I. GENERAL PRINCIPLES
 

1. Taxable event and rate of service tax

2. Sovereign activity not subject to service tax

3. Inter-departmental services not liable

4. Service Tax – VAT

5. No service tax on sub-contracted services prior to 23.8.2007

6. Receipt of revenue share not liable for service tax

II. CLASSIFICATION

7. Classification

III. VALUATION

8. Valuation

9. Abatements

10. Valuation & abatement

IV. IMPORT EXPORT OF SERVICES

11. Import of Services

12. Export of Services

V. TAXABLE SERVICES

13. Advertising agency services

14. Airport Service

15. Automated teller machine operations, maintenance or management services

16. Authorised service station services

17. Banking and other financial services

18. Broadcasting Agency

19. Business Auxiliary services

20. Cargo Handling services

21. Chartered Accountant services

22. Clearing and forwarding agent

23. Clubs or Association services

24. Commercial coaching and training

25. Construction of Residential Complex service

26. Commercial or Industrial Construction service’

27. Construction Services vs. Works Contract Services

28. Consulting Engineer

29. Courier Services

30. Custom House Agent’s (CHA) services

31. Dredging Services

32. Erection, Commissioning or Installation

33. Erection commissioning and installation services vs. Works Contract

34. Goods transport operators/Agencies

35. Information Technology software services

36. Insurance Auxiliary Services

37. Interior Decorator services

38. Leased Circuit Services

39. Maintenance & Repair

40. Management Consultancy services

41. Mandap Keeper

42. Manpower, Recruitment or Supply Agency Service

43. Operation and maintenance contracts

44. Online Information and Database Access or Retrieval service

45. Outdoor Caterer’s service

46. Packaging Activity services

47. Photography service

48. Port Services

49. Rent a Cab services

50. Renting of Immovable property services

51. Sale of space or time for advertisement

52. Scientific or Technical Consultancy

53. Security agency services

54. Site formation and clearance, excavation and earth moving and demolition Services

55. Supply of tangible goods for use services

56. Stock broker services

57. Storage and Warehousing services

58. Survey or Map making services

59. Technical Inspection and Certification service

60. Technical testing and analysis

61. Tour operator

62. Works contract services – Composition scheme

VI. REGISTRATION, PAYMENT OF TAX, ADJUDICATION, APPEALS, etc.

63. Registration

64. Payment of tax

65. Payment of amount collected as service tax

66. Interest

67. Adjustment of tax

68. Show cause notice

69. Demand

70. Demand when service tax already paid by client

71. Limitation

72. Rectification of mistakes

73. Penalty

74. Refunds

75. Revision

76. Stay of demand

77. Appeals

78. Appeals – Letter from Commissioner appealable ?

79. Rectification of Tribunal Orders

80. Authority on advance ruling

81. Departmental Clarifications

82. Binding effect of precedents

83. Recovery

84. Reimbursement of service tax under a contract not conditional upon payment by the service provider

VII. CENVAT CREDIT

85. Cenvat credit

Synopsis of Significant Case Laws

I. GENERAL PRINCIPLES

1 Taxable event and rate of service tax

1.1 In respect of hire purchase contracts, the taxable event occurs upon entering into the contract. Therefore, the rate of service tax will be the rate prevailing on the date on which the contract is entered into. It is not a case where there is a continuous service during the term of the contract when the installments are paid. The payment of installments is only the obligation of the hirer. Hence contracts entered into prior to 14.5.2003 would be exigible to service tax @5% notwithstanding the contract continued post 14.5.2003 when the rate became 8%. [Art Leasing Ltd. vs. CCE (2007) 8 STR 162 (Tri. – Bang.). See also L.F.C. Hire Purchase Company Ltd. v. CCE & C (2008) 12 STR 320 (Tri. – Bang.)]

1.2 For determination of service tax liability, the relevant date is the date on which service is received by the service recipient and not the date on which payment is received by the service provider. [Lumax Samlip Industries v. CCE (2007) 8 STT 82 (CESTAT-Chennai) - Based on law prior to 16.6.2005]

1.3 The rate of tax applicable is the rate prevailing on the date of rendering of services and not the rate prevailing on the date of billing. [Reliance Industries Ltd. vs. CCE (2008) 10 STR 243 (Tri-Ahmd.)]

1.4 In a case where insurance premium was received in advance and policy was issued and thereafter the rate of service tax had increased the Tribunal held the enhanced rate of Service tax is not applicable to the policies, which were issued prior to the enhancement of the rate. [Bajaj Allianz General Insurance Co. Ltd. v. CCE (2009) 13 STR 259 (Tri.- Mumbai)].

1.5 Where the appellant entered into an agreement with a foreign company in 19.11.90 (later modified on 19.5.2004) whereby the foreign company supplied know-how in consideration for royalty to be paid for a specific period, the Tribunal held that – (i) the services of supply of know-how being a one-time affair were provided in 1990, much before the introduction of service tax; and (ii) the services were not provided continuously inasmuch as no continuous information was supplied by the foreign company and the mode of payment whether in lump or periodic is not relevant. Accordingly, the Tribunal set aside the demand of service tax on the royalty paid [Modi-Mundipharma P. Ltd. v. CCE (2009) 15 STR 713 (Tri-Del.)].

1.6 Where the construction services were provided prior to 1.3.2006 though payment for the same was received after that date, it was held that the appellant was entitled to abatement under notification no. 18/2005 dated 7.6.2005 which provided for 67% abatement without the bar on availment of cenvat credit relating to input services, notwithstanding that the said notification was rescinded by notification no. 1/2006 dated 1.3.2006 (and prevalent when payment was received) which imposed a bar on taking cenvat credit for availing abatement [Santosh Associates v. CST (2009) 16 STR 87 (Tri-Ahmd.)].
1.7 User fee collected only from outgoing international passengers (not collected from domestic passenger or incoming international passengers) are not liable for service tax since the fee is only for enhancing the Airport’s revenue and not for any services rendered. [CCE vs. Cochin International Airport Ltd (2009) 16 STR 401 (Ker.) confirming Tribunal’s decision of assessee’s own case in (2007) 7 STR 468 (Tri.)].

1.8 Advance fee received by the assessee, a commercial training or coaching centre, prior to 01.07.03 (date on which its services were brought into the tax net), for the coaching to be given from 01.07.03 to 31.03.04, is taxable since the taxable event was provision of service and not receipt of fees. Hence, tax was held to be payable by 5th day immediately following the month in which services are rendered. [CCE vs. Ashok Singh Academy (2010)17 STR 363 (Tri-Del); See also CCE v. P.T. Education &Training Services Ltd. (2009) 15 STR 453 (Tri.- Del.)].

2 Sovereign activity not subject to service tax

2.1 Sovereign activities of inspection and certification of electrical installations done by Electrical Inspectorate, Government of Karnataka, a State Government Department, in terms of the Electricity Act is not subject to service tax being a statutory function. [Electrical Inspectorate, Government of Karnataka v. CST (2008) 9 STR 494 (Tri-Bang.)].

2.2 The appellant company provided services for the issue of Electors Photo Identity Cards. The Revenue contended that such an activity is liable for service tax under the category of ‘Photography Services’. The Tribunal dismissed the contention and observed as follows:

(i) Notification No. 141/52/95-CX, dated 14.8.1995 and 195/20/CX, dated 3.4.1996 clarified that Photo Identity Cards are required to be treated as “goods” and hence does not attract service tax;

(ii) Issue of Photo Identity Cards is a sovereign duty under the Constitution of India, to be treated as an activity of the State and not a service.
[CCCE vs. CMC Ltd. (2007) 7 STR 702 (Tri. – Bang.) relying on CCE vs. Ankit Consultancy Ltd. (2007) 6 STR 101 (T) and Circular no. 89/7/2006-ST dated 8.12.2006 – referred. See also CCCE v. C.S.Software Enterprises Ltd. (2008) 10 STR 367 (Tri-Bang)]

3 Inter-departmental services not liable

3.1 Services provided by one part of the company to another part of the same company is not liable for service tax as no service is being rendered by any “other person”. [Precot Mills Ltd v. CCE (2006) 2 STR 495 (Tri – Bang); Indian Oil Corporation Ltd. vs. CCE (2007) 8 STR 527 (Tri-Kolkatta) see also Chemplast Sanmar Ltd. vs. CCE (2010) 19 STR 424 (Tri. – Che.)].

3.2 No service tax is payable on services rendered by one constituent unit of an HUF to another constituent unit since they are part of the HUF which is one legal entity [CCE vs Universal Travels 2010 (18) STR 157 (Tri- Bang.)].

4 Service Tax - VAT

4.1 The appellant an advertising agency while providing advertising services also created original concept, designed advertising material, brochures, annual report etc. and raised an invoice on the customers giving break up of service element and material. The appellant paid sales tax on value of materials and service tax on design and work charges. The sales tax department took a view that sales tax is payable on the entire amount charged from the customer including the amount of design and concept charges since the same went into the creation of the product which was ultimately sold. The Supreme Court held that the contract was a composite contract [as distinguished from an indivisible contract] for services and sale and accordingly sales tax would not be payable on the value of entire contract but only on the material component. [Imagic Creative Pvt. Ltd. vs. CCT (2008) 9 STR 337 (SC)].

