3 V2(CSS)24/STC-III/2012

Brief facts of the case:

Briefly stated, the facts of the case are that on audit of the records of M/s JSIW Infrastructure Pvt. Ltd., JSIW House, Beside Khoraj Flyover, Gandhinagar – 382 421 (hereinafter referred to as ‘the appellants’ for the sake of brevity) by CERA, it was noticed that for services such as Work Contract, Construction of long distance Oil & Gas pipe line and related services provided to M/s GSPC Gas Co. Ltd, Gandhinagar during 02.10.2008 to 08.01.2009 the appellants had paid Service Tax @10.30% which was the existing rate at the time of raising of Invoice No.41/2008- 09 dated 18.3.2009 instead of paying Service Tax @ 12.36% that was prevalent at the time of providing of the services. As it appeared that the appellants had indulged in short-payment of Service Tax a Show Cause Notice F.No. IV/16-07/SCN/JSIW/RP/2011 dated 19.01.2011 was issued to the appellants demanding Service Tax amounting to `36,581/- under first proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 of the Act ibid. Penalty was proposed to be imposed on the appellants under Section 76, Section 77 and Section 78 of the Finance Act, 1994 in the Show Cause Notice.

2. The Show Cause Notice was adjudicated by the Assistant Commissioner, Central Excise Division, Gandhinagar (hereinafter referred to as ‘the adjudicating authority’ for the sake of brevity) who has issued Order-in-original No. 23/ST/AC/AS/2011 dated 18.11.2011 (hereinafter referred to as ‘the impugned order’ for the sake of brevity). In the impugned order, demand of Service Tax amounting to `36,581/- has been confirmed under Section 73 (1) of the Finance Act, 1994 along with interest under Section 75 of the Finance Act, 1994. The adjudicating authority has imposed penalty on the appellants under Section 76 of the Finance act, 1994 at the rate of `200/- per day or @ 2% of the Service Tax amount per month restricted to the Service Tax liability. He has also imposed penalty of `5,000/- on the appellants under Section 77 of the Finance Act, 1994 for failure to file complete ST.3 returns for the year 2008-2009. A penalty of `36,581/- has been 4 V2(CSS)24/STC-III/2012 imposed on the appellants under Section 78 of the Finance Act, 1994 for suppressing and not disclosing the value of said taxable services provided by them with intent to evade payment of such Service Tax with the option to pay 25% of this penalty amount provided that the Service Tax liability, interest and reduced penalty are paid up within 30 days of the communication of the impugned order.

3. The appellants have preferred the present appeal along with a Stay application being aggrieved by the impugned order. In the Form of appeal, the appellants have declared that they have deposited `36,581/- towards Service Tax; `14,053/- towards interest and also deposited `9,145/- being 25% of the penalty imposed under Section 78 ibid. The grounds of appeal filed by the appellants are, inter alia, that the adjudicating authority had erred in confirming demand of Service Tax of `36,581/- as the service was clearly completed in their case on 07.3.2009 when the certificate was received and the bill was raised on 19.3.2009; that on both these dates, the applicable rate of Service Tax was 10.30% at which the Service Tax liability stood discharged; that he had erred by confirming interest when confirming of Service Tax was not legal and proper; that he had erred by imposing penalty under Section 77 despite the fact that they had filed complete ST-3 returns for the relevant period; that he had erred by imposing penalty under Section 78 ibid despite there being not an iota of evidence to show suppression or intent to evade payment of Service Tax on their part; that they had shown reasonable cause before the adjudicating authority for not imposing penalties in terms of the provisions of Section 80 of the Finance Act, 1994. The appellants have cited various decisions such as CCE, Mumbai-IV Vs Damnet Chemicals P. Ltd. – 2007 (216) ELT 3 (SC); Appollo Computer Education Ltd. Vs CCE – 2011 (21) STR 33 (Tri.- Chem); Cosmic Dye Chemical Vs CCE, Bombay – 1995 (75) ELT 721 (SC) and ETA Engineering Ltd. Vs CCE, Chennai – 2003 (3) STR 429 (Tri.- LB); Vishwajit Hambirrao Patil – 2010 (18) STR 139 (Commr. Appl.) where it has been held the penalty was not imposable where there was no suppression; that penalties under Section 76 and 78 are liable to be 5 V2(CSS)24/STC-III/2012 set aside as the assessee was not aware of tax liability; that when bona fide impression is gained by Board Circulars, no penalty can be imposed; that when the appellants were under bona fide doubt as to whether their activity was covered by Service Tax, no penalty was imposable in terms of Section 80 of the Act ibid and that suppression or guilt cannot be alleged when records indicate that the activities undertaken involve interpretation and contended that they were not liable to the penalties that had been imposed mechanically in sheer disregard of the facts showing that the impugned order had been passed without application of mind. The appellants have challenged the simultaneous penalties under Section 78 ibid and Section 76 ibid holding that even though fifth proviso to Section 78 was inserted from 10.5.2008, its spirit is fully applicable even for the past period. The appellants have further contended in their grounds of appeal that the demand had been confirmed invoking extended period without even a whisper of evidence of fraud, collusion, wilful mis-statement, suppression of facts or contravention of any specific provision of Finance Act, 1994 or the rule made thereunder with intent to evade payment of Service Tax. They have also submitted that there was no categorical provision in law for determination of crucial date for determining the rate of Service Tax; that they had followed similar practice in the past when the department had not raised any objection even after auditing of their accounts by the Service Tax department. The appellants have cited a catena of decision in support of their claim that when question of interpretation was involved and assessee had raised issue of bona fide belief, longer period of limitation cannot be invoked and penalty cannot be imposed.

