactions and a desire for more accurate financial information. Selling on credit
and projects that provide revenue streams over a long period of time affect the
company's financial condition at the point of the transaction. Therefore, it makes
sense that such events should also be reflected on the financial statements during
the
same
reporting
period
that
these
transactions
occur.
For example, when a company sells a TV to a customer who uses a credit card, cash
and accrual methods will view the event differently. The revenue generated by the
sale of the TV will only be recognized by the cash method when the money is
received by the company. If the TV is purchased on credit, this revenue might not be
recognized
until
next
month
or
next
year.
Accrual accounting, however, says that the cash method isn't accurate because it
is likely, if not certain, that the company will receive the cash at some point in the
future because the sale has been made. Therefore, the accrual accounting
method instead recognizes the TV sale at the point at which the customer takes
ownership of the TV. Even though cash isn't yet in the bank, the sale is booked to an
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 19 of 30
account known in accounting lingo as "accounts receivable," increasing the seller's
revenue.
5.2
Thus, perusal of above definition clearly suggests that accrual accounting is not on receipt base.
Therefore, based on the receipt reconciliation presented in the written submission is as under.
2004-05
Comm. &
Discount as per
P&L A/c
Less. : Discount
Less : Comm.
income not rec.
Add. : Comm. of
earlier year
received
Comm. income
received
Value as per ST3
Balance Value on
which S.Tax
payable
6.
2005-06
2006-07
2007-08
Total
91,60,474/-
8,34,424/-
19,73,140/-
27,995/-
11996,033/-
91,60,474/-
0
0
0
9160474
0
4,60,620/-
2,77,156/-
9,995/-
747771
0
0
4,60,620/-
0
460620
0
3,73,804/-
21,56,604/-
18,000/-
2548408
0
3,73,804/-
21,56,604/-
18,000/-
2548408
0
0
0
0
0
Analysis of Reconciliation given by the assessee for the year
2004-05:In the aforesaid reconciliation for the period 2004-05 it is the
contention of the said assessee that they have not earned commission in the
year 2004-05 and not liable to service tax in the year 2004-05 is not correct
in view of detail findings based on the assessee’s own records [which were
prepared regularly and produced by them] as discussed in para 4.6.1, 4.6.2
and 4.6.3 as above. Justifying their claim that entire amount shown under
“Commission & Discounts” in the year 2004-05 is pertaining to discounts
only. They have submitted various debit notes raised by them to their
suppliers. However, they have not furnished all the relevant copies of Credit
Notes from their suppliers in token of acceptance of the Debit Notes raised
by them. Under the circumstances and nothing contrary have been placed
on record by the said assessee with regard to above discussion in para 4.6.1
to 4.6.3. They had only submitted the credit note of M/s Gujarat Pet & Petro
Product Supply Pvt. Ltd. on 21.12.2011. On going through the commission
ledger for the year 2004-05 , the amount received from M/s Gujarat Pet &
Petro Product Supply Pvt. Ltd. as quantity/cash discount comes to
Rs.64,82,761/- which is almost tallies with the figure of cash/quantity
discount of the balance sheet for the year 2005-06
in the column of
previous year. The amount received from M/s Gujarat Pet & Petro Product
Supply Pvt. Ltd. ( As per commission ledger) is as under :-
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 20 of 30
DATE
AMOUNT RECEIVED AS
CASH/QUANTITY DISCOUNT
30.04.2004
463073
31.05.2004
302590
30.06.2004
521425
31.07.2004
533332
31.7.2004
52660
31.08.2004
422507
30.09.2004
514102
31.10.2004
575019
30.11.2004
604561
31.12.2004
550611
31.01.2005
590958
28.02.2005
624090
31.03.2005
727833
6482761
However, they have not furnished all the relevant copies of Credit
Notes from their other suppliers in token of acceptance of the Debit Notes
raised by them. Thus, it is clear from the records that the contention of the
said assessee that they have not earned commission is not correct as the
same has reflected in their books of accounts for the year 2005-06 in the
column of previous year i.e.2004-05. Therefore, I find that in the year 200405 the said assessee have earned commission of Rs.27,06,356/- on
which
service tax comes to Rs. 2,76,048/- @ of 10.2% for the year 2004-05 as
against Rs.9,34,368/- as discussed in para 4.6.1 to 4.6.3 above.
This
amount of commission is neither declared in their ST-3 return nor any
service tax has been paid in this regard by the said assessee.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
7.