5 No service tax on sub-contracted services prior to 23.8.2007

5.1 Where the appellant provided services as a sub-contractor to the main-contractor who in turn provided services to the client and paid the entire amount of service tax (including the charges of the sub-contractor), no service tax is payable by the sub-contractor on his services to the main contractor prior to the issue of CBEC Circular no 96 dated 23.8.2007. [Sunil Hi-Tech Engineers Ltd v CCE 2010(17) STR 121 (Tri-Mum); See also CCE vs. Shivhare Roadlines (2009) 16 STR 335 (Tri-Delhi); Urvi Construction vs. CST (2010) 17 STR 302 (Tri-Ahmd.)]

6 Receipt of revenue share not liable for service tax

6.1 Where CONCOR paid the appellant, its agreed revenue share in a transaction, and had discharged the service tax liability on the gross amount, the Tribunal held that service tax liability has been discharged by CONCOR and hence appellant would not be liable. [India Gateway Terminal (P) Ltd. vs. CCE (2010) 20 STR 338 (Tri-Bang.)]

II. CLASSIFICATION

7 Classification

7.1 Where the department had registered the appellants in respect of its activity under a particular category of service, the levy service tax in respect of same activities for prior periods under any other category of service was not justifiable. [Coromandel Fertilizers Ltd. vs. CCE (2009) 13 STR 542 (Tri-Chennai)]

7.2 Where the appellant rendered cash management services which during the impugned period was specifically excluded under the category of Banking and Other Financial Services, the Tribunal held that the services could not be taxed under the category of Business Auxiliary Services. [Federal Bank v. CCE (2009) 15 STR 279 (Tri. - Bang.)]

7.3 The appellant, a blood collection center, draws / collects samples of blood and forwards the sample after certain processing (e.g. serum separation) to test laboratories who do the testing. On facts, the Tribunal held –

(i) The above service is a service in relation to technical testing and analysis;

(ii) Testing in relation to human being is specifically excluded from this service and hence this service is not liable for service tax;

(iii) These services are not in the nature or same genre as any of the services in the definition of ‘business auxiliary services’

(iv) It is well settled that once there is a specific entry for an item in the tax code, the same cannot be taken out of that specific entry and taxed under any other entry. What is specifically kept out of a levy by the legislature cannot be subjected to tax by the revenue administration under another entry.

(v) If the legislature had any intention to tax the testing or analysis in relation to human beings or animal at a different rate than other technical testing and analysis service, the legislature would have separately specified the levy. In the present case, clearly the intention of the legislature is not to impose any levy at all on testing or analysis of human beings or animals. Hence the said services cannot be taxed under ‘business auxiliary services’.

[Dr. Lal Path Lab Pvt. Ltd. v CCE (2006) 4 STR 527 (Tri-Del.) affirmed in CCE v. Dr. Lal Path Lab P. Ltd. (2007) 8 STR 337 (P&H); CCE v. Patient Service Centre (2008) 9 STR 229 (P&H)]
 

III. VALUATION

8 Valuation

8.1 Where an agreement is a composite one viz., consisting of (i) transfer of technical know under a licence (which is non-taxable); and (ii) provision of technical assistance in implementation and use of the technical know how in India (which is taxable) the consideration would have to be bifurcated for the purpose of valuation and only that which is related to the taxable service would be liable [Indian Farmers Fertilizer Co-op. Ltd. v. CCE (2007) 5 STR 281 (Tri-Del.)].

8.2 When service tax is not separately collected from the clients, gross amount collected is to be considered as inclusive of service tax. The Explanation inserted to this effect in Section 67 of Chapter V of Finance Act, 1994 on 10.9.2004 only clarifies the general principle. [Gem Star Enterprises Pvt. Ltd. v. CCE (2007) 7 STR 342 (Tri.-Bang.); See also Abirami Associates vs. CCE (2009) 14 STR 801 (Tri-Chennai); P. Jani & Co. vs. CST (2010) 20 STR 701 (Tri-Ahmd.)]

8.3 Where the consideration for services was collected before the imposition of the levy in respect of services rendered after its imposition, the consideration collected can be considered to be cum-tax and computation and payment of tax on that basis is in order [CCE vs. Daswani Classess (2008) 11 STR 189 (Tri. – Del.)]

8.4 Unless the invoice mentions that invoice amount is inclusive of service tax it cannot be treated as cum-service tax price. [Shakti Motors vs. CCE (2008) 12 STR 710 (Tri. – Ahmd)]

8.5 Where the assessee, a telecommunications company, sold pre-paid SIM cards to dealers and distributors at prices below the MRP and paid service tax only on the amount received, the Tribunal held that although the service rendered by the assessee by way of sale of SIM cards was ultimately received by the consumers / subscribers the value of taxable service is the gross amount charged which is the amount received by them from dealers / distributors and not the MRP value [BPL Mobile Cellular Ltd. v. CCE (2007) 82 RLT 920 (CESTAT - Che.)].

8.6 Goods and materials during the course of providing photography services is not includable in the value of taxable service for the purpose of charging service tax. Further, the Circular F.No.233/2/2003-CX-4 dated 3.3.2006 clarifying otherwise is not in accordance with the judgment of the Supreme Court in BSNL case. [Shilpa Color Lab v. CCE (2007) 5 STR 423 (Tri.-Bang.); CCE vs. Express Color Lab (2008) 9 STR 126 (Tri. – Bang.) see also CCE vs. Crystal Colour Lab (2008) 10 STR 26 (Tri-Bang.); Digi Studio vs. CCE (2008) 10 STR 31 (Tri-Bang.); Deluxe Color Lab (P) Ltd. vs. CCE (2009) 13 STR 605 (Tri-Del.); Jain Bros. Vs. CCE (2009) 13 STR 633 (Tri-Del.)]

8.7 Service tax is not leviable for the free service rendered by the authorised agency in respect of the cars sold by them. [AVG Motors Ltd. vs. CCE 2008 (10) STR 20 (Tri. – Bang.) see also Indus Motor Company vs. CCE (2008) 9 STR 18 (Tri. – Bang.); ASL Motors Pvt. Ltd. vs. CCE&ST (2008) 9 STR 356 (Tri. – Kol.)].

8.8 Income-tax deducted at source under the provisions of Income tax Act would form part of the gross amount charged for the purpose of charging service tax. [CCE vs. Louis Berger International Inc. (2009) 13 STR 381 (Tri-Del.)]

8.9 Wharfage charges collected by the Custom House Agents (CHA) and paid to the port being a reimbursable expense is not liable for service tax [Alvares & Thomas vs. CCE (2009) 13 STR 516 (Tri-Bang.)]

8.10 Where the assessee under a composite contract provided the services of a consignment agent including transportation of materials, the Tribunal observed that the entire value received would be liable as clearing and forwarding agency services and no deduction in respect of transportation charges would be allowed. [CCE vs. Metal Engineering & Forging Co. (2009) 14 STR 16 (Tri-Del.)]

8.11 In this case the Tribunal held -

(i) Spare parts etc., used in the course of maintenance under any Annual maintenance contract are to be considered as ‘sold’ to the customer and the exemption in respect of value of goods and materials sold as provided in Notification No. 12/2003 dated 20.6.2003 is allowable

(ii) Adoption of 70% of the gross value as representing material component based on state VAT law is not arbitrary and is permissible.

[Wipro GE Medical Systems Pvt. Ltd. vs. CST (2009) 14 STR 43 (Tri-Bang.); See also PLA Tyre Works vs. CCE (2009) 14 STR 32 (Tri-Chennai); A.N. Palaniappan v CCE (2010) 20 STR 781 (Tri-Chennai)]

8.12 The appellant, a consignment agent, under a single contract with its principal, received goods from the principal’s factory, warehoused the same, arranged dispatch of the goods and invoiced the same on behalf of the principal. It also performed cutting, bending, straightening during the warehousing. It charged the client one single bill which included the cost of transportation, loading and unloading, cost of cutting, bending, etc. On the question of exclusion of transportation cost, loading and unloading cost and cost of cutting, bending, etc. for the purpose of charging service tax, the Tribunal held-

(i) since there is one contract and the total consideration is also charged in one bill, the cost of transportation and loading or unloading cannot be excluded;

(ii) since the activities of cutting, bending, straightening cannot be said to be service provided by consignment agent, these charges are not to be included for charging service tax.

[Agra Steel Corporation Vs. CCE (2009) 15 STR 202 (Tri.- Del.)]

8.13 Value of materials used in ‘retreading of tyres’ eligible to be deducted from the value of taxable services especially where the appellants had disclosed the material value separately in the invoice and also paid VAT / sales tax on the material value [Chakita Ranjini Udyam v. CCE (2009) 16 STR 172 (Tri – Bang.)].