4. Personal hearing was held on 27.3.2012. Shri Nilesh Suchak appeared for personal hearing and reiterated the grounds of appeal. He also made a written submission. He stated that the service was complete when the Engineer certifies the completion of service. As per that the service was completed on 07.7.2009 and they have raised the bill on 18.3.2009. During this period, the rate of duty was 10.30% and they have paid the duty at applicable rate. 6 V2(CSS)24/STC-III/2012

Discussion and Findings:

5. Firstly, I take up the Stay application filed by the appellants for consideration. As mentioned in paragraph 3 above, the appellants have deposited `36,581/- which is the entire amount of Service Tax confirmed in the impugned order. They have also deposited an amount of `14,053/- towards interest levied in the impugned order and an amount of `9,145/- towards 25% of the penalty imposed under Section 78 of the Finance Act, 1994. I find that the payments are sufficient compliance of Section 35F of the Finance Act, 1994 and take up the appeal for decision on merits. The Stay application stands disposed off in these terms.

6. On going through the impugned order and the grounds of appeal, I find that the dispute arises out of the fact that even though the appellants had provided the services of Work Contract, Construction of long distance Oil & Gas pipe line and related services to M/s GSPC Gas Co. Ltd, Gandhinagar during 02.10.2008 to 08.01.2009 when the rate of Service Tax payable was 12.36%, they paid Service Tax @10.30% which was the existing rate at the time of raising of Invoice No.41/2008-09 dated 18.3.2009 for the said services. This resulted in the impugned short payment of Service Tax amounting to `36,581/- that has been confirmed in the impugned order. The appellants have disputed the confirmation of such short payment on the principal ground that there was no categorical provision in law for determination of crucial date for determining the rate of Service Tax. However, I find that the event of taxability for Service Tax is not res integra as submitted by the appellants. In All India Federation of Tax Practitioners Vs UOI – 2007 (7) STR 625 (SC), the Apex Court relying on their own decision in Moti Laminates Pvt. Ltd. Vs CCE, Ahmedabad – 1995 (76) ELT 241 (SC) had ruled that Service Tax is a consumption Tax similar to Central Excise duty and that Service Tax is not charged on ‘business’ but it is charged on the consumer whereby the taxable event is the point of service and 7 V2(CSS)24/STC-III/2012 not the point of realisation of the proceeds for such services. The relevant extracts of this Apex court decision are reproduced below.