Page 21 of 30
Analysis of Reconciliation given by the assessee for the year
2005-06:From the aforesaid reconciliation details for the year 2005-06 I find that the
said assessee have earned an amount of Rs. 8,34,424/-as commission, however,
out of the said amount only Rs. 3,73,804/- realized which they have declared in ST3 returns and discharged service tax on the same. The remaining balance of Rs.
4,60,620/- is reported to have been received in the year of 2006-07. The said
receipt is declared in the year 2006-07 and discharged the service tax thereon.
Therefore, demand of service tax of Rs.46,984/- in the year 2005-06 in the
impugned show cause notice fails on merits.
8. Analysis of Reconciliation given by the assessee for the year
2006-07:From the aforesaid reconciliation details for the year 2006-07 I find that the
said assessee have earned an amount of Rs. 19,73,140/- out of which Rs.
2,77,156/- is not reported to be received in the year 2006-07. However, I also find
that the receipt of the said amount not reported to be in the subsequent year i.e.
2007-08 nor the evidence is produced by the said assessee to the effect that they
have received the said amount in subsequent years till date and have discharged
service tax on the said amount. Under the circumstances service tax at the rate of
12.24% at prevalent rate during the year 2006-07 on the amount of Rs. 2,77,156/is liable to be confirmed. The service tax assessed during this year as Rs. 33,924/-
9.
Analysis of Reconciliation given by the assessee for the year
2007-08:From the aforesaid reconciliation details for the year 2005-06 I find that the
said assessee have earned an amount of Rs. 27,995/- as commission out of which
they had not received Rs. 9,995/- in the year 2007-08. However, I find that the
said assessee have not furnished any proof that they have discharged service tax
on the Rs.9,995/- which comes to Rs.1257/- at the rate of 12.36/- as demanded
in the show cause notice.
Concluding Part:10.
Thus, from the aforesaid discussion on the written submission and
evaluation fact findings I find that entire demand of service tax is liable to
be reworked and re-quantified as under.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Year
Page 22 of 30
Demand
as per
SCN
Liable to be
confirmed as
discussed in para
No.
Re-quantified
demand
2004-05
934368
276048
4.6.1 to 4.6.3 & 6
2005-06
46984
0
7
2006-07
0
33924
8
2007-08
1257
1257
9
982609
311229
Thus, I confirm the demand of Rs. 3,11,229/- as against the demand of Rs.
9,82,609/- raised in the impugned show cause notice. The said assessee has
paid Rs. 29310/- on 19.08.2011 as evident from the Challan produced
during the course of hearing held on 23.11.2011.
11.
As regard to suppression of Facts and Penalty:-
11.1
From the detail discussion as above I find that there exists sufficient amount
of suppression of facts. The assessee is registered unit had failed to declare correct
details of the taxable amount in their ST-3 returns filed during the year 200405.They tried to confuse entire facts by mis-constructing the fact with regard to the
commission income during the year 2004-05. Though the evidence available in this
regard in their own profit & loss accounts prepared for the year 2005-06 indicates
that in the previous year they have earned commission income in the year 200405, however under the pretext of common head “Commission & Discount” in the
year 2004-05 maintained by them and reported in the P & L account, they tried to
take advantage of situation that entire Income under this common head is related
to Discounts on sale of goods. I find that such an act is willful misstatement of facts
with intent to evade payment of service tax due in the year of 2004-05 and
subsequent to that.
Further, I agree that service tax is leviable on receipt basis
during the period 2004-05 to 2007-08 , however assessee has failed to give correct
and satisfactorily reply with regard to non receipt of taxable amount of
Rs.2,77,156/-
pertaining to year 2006-07 and Rs. Rs. 9,995/- pertaining to the
year 2007-08 till the time of adjudication proceeding. In other way they had not
come up with the details whether the said amount is received and service tax is
discharged on later date on receipt of the said amount. Under the circumstances I
find that receipt of the said amount had been suppressed. The aforesaid act on
their part is sufficiently indicates that show cause notice have rightly invoked
extended period for demanding service tax which they have not paid on due date.
Therefore, I find that the said assessee have violated the provisions of sectin70 of
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 23 of 30
the Finance Act, 1994 read with rule 7 of the Service Tax Rules, 1994, in as much
as they failed to declare correct taxable value in their ST-3 returns filed from time
to time; contravened the provision of section 67 of the Finance Act, 1994
in as
much as they failed to determine correct service tax liability; contravened the
provision of section 68 of the Finance Act, 1994 in as much as they failed to pay
service tax amount of Rs. 3,11,229/-. I have also gone through the various
citations quoted by the said assessee with regard to non existence of
suppression of facts and non imposition of penalty in their case , however I
find that the same are not applicable to the present facts and circumstances
as discussed above. Accordingly, I hold the said assessee liable to Interest
and penalty as proposed in the impugned show cause notice.