8.14 Where the appellant provided construction services to NTPC for the period 10.9.2004 – 31.3.2006 and paid sales tax on the material component and service tax on the labour component, the Tribunal held extended the benefit of notification no. 12/2003 dated 20.6.2003 which exempts value of goods ‘sold’ in the execution of taxable service and dismissed the revenue’s contention that there was no sale of goods which were used in the works contract. [Sunil Hi-Tech Engineers Ltd v CCE 2010(17) STR 121 (Tri-Mum)]

8.15 In-flight catering services is liable for service tax under the category of ‘outdoor catering services’ and where VAT has been paid on the value of foods and beverages sold the same cannot be included within the taxable value for levy of service tax. [Grand Ashok vs. CST (2009) 15 STR 344 (Tri-Bang.) See also Daspalla Hotels Ltd. vs. CCE (2010) 18 STR 75 (Tri-Bang.) wherein the appellants, a hotel, paid Value Added Tax/sales tax on the value of food and beverages supplied to customers in the course of providing them ‘convention services’].

8.16 Where the appellants contended that service tax is payable only on the consideration received for provision of C&F agent services and not on the amounts reimbursed towards expenses incurred such as transportation charges, loading and unloading charges, rent of godown and clerk salary etc., the Tribunal held that –

(i) service tax being destination based consumption tax, till the service reaches its destination, all the expenses incurred till that point and time become essential consideration of cost of service. Neither the arrangements of the parties nor their mutuality or nomenclature or format of their agreement and mode of discharge of consideration shall prevail on the law relating to service tax;

(ii) service tax being leviable on the gross value of taxable service and there being no statutory provision for deduction therefrom of any expenses reimbursed by the service recipient to the service provider, the reimbursements would also be liable for service tax.

[CCE vs. Team S & S (2011) 21 STR 290 (Tri-Del.)]

8.17 SIM card is not a ‘goods’ sold to the customer by a mobile service provider but is supplied as part of telecommunication service and it has no intrinsic value other than receiving mobile telephone service from the service provider. Consequently, the value of SIM card is includible in the value of taxable service. [CCE vs. Idea Mobile Communications Ltd. (2010) 19 STR 18 (Ker.)]

8.18 Where the appellant has already paid VAT on the material component of the construction contract which as per the state VAT law was deemed as 70% and on the balance 30% paid service tax, the Tribunal held that the Revenue cannot collect service tax on the material component since it would violate the principles of fiscal federalism and mutuality of service tax and sales adopted in the Constitution. [Sobha Developers Ltd. v. CCE & ST (2010) 19 STR 75 (Tri. – Bang.)]

9 Abatements

9.1 Where the appellants provided commercial or industrial construction services and claimed abatement (67%) under notification no. 1/2006 dated 1.3.2006, the High Court held that for the purposes of computing the abatement, the term “gross amount” charged in the Explanation to the said notification shall not include the value of free material supplied by the clients of the appellants. [ERA Infra Engineering Ltd. vs. U.O.I (2008) 11 STR 3 (Del.); See also CEMEX Engineers vs. CST (2010) 17 STR 534 (Tri-Bang.)].

10 Valuation & abatement

10.1 The assessee was engaged in laying of pipelines and registered under ‘Commercial or Industrial construction services’. The assessee claimed abatement of 67% of the “gross amount charged” under notification 15/2004 dated 10.9.2004 and 1/2006 dated 1.3.2006 and paid service tax on the 33% of the “gross amount charged” without including the value of pipes provided by the customer in the ‘gross amount charged’. The Tribunal held that the value of pipes supplied has to be included since –

(a) the pipeline is essential component required for providing pipeline services and is to be treated as non-monetary consideration in terms of Rule 3 of Valuation Rules;

(b) The notification defined the term ‘gross amount charged’ to include value of goods and materials supplied or provided or used by the provider of the construction service for providing such service. Since pipes are ‘used’ by the service provider for laying pipelines, the value of pipes would have to be included in the ‘gross amount charged’ for the purpose of computing the abatement.

[Jaihind Projects Ltd vs CST 2010 (18) STR 650 (Tri-Ahmd.)]

IV. IMPORT AND EXPORT OF SERVICES

11 Import of Services

11.1 Prior to 16.8.2002 services provided by a person or a company which is situated outside India having no business establishment in India is not liable for service tax especially considering that the rules were amended on 16.8.2002 to recover service tax in such cases from the recipient of the service. [Philcorp PTE. Ltd. v. CCE (2007) 7 STR 266 (Tri – Mum) see contra Calvin Wooding Consulting Ltd. v. CCE (2007) 7 STR 411 (Tri-Del.) below].

11.2 In a batch of appeals, where certain foreign companies provided manpower recruitment services to an Indian company the department sought to tax such services and recover the tax in certain cases from the service recipient and in certain cases from the service providers. Upholding the department’s plea the Tribunal held as follows :

(i) By Section 68 of the Act, it is provided that, every person providing taxable service to any person shall pay service tax at the rates specified in Section 66 in the manner and within such period, as may be prescribed by the Rules. Therefore, there is no distinction made between a foreigner and an Indian as regards the liability to pay Service Tax, when the taxable service is provided in India. There is no immunity to any foreigner from the applicability of the provisions of the said Act and foreigners and other non-residents were equally liable for the service tax when services were provided by them to a recipient in India. There is indeed no question of any extra-territorial operation of the statute involved in cases where service is provided by any person to a recipient of service in India.

(ii) The argument that the search for engineers was done abroad in Austria and France and hence they provided the services abroad is not tenable because the selection and recruitment was required to be made for the recipient which was in India and not for any other person abroad. It cannot, therefore, be said that the services were provided by these appellants abroad.

(iii) Prior to 16.8.2002, in respect of services provided by non-residents, the tax could be paid by the non-resident himself or by a person authorised by him. Since in certain cases the appellants although the recipients of the service had undertaken to discharge the obligation contractually they would be liable to pay tax and file returns. However, such an obligation cannot be inferred from a statutory obligation to deduct income-tax at source under the income-tax law.

[Calvin Wooding Consulting Ltd. v. CCE (2007) 7 STR 411 (Tri-Del.)].

11.3 Rule 2(1)(d)(iv) of Service tax Rules, 1994 which came into effect from 16.8.2002 fastened the liability for payment of service tax on the service recipient would not operate in respect of services provided prior to 16.8.2002 though the invoices were raised and payments made after 16.8.2002. [Schott Glass India P. Ltd. vs. CCE (2007) 8 STR 407(Tri – Ahmd.).See also CCE vs. Schott Glass India Pvt. Ltd. (2009) 14 STR 146 (Guj HC.)]

11.4 In respect of taxable services provided by a person who is a non resident or is from outside India, who does not have any office in India, it is the recipient of the taxable service who is liable to pay service tax. Such service was notified in the Official Gazette, in exercise of the powers conferred by sub-section (2) of Section 68 of the Finance Act, 1994 only on 31.12.2004 with the issue of Notification 36/2004-ST which came into force on 1.1.2005. Hence for a period prior to such date the recipient of the service is not liable to pay service tax in such cases. [ISPAT Industries Ltd. v. CCE (2007) 8 STR 282 (Tri-Mum.) following Aditya Cement vs. CCE, Jaipur (2007) 7 STR 153 (Tri-Del.) approved in Hindustan Zinc Ltd. vs. CCE (2008) 11 STR 338 (Tri-LB)].

11.5 Prior to 1.1.2005, in respect of taxable services provided by a non-resident or a person from outside India who does not have an office in India to a person based in India, the recipient of the service is not liable to pay service tax notwithstanding that the recipient has agreed to bear the tax liability since the tax liability is a creature of the statute and governed by statutory provisions and cannot be determined or apportioned by an agreement between two private parties. [JCB India Ltd. vs. CST (2008) 12 STR 714 (Tri. – Del.).See also CCE vs. Nicholas Piramal India Ltd. (2009) 13 STR 383 (Tri. – Del.), Nahar Spinning Mills v. CCE (2009) 13 STR 255 (Tri. – Del.)].

11.6 The appellants provided consulting engineering services (project management consultancy) to its customer in respect of a project which involved offshore supply, offshore services, onshore supply, onshore services and construction & erection of a plant in India. The services were provided both in India and outside India. The agreement clearly specified the consideration for the onshore work and offshore work. The Tribunal after referring to circular no. 36/4/2001 dated 8.10.2001 and section 66A held that for a service to be taxable, the services must be provided “in India” and hence the consideration allocable to onshore services would alone be taxable and the consideration allocable to offshore services would not be liable for service tax prior to 18.4.2006 i.e. before the insertion of section 66A which broadly speaking deemed a service provided by a person based outside India to a person based in India as being provided by the recipient in India. [Foster Wheeler Energy Ltd. v. CCE & C (2007) 7 STR 443 (Tri-Ahmd.)].

11.7 Overseas agents who procured orders for the appellant, an Indian company, were held to have rendered their services abroad notwithstanding that they were in touch with the appellants for taking instructions in issues like prices, discounts, etc. Hence the appellant was not liable to pay service tax as a recipient of service on the overseas commission paid prior to 18.4.2006 i.e. before the insertion of section 66A. [Anant Spinning Mills vs. CCE (2009) 14 STR 184 (Tri-Del.)]