19. The importance of the above judgment of this Court is twofold. Firstly, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is in-built into the concept of service tax, which has received legal support in the form of Finance Act, 1994. To give an illustration, an Event Manager (professional) undertakes an activity, namely, of organizing shows. He belongs to the profession of Event Manager. As long as he is in the business or calling or profession of an Event Manager, he is liable to pay the tax on profession, calling or trade under Entry 60 of List II. However, that tax under Entry 60 of List II will not cover his activity of organizing shows for consideration which provide entertainment to the connoisseurs. For each show he plans and creates based on his skill, experience and training. In each show he undertakes an activity which is commercial and which he places before his audience for its consumption. The tax on service is levied for each show. This situation is very similar to a situation where goods are manufacture or produced with the intention of being cleared for home consumption under the Central Excise Act, 1944. This is how the principle of equivalence equates consumption of goods with consumption of services as both satisfy the human needs. In the case of Internet Service Provider, service tax is leviable for on-line information and database provided by web sites. But no service tax is leviable on E-commerce as there is no Database Access.

Therefore, the taxable event occurs at the point at which the service is consumed by the recipient and not at the point where the business transaction is completed as claimed by the appellants. The Hon’ble Supreme Court has further emphasized this point in the matter of Association of Leasing & Financial Service Companies – 2010 (20) STR 417 (SC) holding that the taxable event was at the time of rendering of the service and not at the point of sale of the service. I reproduce paragraph 19 and paragraph 22 of this Apex court decision below for a better understanding on the event of taxation for levy of Service Tax. 8 V2(CSS)24/STC-III/2012

19. The significance of the above circulars and guidelines is to show that the activities undertaken by NBFCs of equipment leasing and hire-purchase finance are facilities extended by NBFCs to their customers; that, they are financial services rendered by NBFCs to their customers and that they fall within the meaning of the words “banking and other financial services” which is sought to be brought within the service tax net under Section 66 of the Finance Act, 1994. One more aspect needs to be highlighted. With the application of AS-19, the leased assets are required to be shown as “receivables” and not as fixed assets which further shows that equipment leasing and hire-purchase finance are financial facilities which thereby funds projects presented by the customers to banks and other financial institutions including NBFCs. Thus, the impugned tax is levied on these services as taxable services. It is not a tax on material or sale. The taxable event is rendition of service. Hence, the impugned tax is different and distinct from tax on sale of goods under Entry 54 List II of the VIIth Schedule to the Constitution.

Further in paragraph 22, their Lordships have relied on the above cited case law in All India Federation of Tax Practitioners Vs UOI – 2007 (7) STR 625 (SC) to give the following ruling.

22. In All India Federation of Tax Practitioners’ case (supra), this Court explained the concept of service tax and held that service tax is a Value Added Tax (‘VAT’ for short) which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a “sale” from “service”. That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the 9 V2(CSS)24/STC-III/2012

professional like tax planning, advising, consultation etc. It gives value addition to the goods manufactured or produced or sold. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. The same view is reiterated broadly in the earlier judgment of this Court in Godfrey Phillips India Ltd. v. State of U.P. [(2005 (2) SCC 515] in which a Constitution Bench observed that in the classical sense a tax is composed of two elements : the person, thing or activity on which tax is imposed. Thus, every tax may be levied on an object or on the event of taxation. Service tax is, thus, a tax on activity whereas sales tax is a tax on sale of a thing or goods.

In view of settled law as per the above cited Apex Court decisions, I find that the rate of Tax applicable to the services provided by the appellants is the rate prevalent at the time the services were rendered by them. There is no reason to confuse the event of service with the realisation of the payment for such service. This is exactly the reason why for any service rendered during a period prior to the effective date from which such service is made taxable cannot be made exigible to such Service Tax even if the payment for such services are realised after the effective date. Therefore, I find that the appellants have short paid Service Tax by way of paying Tax at a rate lower than what was applicable at the time they actually rendered the service. Accordingly, I uphold the confirmation of demand and the levy of interest as ordered in the impugned order.

7. Now I take up the issue relating to suppression of facts in this case. The appellants were paying Service Tax @12.36% during the period that they rendered the services i.e. during October-2008 to January-2009. However, they preferred to pay Service Tax at the reduced rate of tax i.e. @10.30% on the pretext that this was the prevalent rate at the time when they raised the invoice. This fact remained hidden from the department and came to light only on being pointed out by CERA. It is the contention of the appellants in their ground of appeal that as the lapse was not pointed out in the earlier audits, it cannot be said that there was suppression of facts. I find that 10 V2(CSS)24/STC-III/2012 this argument is fallacious for the reason that an audit report cannot be treated at par with an adjudication order. In other words a NIL audit report cannot be construed as exoneration for any undetected lapse. I rely on the decision of Hon’ble Chennai Tribunal in the case of ChemFab Alkalis Ltd. Vs CCE, Pondicherry reported in 2010 (251) ELT 264 (Tri.Chennai) where it has been held as follows:

6. It is seen from the above that the Tribunal took into account several factors while waiving the requirement of predeposit. The Tribunal also observed it was prima facie satisfied that there did not appear to be suppression or wilful misstatement in view of the two audits, more so when, the 4 charts annexed to the appeal were not refuted or rebutted in the order-in-original. It is well settled that a prima facie view taken in an interim order such as a stay order, cannot be taken as a binding precedent. Moreover, it was not only the visit of the audit party but also the presence of other additional factors in the case of Hindustan Coca Cola (supra) which appear to have persuaded the Tribunal Bench to take a particular prima facie view in the said case. The present case is different where such attendant additional factors are not present. Besides, it is well known that the department has a regular programme of audit, under which different units are audited according to the frequency laid down, for example, a bigger unit having more transactions and paying more revenue is audited more frequently, say, once in 6 months. It cannot be a case of anybody that since all the excisable units are being audited by the department from time to time, the extended period of limitation will not apply in respect of any unit. Such an interpretation would render the relevant legal provision regarding application of extended period of time totally redundant and hence cannot be accepted.

Applying the ratio of the above Tribunal decision, I find that the details of short payment remained suppressed. Moreover, the appellants did not have a strong base for misconceiving the event of taxation in this case that ultimately resulted in the short payment of Service Tax. They have clearly disregarded the Apex Court decision holding that Service Tax was not on the transaction of business but on the activity consumed by the customer. I therefore hold that invoking of extended period is justified in this case. The ingredients for invoking of extended period are similar to the ingredients for imposing penalty under Section 78 of the Finance Act, 1994. I, thus uphold the imposition of penalty on the 11 V2(CSS)24/STC-III/2012 appellants in the impugned order under Section 78 of the Finance Act, 1994.

8. Penalty under Section 77 of the Act ibid has been imposed on the appellants by the adjudicating authority in the impugned order for incomplete Tax returns. In this case the appellants have filed the returns. They have mentioned the rate of Service Tax as @30%, the rate at which they paid the Tax. This cannot be equated with non filing of the return and filing the return with wrong information. As the appellant has filed the returns, penalty under Section 77 ibid is not imposable and hence I set aside the same.

9. As regards the simultaneous imposition of penalty under Section 76 ibid once penalty under Section 78 ibid has been ordered as payable, I find that there is merit in the contention of the appellants. The adjudicating authority has disregarded the proviso to Section 78 of the Finance Act, 1994 inserted with effect from 10.5.2008 stipulating that if penalty is payable under Section 78 ibid, the provisions of Section 76 shall not apply. I find that the period of October-2008 to January-2009 when the services were actually rendered by the appellants is covered by the said proviso to Section 78 ibid inserted with effect from 10.5.2008. Therefore, I hold that penalty imposed on the appellants under Section 76 of the Act ibid is liable to be set aside in view of the fact that penalty imposed on them under Section 78 ibid is upheld.

ORDER

10. I uphold the confirmation of Service Tax and interest as ordered in the impugned order.

11. I uphold the imposition of penalty on the appellants under Section 78 of the Finance Act, 1994 in the impugned order.

12. I set aside the penalty imposed on the appellants under Section 76 & Section 77 of the Finance Act, 1994 in the impugned order.

Sd/- 12.04.2012 (K. ANPAZHAKAN) 12 V2(CSS)24/STC-III/2012

COMMISSIONER (APPEAL-III) CENTRAL EXCISE, AHMEDABAD.

Attested

(K. P. Jacob) Superintendent (Appeal) Central Excise Ahmedabad-III. (By R.P.A.D.) M/s JSIW Infrastructure Pvt. Ltd., JSIW House, Besides Khoraj Flyover, Gandhinagar – 382 421.

COPY TO: 1. The Chief Commissioner of Central Excise, Ahmedabad. 2. The Commissioner of Central Excise, Ahmedabad-III. 3. The Assistant Commissioner, Central Excise Division, Gandhinagar. 4. The Deputy Commissioner, Central Excise (Systems), Ahmedabad-III for uploading the order on the website. 5. Guard file. 6. P.A. file.