11.2 In view of the aforesaid discussion I hold that the said assessee have
evaded service tax amounting to Rs.3,11,229/- by suppression of material
facts with intent to evade service tax and the same is required to be
recovered under the proviso to section 73(1) of the Finance Act,1994 along
with Interest thereon.
I find that the charge of suppression of material facts with
11.3
intention to evade service tax had been conclusively established herein
above. Had the Audit not been conducted , the said taxable value would
have been 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
have not disclosed before the department. 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.)
 Associated Cement Companies Ltd., Vs CC reported in 2001 (128) ELT 21
(SC)
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 24 of 30
Hon’ble High Court of Gujarat in the case of CCE, Surat – I 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 established
disappears – concept of knowledge, by no stretch
into
provisions – suppression not
of imagination, can be read
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.
They are also liable to penalty as proposed under section 76, 77,
and 78 of the Finance Act, 1994 as discussed hereunder.
13.
Penalty under Section 76:-
13.1
I further observe that during the relevant period M/s Bleach Marketing Pvt. Ltd.
have defaulted in payment of service tax which has been established as not paid, in
accordance with the provisions of Section 68 of the Finance Act, 1994 read with Rule 6
of the Service Tax Rules, 1994, and thereby rendered liable to pay mandatory penalty
under the provisions of Section 76 of the Finance Act, 1994 for default in payment of
service tax on time till the final payment. It has come to my notice that till date M/s
Bleach marketing Pvt. Ltd., have not paid the full amount of
service tax, hence
imposition of mandatory penalty under Section 76 is once again justified.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
13.2
Page 25 of 30
Accordingly, I hold that M/s Bleach marketing Pvt. Ltd., are liable to imposition
of penalty under Section 76 of the Finance Act, 1944. My conclusion is also based on
various decisions of Hon’ble High Courts & Tribunals as mentioned below;

CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.)

UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)

UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)

Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd)

CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–Ahmd)

Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-Ahmd)
13.3
I further observe that the Hon’ble CESTAT in a recent judgment in the case of
M/s Gujarat Industrial Security Force Society Vs CST, Ahmedabad, vide order No.
A/1110/WZB/AHD/2010 dated 05.08.2010, has held that no lenient view can be
taken under Section 76 of the Finance Act, 1994. The relevant paras are reproduced
below ;
“2. After hearing both the sides, I find that in this case, the assessee was
registered more than 6 years back and no explanation has been given by them for
delayed filing of return and delayed payment of service tax. Under these
circumstances, I am not finding fault in stand taken by the lower authority that
penalty is imposable under section 76 and once it
is held
that penalty is
imposable under section 76, the amount fixed as per the provision of section 76 is
required to be imposed. Under these circumstances, even though the Ld. Advocate
submitted that the appellant is a non profit organization, no lenient view can be
taken in view of the provisions of law.
3.
13.4
Accordingly, the appeal is rejected.”
Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port
Officer, reported at 2010 (19) STR 641 (Guj) has now settled the issue of
penalty under Section 76. The relevant para is reproduced below ;
“10. A plain reading of Section 76 of the Act indicates that a person who is liable to pay
service tax and who has failed to pay such tax is under an obligation to pay, in addition
to the tax so payable and interest on such tax, a penalty for such failure. The quantum
of penalty has been specified in the provision by laying down the minimum and the
maximum limits with a further cap in so far as the maximum limit is concerned. The
provision stipulates that the person, who has failed to pay service tax, shall pay, in
addition to the tax and interest, a penalty which shall not be less than one hundred
rupees per day but which may extend to two hundred rupees for everyday during which
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 26 of 30
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 rewriting 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.).
14.
14.1
Penalty under Section 77:
I further find that the service provider has failed to file prescribed ST -3
returns for all the taxable services provided by them within the prescribed time,
and hidden taxable services for the year 2004-05 and escaped from self
assessment & hence they are liable for penalty under Section 77 for not taking service
tax registration and not filing service tax returns for the year 2004-05 on time.
15.
15.1
Penalty under Section 78:-
I further observe that the show cause notice also proposes imposition of
penalty under Section 78 of the Finance Act, 1994. I find that fraud, suppression of
facts and wilful mis-statement on the part of M/s Bleach marketing Pvt. Ltd., has
been established beyond doubt as discussed and concluded in the earlier part of this
order. Accordingly, I hold that M/s Bleach Marketing Pvt. Ltd. are also liable to
penalty under the provisions of Section 78 of the Finance Act, 1994.