11.8 In respect of taxable services received outside India by a person who is resident in India from a person who is non resident or is from outside India would be liable for service tax only after enactment of Section 66A w.e.f. 18.4.2006. Prior to 18.4.2006, in respect of the said services the service recipient in India would not be liable for service tax. [Indian National Shipowners Association v. UOI (2009) 13 STR 235 (Bom.); Followed in Unitech Ltd. v. CST (2009) 15 STR 385 (Del.); CCE vs. EID Parry (2009) 16 STR 82 (Tri-Chenai); CST vs. SKF India 2010 (18) S.T.R 388 (Kar) See also Dimension Stone vs. CCE (2009) 16 STR 313 (Tri-Del.); Shardha Terry Products Ltd. vs. CCE (2009) 16 STR 605 (Tri-Chennai); Polyspin Exports Ltd. v. UoI (2011) 22 STR 9 (Mad); Kpit Commins Infosystems Ltd. vs.CCE (2011) 22 STR 215 (Tri. – Bang.); BHEL-GE Gas Turbine Services Pvt. Ltd. vs. CST (2010) 20 STR 679 (Tri-Bang.)].

11.9 Where the appellant received technical know-how and assistance from five foreign entities and the Revenue contended that in terms of the second proviso to Rule 6(1) of the Service tax Rules, 1994 (as it stood prior to it amendment w.e.f. 16.8.2002) the recipient of service would be liable to pay service tax since the overseas entities by virtue of the agreement authorized the service recipient to pay tax, the High Court dismissed the contention of the Revenue and held –

(i) Section 68 of the Finance Act casts the liability on the service provider to pay service tax. Hence in absence of any express provision in Act the rules casting the liability on the recipient of service would be contrary to the provisions in the Act and therefore, would not be sustainable.

(ii) The second proviso to rule 6(1) provides that if the service provider authorizes the service receiver, then the receiver of service can pay tax on behalf of the service provider. However, this would apply only if the service provider in the first place is liable. The provisions of the Act (as it stood then) are not applicable to non-resident service providers and hence there is no liability on their part to pay service tax. Hence the second proviso can also not be triggered.

[CST vs. Bharat Electronics Ltd. (2010) 20 STR 307 (Kar.)]

11.10 Where the appellant reimbursed certain coaching fees to its employees who availed and paid for the coaching services outside India the Tribunal held that no service tax is payable by the assessee (employer) since

(i) the coaching services were received by the employees abroad in their individual capacity and the assessee merely reimbursed the costs and did not pay the coaching centres directly which is a basic requirement for levying service tax.

(ii) the issue involved is prior to 18.4.2006 i.e. prior to introduction of section 66A and hence service tax on the recipient cannot be levied on the recipient
[CCE v. Maersk India P. Ltd (2011) 22 STR 187 (Tri- Mum)

11.11 Consulting engineering services rendered by a ‘foreign company’ to the appellants during the period 1.4.99 to 31.3.01 is not liable for service tax, since:

(i) Consulting engineering services provided by a ‘body corporate’ would be liable for service tax only w.e.f. 1.5.2006 and not prior to that date;

(ii) in any event no service tax would be payable on services provided from outside India prior to 18.4.2006 since s.66A of the Finance Act, 1994 was introduced only w. e. f. 18.4.06.

Accordingly the High Court held that the appellants would not be liable to pay service tax on the services provided by overseas foreign company. [CST v. Toyoda Iron Works Co Ltd (2010) 19 S.T.R 802 (Kar) - relying on CCE vs. Araco Corporation (2010) 19 STR 169(Kar.) & CCE vs. SKF India Ltd. (2010) 18 STR 388 (Kar.) see also CCE vs. Araco Corporation (2010) 19 STR 169(Kar.)]

12 Export of services

12.1 In the case of courier services involving delivery of articles abroad for consignors in India the Tribunal held that the service would be completed only when the courier is delivered outside India to the consignee abroad and hence part of the service being performed outside India the service is to be considered as performed outside India under Rule 3(2) of the Export of Services Rules, 2005 Accordingly the service would be considered as exported under rule 3(2) of the Export Rules and no service tax is payable in terms of Rule 4 of the said Rules. The argument that transportation is merely incidental in providing courier services is not correct especially considering that Cenvat Credit Rules, 2004 also provide that credit of duty paid on motor vehicles would be allowed to select service providers one of which are courier service providers. [TNT India Pvt. Ltd. V. CCE (2007) 7 STR 142 (Tri - Bang.). See also U.B.Xpress (South) Pvt. Ltd. vs. CCE&ST (2008) 12 STR 152 (Tri-Chennai)]

12.2 The appellant was an agent of a foreign company – GMC. It sourced contracts from the India Railways to GMC for a commission. The commission was denominated in USD but payable by GMC in INR through the Indian Railways. Thus, from the amount of USD payable to GMC by Indian Railways, the Railways deducted the USD equivalent of the commission payable to the appellant and remitted the net amount of USD to GMC and paid the commission in INR to the appellant. The department denied the export exemption on the basis that the commission was received in INR. The Tribunal allowed the exemption holding that the appellant was paid an amount in INR equivalent to the USD commission and correspondingly equivalent USD was not released to the Indian Railways for remittance to GMC. Hence, the requirements of earning in convertible foreign exchange was held to be satisfied interpreting the condition in accordance with its object and purpose. [National Engg. Industries Ltd. v. CCE (2008) 11 STR 156 (Tri. – Del.)].

12.3 Where the appellants were engaged in booking orders in India for their foreign principals and received commission for such services in convertible foreign exchange the Tribunal held that such services were in the nature of business auxiliary services provided from India and used outside India and hence would qualify as export of service under rule 3(2) of the Export of Service Rules, 2005. [Blue Star Ltd. vs. CCE (2008) 11 STR 23 (Tri-Bang.)].

12.4 Where the appellants booked orders in India for the sale of the goods manufactured by its subsidiary situated in Singapore for a commission, the Tribunal held that:

(i) it cannot be said that the booking of orders indicate services being rendered in India;

(ii) since the orders were booked for a Singapore company the services were considered to be delivered only to the Singapore company;

(iii) when the recipient of the service is Singapore Company, it cannot be said that services is delivered in India and the benefit of services is derived only by the recipient company;

(iv) because of the booking of orders, the Singapore Company gets business therefore the services are also utilized abroad

Accordingly, the services of the appellant would be considered as export of services and not liable for service tax. [ABS India Ltd. vs. CST (2009) 13 STR 65 (Tri-Bang.)]

12.5 The appellant provided services to clients based abroad. It got these clients through its agent in India. The consideration for its services was received first by its agent in foreign currency who after deducting its commission paid the balance to the appellant in INR. The Revenue denied refund of tax paid on inputs used for export of such services on the ground that the appellant had not received the consideration for services exported in convertible foreign exchange directly from service recipient. The Tribunal allowing the appeal of the appellant held –

(i) The condition for receipt in foreign exchange was not applicable prior to 1.3.07 in respect of services falling under rule 3(3) [i.e. location of service recipient category] and the appellants claim was in respect of services exported prior to 1.3.07 and also in respect of services falling under rule 3(3) [i.e. location of service recipient category].

(ii) Even if there was condition for receiving the money in foreign exchange–

(a.) The appellant would be satisfying such a condition also by liberal interpretation since it is the appellant who have rendered the services directly to the recipient situated abroad and not the agents and the payment has been received in foreign exchange though by their agents.

(b.) The receipt of monies by an agent of the appellant in foreign exchange would be deemed to have been received by the appellant in foreign exchange for the purposes of export Rules.

[Nipuna Services Ltd vs. CCE (2009) 14 STR 706 (Tri. – Bang.)]

12.6 In the present case, the appellants were sub-representatives of one M/s. WFL which in turn was representative of Western Union, an overseas entity providing money transfer services to persons based abroad for transferring money to India. Western Union paid a commission to WFL and WFL in turn paid an amount to the appellant for completing the Indian leg of a transfer receive transaction i.e. where money is transferred from abroad to recipient in India. Department sought to levy service tax on the fee received by the appellant under the category of business auxiliary services for the period 1.7.03 – 31.1.06. On appeal, the Tribunal held as follows –

(i) On a reading of the agreement it was held that the services was rendered by the appellant directly to the Western Union situated outside India and they were ultimate beneficiaries of the services;

(ii) the services would be considered as used outside India since they benefited Western Union and its overseas customer (viz., the remitter);

(iii) during the disputed period, there was no requirement that the money must be received in convertible foreign exchange.

Hence the services would be considered as exported and accordingly not liable for service tax [Muthoot Fincorp Ltd. vs. CCE (2010) 17 STR 303 (Tri-Bang.)].

12.7 Where the appellant procured orders for foreign principals in consideration for a commission received in convertible foreign exchange, the Tribunal held that the appellant’s services are used outside India in view of the fact that the rendering of the service was complete only when the purchase orders canvassed by the appellant in India were received by the foreign companies and since these purchase orders were received abroad and acted upon abroad the benefit of the service accrued to the foreign companies abroad. Accordingly the appellant’s services were held to be exported and the appellant was held entitled to refund of tax paid on exports. [EM JAY Engineers v. CCE (2010) 20 STR 821 (Tri-Mum.)].

12.8 Where the assessee procured orders for foreign principals and received their consideration in foreign exchange, it was held that the assessee’s services were exported since it fulfilled all the conditions, including the condition of the service being “delivered outside India and used outside India” since the rendering of the service was complete only when the purchase orders canvassed by the assessee in India were received by the foreign companies and these purchase orders were received and acted upon by the foreign companies abroad. In other words, the benefit of the service provided by the appellant accrued to the foreign companies outside India and hence the service was “delivered outside India and used outside India”. [KSH International vs. CCE 2010 (18) STR 404 (Tri-Mumbai)]

12.9 Where the assessee conducted clinical trials for foreign clients and delivered the report to them abroad it was held that the services are not complete until the reports are submitted to the client and in the present case since the reports were sent abroad the service was to be considered as partly performed abroad. Further, the services were also ‘delivered outside India and used outside India’. Hence assessee was entitled to claim export exemption.[CST vs. B.A. Research India Ltd. 2010 (18) S.T.R. 439 (Tri- Ahmd.)].

V. TAXABLE SERVICES

13 Advertising agency services

13.1 The appellants booked space in Government buses and then contacted government departments for placing advertisements which was mainly in the nature of general awareness programmes. The advertisements were either readymade or at times prepared by the appellants. The Tribunal held that –

(i) An advertisement is a public announcement which can be made by way of display of any hoardings or otherwise. Advertisement is used to awaken, enlighten and activate the public at large concerning matters that effect the society generally. The fact that such advertisements were public interest advertisements made no difference. Hence the materials displayed would be “advertisements”;

(ii) The appellants were an “advertising agency” inasmuch as they made profit out of the said activity of display of advertisements and accordingly were liable for service tax;

(iii) The activity of hiring space and providing the same to a person who uses it for advertisements will not attract service tax;

(iv) The expenses incurred for making the space available or rental charges paid for getting such space for advertisements are not includable in the value of taxable services.

[Prithvi Associates vs. CCE (2005) 70 RLT 483 (CESTAT-Mum.)]

13.2 Where the appellants were engaged in making of signages and hoardings including the painting and writing of advertisement on the signboards and hoardings, the Tribunal held that –

(i) the appellants are not equipped for functioning as an advertising agency since the services provided by the appellants do not partake of or include the services of designing, conceptualizing, or visualizing the advertisements which are normally rendered by advertising agencies.

(ii) the extended definition of the term “advertisement” cannot bring an entirely alien or unconnected activity or a manufacturing service within the scheme of levy of service tax.

[Ajanta Fabrication v. CCE (2006) 4 STR 605 (Tri-Del.). See also Market Chase Advertising vs. CCE (2008) 10 STR 598 (Tri. – Chennai)].

13.3 The appellants solicited for and booked advertisements in foreign broadcasting channels for a consideration as their representatives in India. The revenue sought to tax this consideration of the appellants under the category of ‘advertising agency services’. The Tribunal negatived the contention of the revenue and held as follows :

(i) The phrase “advertising agency” though defined in the statute as being a concern engaged in providing a service connected with the making, preparation, display or exhibition of advertisements must be construed in a normal sense and essentially must be a concern which specializes in providing services such as media selection, creative work, etc. Since the appellants in the present case were not performing any of these services they were not liable for service tax under the category of advertising agency.

(ii) A “client” is the person who wants to advertise his goods or services. The appellants had no contract with the advertisers but only with their principals. Their principals were broadcasting agencies and not “client” and hence there was no service to a “client”;

(iii) Where the legislation itself covered the activity of the appellants under the category of broadcasting services w.e.f 16.7.2001, the appellants could not be taxed as advertising agency prior to that date;

(iv) The Finance Bill, 2006 specifically introduced a category of “sale of space or time for advertisements” within the ambit of service tax but had excluded sale of time slots by a broadcasting agency since it was already taxed. Hence the activity of sale of time slots was not an advertising agency services.

[Zee Telefilms Ltd. v. CCE (2006) 4 STR 349 (Tri-Mum.) See also MTV Network India Pvt. Ltd. v. CCE (2007) 5 STR 374 (Tri.-Mumbai) and Siticable Network P. Ltd. v. CCE (2006) 4 STR 555 (Tri. Mumbai)]

13.4 The appellants were an advertising agency who provided advertising services to their clients and charged a fixed fee for its services. Their services consisted of booking slots in print and electronic media for the advertiser. The media billed the appellants @15% discount. If Rs. 100/- was the tariff rate the media charged them Rs. 85/- plus 10.2% service tax. The appellants in turn charged the same Rs. 85/- + 10.2% service tax to the advertisers, recovered the amount from them and paid it over to the media who paid the service tax of 10.2% on Rs. 85/- to the Exchequer. The appellants paid service tax on the fixed fee it received from their clients. Further, the appellants also received cash discounts (discount for prompt payment) and target incentives (incentive for achieving a certain level of business) from the media. The department sought to tax – (i) the discount of 15%; (ii) cash discount; and (iii) target incentives under the category “Advertising agency” services. Dismissing the department’s contentions the Tribunal held –

(i) For an advertising agency it is the advertiser who is its ‘client’. Its client is not the media. It is only the amounts that are received from its clients which is taxable under the category of “Advertising agency” services and any amount received from media will not be liable for service tax.

(ii) The discount given by media is not an amount “received” by the advertising agency. It is only a “discount”. Further, the media is not the client of the advertising agency. Hence the discount is not taxable.

(iii) Both cash discounts and target incentives are not connected to the service rendered to the clients (advertisers) nor are they billed to the clients (advertisers). Hence these incomes earned by appellants are not liable for service tax under the category of “Advertising agency services”.

[Euro RSCG Advertising Ltd. v. CCE (2007) 7 STR 277 (Tri.-Bang.) See also Kerala Publicity Bureau vs. CCE (2008) 9 STR 101 (Tri-Bang)]

13.5 The appellants were a non-profit making organization registered under the Societies Registration Act and promoted and organized cricket tournaments. In earned its income inter alia from the following activities:

(i) sale of telecast right of cricket matches.

(ii) Permitting sponsors to use space for putting up of advertisement in stadium, and

(iii) Permitting logos on clothing and clothing accessories of players.

The department sought to tax these activities under the category of “advertising agency services”. Dismissing the department’s contention the Tribunal held as under:

(a) An advertising agency as defined in section 65(3) must be a “commercial concern” and BCCI is not a ‘commercial concern’ as held by the Supreme Court in Secy, Ministry of I&B v Cricket Assn. Of Bengal (1995) 2 SCC 161; further the fact that BCCI is a charitable institution in terms of the Income Tax Act would lend support to the BCCI’s plea that it is not an advertising agency.

(b) A “definition” in a statute has to be interpreted, in a sense appropriate to the phrase defined and to the general purpose of enactment. The ordinary meaning of the term advertising agency is an office which plans, designs and manages advertising for other companies. The definition of advertising agency can not be read in isolation and out of context. Even if the services provided by the appellant is broadly covered by the expression "exhibiting" or "displaying" of advertisement, but when viewed in the context, would not convert BCCI into an advertising agency.

(c) If BCCI is not an advertising agency then BCCI’s activity would not attract service tax under ‘Advertising Agency Services’

(d) As regards the sale of telecast rights there is no advertisement when the performance rights of the match vested in BCCI is being sold for viewer ship of millions of people and there is no client to which such service in relation to advertisement is being provided. Hence sale of television/telecasting rights would not be covered by a taxable service in relation to advertisement.

(e) What is being taxed is planning and expertise involved in making, preparing display or exhibiting the advertisement and not simply providing of a place or space to the advertiser. The expression "display" or "exhibit" does not mean the physical act of display and exhibit, but relates to the services rendered, as an expert body, to the client, for the purposes of display or exhibit. The same may involve the expertise of the provider of the services to advise the client as to in which manner, the advertisement should be displayed i.e. whether in the newspaper or on TV channel or by way of hoardings or a audio/video advertisement in air or any other medium on at what point of time the same should be exhibited. The fact that physical display or exhibition is not liable under advertisement agency service is also substantiated by the fact that "sale of space or time for advertisement and sponsorship services" were specific entries introduced for the purposes of service tax w.e.f. 1.5.06. Hence permitting sponsors to use space for putting up an advertisement and logo money is not liable for service tax under the category of “advertising agency services”.

[BCCI v. CST (2007) 7 STR 384 (Tri-Mum.)]