15.2
As it is already proved that the service provider had suppressed the
facts, the consequences shall automatically follow. Hon’ble Supreme Court has
settled this issue in the case of U.O.I Vs Dharmendra Textile Processors
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 27 of 30
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.
15.3
I, therefore, hold that they have rendered themselves liable to penalty
under Section 78 of the Finance Act, 1994. My above view gets support from
below mentioned case laws ;
 Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680
(Tri.Ahmd.)
 CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40 (Tri.
Ahmd.)
 Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010 in
the case of M/s Bajrang Security Services Vs CST, Ahmedabad.
 Order No. A/1937/WZB/AHD/2010 dated 08.10.2010 / 20.12.2010
in the case of M/s Dhaval Corporation Vs CST, Ahmedabad.
15.4
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.)
16
16.1
Both Penalty under Section 76 & 78 – Justified:
I also find that penalty under Section 76 ibid is provided for failure to pay
service tax whereas penalty under Section 78 ibid is for suppressing value of taxable
service. In the instant case, service tax liable to be paid in terms of Section 68 read
with Rule 6 of the Service tax Rules, 1994, have not been found paid as well as service
tax has not been paid / short paid by suppressing value of taxable service by reason of
wilful 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.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 28 of 30
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 Sales India Ltd has committed default with mens rea, the decision of the tribunal
is squarely applicable.
16.2
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.
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.)
17.
In view of the above discussions and findings, I pass the following order:
-: O R D E R :-
(i) I confirm the amount of service tax Rs. 3,11,229/- (Rupees three lakhs
eleven thousand two hundred twenty nine Only) for the period 2004-05 to
2008-09 under Section 73(2) of the Finance Act, 1994, and order to recover the
same from M/s Bleach marketing Pvt. Ltd.
I also order to appropriate the
Service Tax of Rs. 29310/- as already paid by them on 19.08.2011 against
their outstanding service tax liability towards services rendered by them as
taxable service under the category of Business Auxiliary Service as defined
under Section 65(19) of the Finance Act 1994, as amended.
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
(ii)
Page 29 of 30
I drop the demand of service tax Rs. 671380/- for the reasons as discussed
in this order.
(iii)
I also order that M/s Bleach marketing Pvt. Ltd. shall pay the interest as
applicable on the amount of their service tax liability for the delay in making the
payment under Section 75 of the Finance Act, 1994 .
(iv)
I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon them per day or
at the rate of 2% of the service tax amount per month, whichever is higher, under the
provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay Service
Tax and Education Cess within the stipulated period as required under the provisions of
Section 68(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1944,
as amended. As the actual amount of penalty could be depending on actual date of
payment of service tax, however, as per Section 76 of the Finance Act, 1994, penalty will
be restricted to the above confirmed amount of service tax liability.
(v) I impose penalty of Rs. 2,000/- (Rupees two thousand only) under Section 77 of
the Finance Act, 1994 for failure to take registration & to file prescribed Service Tax
Returns within the stipulated time; and
(vi) I also impose a penalty of Rs. 281919/- (Rupees two lakhs eighty one thousand
nine hundred nineteen only) upon them under Section 78 of the Finance Act, 1994
for suppressing the value of taxable services provided by them before the Department
with intent to evade payment of service tax under the category of Business Auxiliary
Service. If the service tax amount is paid alongwith appropriate interest as applicable,
within 30 days from the date of receipt of this order, then the amount of penalty under
Section 78 shall be reduced to 25% of the service tax amount, provided if such penalty
is also paid within such period of 30 days.
The show cause notice bearing No. STC-101/O&A/SCN/JC/BMPL/R-XIII/DIII/09 dated 08.01.2010 is disposed of accordingly
-Sd( Dr. Manoj Kumar Rajak)
Additional Commissioner,
Service Tax :Ahmedabad.
BY R.P.A.D.
F. No. STC-101/O&A/SCN/JC/BMPL/R-XIII/D-III/09
M/s Bleach Marketing Pvt. Ltd,
701, Shivalik, Opp. Centre Point, Panchwati,
C. G. Road, Ambawadi,
Ahmedabad 380 006
Date : 27.12.2011
OIO NO. 49/ STC-AHD/ADC(MKR)/11-12
Page 30 of 30
Copy to :-
1.
The Commissioner of Service Tax, Ahmedabad (Attn. Review Cell).
2. The Asstt. Commissioner, Service Tax, Division-III, Ahmedabad.
3. The Superintendent Range-XIII, Division-III, Service Tax, Ahmedabad with
extra copy of OIO to be served to the assessee and submit the
acknowledgement to this office.
4. Guard file.