13.6 Where on facts it was found that the appellants were only engaged in buying the time slots from channels on commission basis and selling the same to the advertising agencies for the purpose of exhibiting the advertisement during those time slots, the Tribunal observed that the appellants would not be liable for service tax under the category of advertising agency services since-

(i) the appellants were not connected with making, preparing, displaying or exhibiting of any advertisements; and

(ii) services of sale and purchase of time slots for advertisement was brought within the ambit of service tax only w.e.f. 1.5.2006 under the category of “sale of space or time for advertisements” and accordingly, the same would not be liable for service tax prior to that date under the category of advertising agency services.

[Needwise Advertising Pvt. Ltd. vs. CST (2011) 21 STR 229 (Tri-Ahmd.)]

14 Airport Service

14.1 Admission ticket fee collected from the passengers and visitors at the airport for providing amenities and facilities therein is liable for service tax under the category of ‘airport services’. Further where the appellants were licensed and authorised by the airport authority to collect admission ticket fee, the Supreme Court held that the appellant steps into the shoes of airport authority for the services provided on the basis of authorisation and hence it is he who would be liable to pay service tax under airport services. [P.C. Paulose, Sparkway Enterprises vs. CCE (2011) 21 STR 353 (SC)]

15 Automated teller machine operations, maintenance or management services

15.1 Cash replenishment services in an ATM is liable for service tax only from 1.05.2006 under ‘Automated teller machine operations, maintenance or management services’ and not under ‘business auxiliary services’. [NCR Corporation Pvt. Ltd. vs. CST (2008) 12 STR 68 (Tri-Bang.)]

16 Authorised service station services

16.1 ‘Free services’ rendered by automobile dealers in respect of vehicles sold are not liable for service tax since –

(i) the value for such services have already been included in the price of the vehicle paid by the customer and has been subjected to payment of excise duty and sales tax.

(ii) no payment is received for the services from the customers.

(iii) there is no evidence that the vehicle manufacturers have specifically reimbursed any amount towards the said services.

[Hindustan Auto House (P) Ltd. vs. CCE (2009) 13 STR 190 (Tri-Del.). See also K.P.Authomobiles Pvt. Ltd vs. CCE (2009) 13 STR 389 (Tri-Del))]

16.2 Where the appellants were servicing / repairing of ‘light commercial vehicles’ during the warranty period for which they were reimbursed by the manufacturer it was held that ‘authorised service station’ services do not cover services in respect of ‘transport vehicles’ such as light commercial vehicles and hence the amount received from the manufacturer was not liable for service tax. [Popular Mega Motors (India) Ltd vs. CCE 2010(17) STR 373 (Tri-Bang)].

17 Banking and other financial services

17.1 The appellants entered into an agreement whereby its customer identifies the vehicle that he wishes to purchase from the manufacturer/dealer thereof, makes a part payment to the seller of the vehicle, applies to the appellants for financing the balance, and once the financing is sanctioned, the customer enters into an agreement with the appellants and provides as security, right of repossession of the vehicle to the appellants in the event of his (customer’s) default in payment of instalments to the appellants. The customer becomes the owner of the vehicle - the title to the vehicle vests with him who is a purchaser and it is in his name that the vehicle stands registered and insured and the appellants are the nominees. The Tribunal held that such an agreement is a ‘hire purchase finance agreement’ which is different from ‘hire purchase agreement’ where the title to the goods remains with the finance company which bails the goods to the hirer in return for periodical payments and the title to the goods is transferred to the customer/hirer only if he exercises the option to purchase the same on full payment to the finance company. Having noted the distinction the Tribunal observed that only “hire purchase” and not “hire purchase finance” is covered under the category of “Banking or other financial services”. [Bajaj Auto Finance Ltd. v. CCE (2007) 7 STR 423 (Tri.-Mum.) affirmed by Supreme Court in (2008) 10 STR 433 (SC). See also Kausalva Finance Ltd. vs. CCE&S (2008) 10 STR 150 (Tri-Bang)].

17.2 Where the appellant gave an extrusion machine on a lease of 35 months extendable to another period of 2 years for a monthly ‘user charge’ without an option to transfer the asset at the end of the term, the Tribunal, relying upon the ICAI Accounting Standard 17 defining ‘Financial lease’, held that the lease was for a short period without any relation to the economic life of the asset and the risks and rewards incidental to ownership was not transferred to the lessee. Accordingly, the lease was not a ‘financial lease’ liable for service tax under the category of ‘Banking and other Financial Services’.[CCE vs. G.E. India, Industries (P) Ltd. (2008) 12 STR 609 (Tri-Ahmd.)]

17.3 The very nature of business and transaction under the Chits as per the provisions of the Chit Funds Act stands on its own as a class. It does not have any parlance or similarity to that of normal transactions as one understood in law or commercially. Hence in absence of specific definition of ‘cash management’ or ‘asset management’ in the statute governing service tax Circular No. 96/7/2007-ST dated 23.8.2007 clarifying Chit funds business to be within ambit of service tax as being in the nature of cash management is incorrect and liable to be set aside. [A.P. Federation of Chit Funds vs. UOI (2009) 13 STR 350 (A.P.)].

17.4 The Supreme Court upheld the legislative competence of the Parliament to impose service tax under Entry 97, List I of the Seventh Schedule to the Constitution on transactions covered under section 65(12)(a)(i) of the Act defining ‘Banking and other financial services’, more particularly, “financial leasing, including equipment leasing and hire-purchase”. In this regard the Supreme Court observed as under :

(i) The impunged provision viz., section 65(12)(a)(i) basically operates qua an activity of funding/ financing of equipment/ asset.

(ii) In a ‘finance lease’, it is the lessee who selects the equipment to be supplied by the dealer or the manufacturer and takes delivery, but the lessor [finance company] provides the funds, acquires the title to the equipment, accepts the invoice and pays for it and allows the lessee to use it for its expected life. During the period of the lease the risk and rewards of ownership are transferred to the lessee who bears the risk of loss, destruction and depreciation or malfunctioning. Equipment Leasing/ Hire-Purchase finance are long term financing activities of equipment/ asset.

(iii) The above transactions are different and distinct from operating lease/ hire-purchase transactions in the classical sense. A hire-purchase agreement is a hiring agreement coupled with an option to purchase, i.e., to say that the owner lets out the chattel on hire and undertakes to sell it to the hirer on his making certain number of payments. There is no contract of sale until the hirer has made the required number of payments and he remains a bailee till then. However, the bailment which underlies finance leasing is only a device to provide the finance company with a security interest [its reversionary right]. If the lease is terminated prematurely, the lessor is entitled to recoup its capital investment [less the realizable value of the equipment at the time] and its expected finance charges [less an allowance to reflect the return of the capital]. It is not a contract of bailment but is merely a financing transaction.

(iv) there are two different and distinct transactions, viz., the financing transaction and the equipment leasing/hire-purchase transaction. The former is exigible to service tax under Section 66 of Finance Act, 1994 (as amended) whereas the latter would be exigible to local sales tax/VAT.

(v) As far as the taxable value in case of financial leasing including equipment leasing and hire-purchase is concerned, the amount received as principal is not the consideration for services rendered. Such amount is credited to the capital account of the lessor/ hire-purchase service provider. It is the interest/ finance charge which is treated as income or revenue and which is credited to the revenue account. Such interest or finance charges together with the lease management fee/ processing fee/ documentation charges are treated as consideration for the services rendered and accordingly they constitute the value of taxable services on which service tax is made payable.

(vi) The above transactions covered under section 65(12)(a)(i) are leviable to service tax which is within the legislative competence of the Parliament under Entry 97 of List I of Seventh Schedule to the Constitution. The transactions are not hire-purchase transactions under article 366 (29A)(d) i.e. a ‘transfer of right to use goods’ read with Entry 54, List II of the Seventh Schedule.

[Association of Leasing & Financial Service Companies vs. UoI (2010) 20 STR 417 (SC)]

18 Broadcasting Agency

18.1 The appellants in this case were engaged in selling time slots and obtaining sponsorships for the programme, events, etc. to be played out by foreign broadcasting organizations like ATL / EXPAND and STAR which are located outside India. The foreign broadcasting organizations like STAR beamed signals from outside India which were received in India by Multi System Operators and Cable TV Operators. Hence it was contended that the appellants are not engaged in the activity of broadcasting and broadcasting done by ATL / EXPAND and STAR are from outside India and hence no service tax is payable. Rejecting the contention, the Delhi Tribunal held as follows:

(i) When the programmes and advertisements are telecast outside India but are received in India through MSOs and Cable TV Operators, they would come within the definition of ‘broadcasting’ under section 2(c) of Prasar Bharti Corporation Act, 1990 and accordingly within the definition of ‘broadcasting’ as per section 65(13) of Chapter V of the Finance Act, 1994 (“Act”) even as it stood before the amendment by Finance Act, 2002.

(ii) After the amendment by the Finance Act, 2002 also the appellant’s activity would be treated as ‘broadcasting’ and the appellant would be treated as a ‘broadcasting agency’.

(iii) The entire amount paid would be treated as value of taxable service.

(iv) Considering the nature of dispute which related to a legal issue regarding interpretation of provisions of different Statutes and also taking into account the conduct of the appellants in taking out registration and submitting returns under protest, the Tribunal set aside the imposition of penalty under section 76.

[Zee Telefilms Ltd. v. CCE (2004) 166 ELT 34 (Tri. Del.)]

19 Business Auxiliary services

19.1 Sale of SIM cards is a sale of goods and cannot be considered as an auxiliary service for the purpose of service tax. [BPL Mobile Communications Ltd v. CCE (2007) 80 RLT 351 (CESTAT-Mum.) following Idea Mobile Communications Ltd. v. CCE (2006) 4 STR 132 (Tri.-Bang.) see also Karakkattu Communications v. CCE (2007) 8 STR 164 (Tri. – Bang.); South East Corporation vs. CCE 2007(8) STR 405 (Tri – Bang); R.B.Agencies vs. CCE (2008) 11 STR 124 (Tri- Bang.); Vallamattam Communication v. CCE (2008) 12 STR 267 (Tri. – Bang.); R. Venkataramanan vs. CCE (2009) 13 STR 187 (Tri – Chena)]

19.2 Where the legislation itself covered the services of share transfer agent and registrar to an issue under service tax w.e.f 1.5.2006, the said services would not be liable for service tax under the category of business auxiliary services prior to that date. [CCE vs. Sathguru Management Consultants Pvt. Ltd. (2007) 7 STR 654 (Tri. – Bang.) See also Karvy Consultants Ltd. vs. CCE (2008) 10 STR 166 (Tri-Bang.) Cameo Corporation Services Ltd. v. Commissioner of Service Tax (2008) 11 STR 161 (Tri. – Chennai)]

19.3 Services of generating various MIS reports in pre-defined formats using input supplied by the client fall within the realm of ‘computerised data processing’ and accordingly would not be liable to service tax under the category of ‘Business Auxiliary services’ since ‘information technology services’ is specifically excluded. [Dataware Computers vs. CCE (2008) 12 STR 121 (Tri – Bang.)].

19.4 The appellants in the present case were engaged in the activities of beneficiation of coal i.e. a process whereby the coal extracted from the mines is crushed into pieces and thereafter washed to remove its impurities and ash content so as to make it fit for sale. The Revenue raised a demand on the ground that the said activity would liable for service tax under business auxiliary services as “production or processing of goods for or on behalf of the client”. On appeal, the Tribunal referring to a number of enactments and cases with regard to mining of coal, held that beneficiation of coal is an integral part of ‘mining’ and liable under the category of ‘mining services’ which came into effect only from 01.06.2007 and not under ‘business auxiliary services’ [Aryan Energy (P) Ltd. vs. CCCE (2009) 13 STR 42 (Tri-Bang)].

19.5 Where the appellants entered into a contract for installation of a system at its client’s premises on a turnkey basis for which it procured certain components, such procurement of materials is not liable under the category of ‘business auxiliary services’ since the procurement was only for the purpose of installing the machines and even if it were to be considered as a service the service was rendered to the appellants themselves and not to its clients. [Cethar Vessels Pvt. Ltd. vs. CCE (2009) 14 STR 234 (Tri-Chennai)]

19.6 Purchase of SIM cards and recharge coupons from BSNL at a discount and sold by the assessee to its customers at the MRP is transaction of purchase and sale of ‘goods’ and sales tax is attracted. The discount allowed is not in the nature of commission attracting service tax under the category of business auxiliary services. [JR Communications & Power Controls vs. CCE (2009) 14 STR 379 (Tri-Chennai). See also Chetan Traders vs. CCE (2009) 13 STR 419 (Tri-Del.)]

19.7 Prior to 16.6.2005, the appellant’s activity of powder coating, bending, drilling of components and machinery parts done for a consideration cannot be said to be liable for service tax as ‘production of goods on behalf of the client’ under the category of business auxiliary services since the activities were done for themselves for a fee and not on behalf of any other person. [Auto Coats v. CCE (2009) 15 STR 398 (Tri-Chennai)].

19.8 Since coal is an excisable product (attracting Nil rate of duty) the activity of ‘mining’ coal would fall under business auxiliary services more particularly under clause (v) of section 65(19) viz., ‘production of goods for the client’ but would be excluded from it being an activity amounting to ‘manufacture’ as defined in section 2(f) of the Central Excise Act, 1944 in respect of assessee’s activities for the period 10.7.2004 to 15.6.2005. However, post 1.6.2007 it would be liable for service tax under the category of “mining services”. [Avian Overseas Pvt. Ltd. v. CCE (2009) 15 STR 540 (Tri-Kol.)].

19.9 Where the assessee supplied heated oil (which was in excess of their own consumption) to neighbouring companies for a heating charge, the Tribunal held that there was no question of rendering any service and the supply cannot be considered as ‘procurement of goods or services which are inputs for the client’ inasmuch as they have not procured it through a third person for supply directly to the companies [General Precured Treads Pvt. Ltd. v. CCE (2009) 15 STR 724 (Tri-Chennai)].

19.10 Where, during the period 01.07.2003 to 31.03.2005, the appellant provided services of spot billing and data processing to Andhra Pradesh Central Power Distribution Company, the Tribunal held that it would fall under the definition of “Information Technology Services” and consequently excluded from ‘Business Auxiliary Services’. Further the service is more appropriately classifiable as business support services w.e.f 01.05.06 since it is an outsourced activity and accordingly not liable under Business auxiliary service prior to that date. [Gandhi & Gandhi Chartered Accountants vs.CCE (2010) 17 STR 25 (Tri – Bang)]

19.11 The assessee a dealer in motor vehicles let out table space in its premises to a financial institution which provided financial assistance to customers of the assessee, for a consideration and the assessee also informed the vehicle buyer about the various types of loans available and directed them to the financial institutions. On these facts the Tribunal held that the assessee was not promoting or marketing the services of the financial institution and hence assessee would not be liable for service tax under the category of “Business auxiliary services”. [Tribhuvan Motors Ltd. vs. CST (2010) 17 STR 281 (Tri-Bang.) relying on Silicon Honda v. CCE (2007) 7 STR 475 (Tri.-Bang.)]

19.12 On facts, where the appellants contracted to mine iron ore, process the ore and supply it to its client it was held that it was a composite contract of mining liable for service tax under ‘mining’ services w.e.f. 1.6.2007 and not under ‘business auxiliary services’ prior to that date. [CCE vs. SVM NettProject Solution Pvt Ltd.(2010) 17 STR 298 (Tri-Bang.)]

19.13 Activities such as processing and assembling jeans buttons with metal inserts and nylon inserts and processing needle threader being in the nature of ‘processing of goods’ is liable for service tax under the category of business auxiliary services only w.e.f. 16.6.2005 and not prior to that date. [N. K. Fasteners vs. CCE(2010) 20 STR 689 (Tri-Chennai)]

19.14 In this case the Tribunal relying on Board Circular No. 249/1/2006 – CX dated 27.10.2008 held that the activity of manufacturing alcohol based perfumes and pharmaceutical products though not liable for Central excise duty amounts to ‘manufacture’ as defined under s. 2(f) of the Central Excise Act, 1944, and accordingly would not be liable for service tax under the category of ‘business auxiliary services’. [Rubicon Formulations Pvt. Ltd vs. CST (2010) 19 STR 515 (Tri-Mumbai)]
N.B : The above case is prior to the amendment in the definition of Business Auxiliary services from 7.7.09.

19.15 Where the assessee was engaged in encrypting data of products / services of various clients in their computer system for a consideration and provided the data on products / services to the persons who enquired with them, the Tribunal held that the services provided by the assessee was in the nature providing assistance, help or information through telephone to a caller on behalf of various parties (i.e. its clients) and thus the assessee would be considered as “Call Center” entitled to exemption from service tax under notification no. 8/2003-ST dated 20.6.2003. [CST vs. Citizen Info-Line Ltd. (2011) 21 STR 20 (Tri. – Ahmd.)]

19.16 Where the appellant is engaged in electroplating (gold plating) of watch straps for various parties on job work basis the Tribunal held that the appellant’s activity would not be liable for service tax under the category of Business Auxiliary Services as being production of goods ‘on behalf of’ a client since an activity would be considered as being performed ‘on behalf of’ the client if there are three parties to the transaction and in the appellant’s case there were only two parties to the transaction. Hence, the appellant had not undertaken any job work on behalf of its client. [Sonic Watches Ltd. vs. CCE (2011) 21 STR 34 (Tri. – Ahmd.)].

20 Cargo Handling services

20.1 In this case, the appellants provided labour for managing various points in the mechanized process of packing and loading of cement bags. The processes of packing, loading were automatic and mechanized. The role of manpower was to supplement and oversee and guide the activity. On facts, the Tribunal held that the appellant were merely supplying manpower and not providing cargo handling services. [M/s. J & J Enterprises Vs. CCE (2005) 186 ELT 189 (Tri – Del) See also KK Appachan v. CCE (2007) 80 RLT 714 (CESTAT – Bang.); C. Krishnakumar vs. CCE&S (2008) 10 STR 162 (Tri-Bang.); S.N.Uppar & Co. vs. CCE (2008) 11 STR 34 (Tri-Bang.)].

20.2 Where as per the terms of contract the contractors were to make arrangement for the transportation of goods which incidentally included loading and unloading of goods it was held that the activity of loading and unloading would not be liable as cargo handling services. [Dalveer Singh vs. CCE (2008) 9 STR 491 (Tri-Del)].

20.3 Mechanical transfer of coal from coal face to tippers and subsequent transportation of coal within the mining area would not constitute as cargo handling services since :

(i) the dominant activity undertaken was movement of coal within the mining area, and loading and unloading was incidental;

(ii) ‘Cargo’ in common parlance means something which is carried as freight in a ship, plane, rail or truck while in the present case the coal was merely moved within the mining area.

[Sainik Mining & Allied Services Ltd. vs. CCEC & S (2008) 9 STR 531 (Tri-Kolkata) See also Modi Construction Co. vs. CCE (2008) 12 STR 34 (Tri-Kolkata)]

20.4 On facts the Tribunal held that the respondent’s activity comprising of excavation, transportation and filling of iron ores to the crusher plant are primarily in the nature of mining activities and not ‘cargo’ handling services since:-

(a) “Cargo” is commercially known to be something which is carried as freight in a ship, air plane, rail or truck for freight while in the present case what is carried cannot commercially be called ‘cargo’; and

(b) The incidental activities of loading and unloading cannot give the contracted activities (mining of ores) the character of cargo handling services.

[CCE & C vs. B.K.Thakkar (2008) 9 STR 542 (Tri-Kolkata); Thriveni Earthmovers Pvt. Ltd. v. CCE (2009) 15 STR 393 (Tri-Chennai)]

20.5 Where the assessee had undertaken a series of activities from mining to the delivery of limestone to designated places, the Tribunal rejected the Department’s contention that the amount attributable to loading charges should be treated as liable under cargo handling services since –

(i) the activity of loading is incidental to mining and transportation; and

(ii) the same is rendered to the assessee himself in completing the entire work assigned to it by the contract.

[CCE vs. Giriraj Brothers (2008) 10 STR 549 (Tri. – Del.); See also CCE vs. Laxmi Trading Co. (2008) 10 STR 620 (Tri. – Del.)].

20.6 Where the appellants neither collected cargo from the consignor’s premises nor delivered the same at the consignee’s premises but merely undertook transportation of cargo by air from air cargo station at source location to air cargo station at destination location the Tribunal observed that the services of loading and unloading of goods rendered by the appellants is an integral part of the transportation services. Further relying on decision in Asian Paints India Ltd. vs. CCE (1988) 35 ELT 3 (SC) the Tribunal held that:

(i) the appellants are admittedly not understood in the common parlour as a cargo handling agency, inasmuch as they are admittedly airline company;

(ii) the contract entered into between the appellant and their customer is not for rendering cargo handling services but is for transportation of appellant’s cargo by air.

Accordingly, the same cannot be subjected to tax under the category of ‘cargo handling services’. [Jet Airways (India) Ltd. vs. CST (2008) 11 STR 645 (Tri-Ahmd.)]

20.7 The appellants in this case were engaged in strapping of various steel items in the production line in steel companies. Revenue sought to levy service tax on the activities of the appellants under the category of cargo handling services. On appeal the Tribunal dismissing the contention of the revenue held that –

(i) the appellants merely undertook packaging which was a apart of the manufacturing process on which excise duty was being paid by the manufacturers. Hence no service tax was payable on the packing charges.

(ii) the strapping of steel items was part of production process and not for transportation and hence the item they packed were not ‘cargo’..

(iii) the services of the appellant being in the nature of packaging services would not be liable for service tax prior to 16.6.05 since the packaging services came into the service tax net only w.e.f. 16.6.05.

[ITW India Ltd. vs. CCE (2009) 14 STR 826 (Tri-Bang.)]

20.8 ‘Loading and unloading’ coal within the mining area would not be liable for service tax under the category of ‘cargo handling services’ while loading and unloading outside the mining area would fall within the said category [Avian Overseas Pvt. Ltd. v. CCE (2009) 15 STR 540 (Tri-Kol.)].

20.9 In the present case the Tribunal relying on Modi Construction Co. v. CCE (2008) 12 STR 34 (Tribunal) held that mere transportation will not amount to ‘cargo handling” unless loading, unloading, packing or unpacking of cargo and handling of such cargo is the primary object of the contract. [CCE & C vs. Scrap Material Handling Co. (2009) 16 STR 68 (Tri. – Del.)]

21 Chartered Accountants Services

21.1 Notification no. 59/1998 dated 16.10.1998 exempted all services provided by Chartered Accountants other than accounting, auditing and certification services. Notification No. 15/2002 dated 1.8.2002 amended the said exemption by inserting an explanation to the effect that where the services fall under any other service category such as management consultancy or manpower recruitment services, such services would be liable. The department contended that the notification would have retroactive operation from 16.10.98. However, the Tribunal held considering the language of the notification, in absence of a specific stipulation regarding its date of effect, the amendment has to be held effective only from the date of issue of this notification.[Sridhar & Santhanam vs. CCE (2009) 14 STR 756 (Tri. – Che.)]

21.2 Transfer Pricing certification / report under section 92E of the Income-tax Act, 1961 would be considered as ‘auditing’ services and accordingly not entitled for exemption under notification no. 59/98-ST dated 16.10.98 (whereby all services except accounting, auditing and certain certification services were exempt).[Price Waterhouse vs. CST (2010) 19 STR 63 (Tri. – Che.)]

22 Clearing and forwarding agent

22.1 In this case the appellants a clearing forwarding agent were also a del credere agent [i.e. an agent who undertook the liability for compensating his principal in case his principal’s customers defaulted in payment] for certain services. The Tribunal held that the services as a del credere agent would not come within the purview of clearing and forwarding operations, even though he may be a clearing and forwarding agent for other activities. [Raja Rajeshwari Intl. Polymers Pvt. Ltd. v. CCE (2005) 180 ELT 448 (Tri-Bang.) See also Sreenidhi Polymers Pvt. Ltd. v. CCE (2005) 186 E.L.T. 195 (Tri.), Gemini Associates v. CCE (2007) 5 STR 304 (Tri-Bang.); CCE & ST vs. Shah Polymers (2007) 7 STR 646 (Tri. – Bang.)]

22.2 Mere procuring or booking of orders for the principal by an agent on payment of commission would not amount to providing services as “clearing and forwarding agent” within the meaning of the definition of that expression under section 65(25) of the Finance 1994 since –

(i) The activity of mere procurement of orders for a principal on a commission basis is an activity of a “commission agent” which falls under business auxiliary services and the Legislature has treated this activity as separate from the activities of a clearing and forwarding agent;

(ii) An agent only for procuring purchase orders for vendors on a commission basis does not engage in any clearing and forwarding operations “directly or indirectly” “in any manner”. These [italicized] expressions occurring in the definition of clearing and forwarding agent cannot be isolated from the activity of clearing and forwarding operations which has a very specific connotation in the context of movement of goods from the supplier to their destination. The agents undertaking clearing and forwarding operations may never have been concerned with procurement of orders for the goods which are cleared and forwarded or vice versa.

[Larsen & Toubro Ltd. v. CCE 2006(3) STR 321 (Tri-LB) overruling Prabhat Zarda Factory P. Ltd. v. CCE (2002) 145 ELT 222 (T) See also Acer India P Ltd v. CCE (2007) 6 STR 380 (Tri.-Bang.); Tehri Pulp and Paper Ltd. vs. CCE (2007) 8 STR 453 (Tri- Del); Harinagar Sugar Mills Ltd. vs. CCE (2008) 9 STR 128 (Tri. – Kol); Patwari Forgings Pvt. Ltd. vs. CCE (2008) 10 STR 52 (Tri-Kolkata)].

22.3 Pre-delivery inspection to ensure that the product is without defect and is in good condition for sale and dispatch does not form part of clearing and forwarding operation which is subsequent to the inspection. Hence such services are not liable for service tax under the category of clearing and forwarding services. The person assuming the risk during transport would also not make him a C&F agent though the risk cover is in relation to clearing, forwarding and transport since it is a completely separate activity. [Larsen & Toubro Ltd. v. CCE (2006) 4 STR 466 (Tri-Del.)].

22.4 Dealers/distributors who purchased and sold goods of prominent manufacturers would not be considered as clearing & forwarding agent. Their activities such as promoting the sales, advertisement and maintaining trained salesman were activities in their own interests and formed part of their job. These activities cannot be treated as services rendered to the manufacturers. Any discount given by the manufacturer to such dealers cannot be taken as service charges for the above activities. [Pratap Singh & Sons v. CCE (2007) 5 STR 389 (Tri. – Mumbai)]

22.5 On facts the Tribunal held that receipt of goods from the principal, storing them, selling the goods to the customers and pursuant to the sale making despatches of goods to the customer for a commission on sale proceeds would not be liable for service tax under the category of “clearing and forwarding” since the appellant is in substance a commission agent earning commission on sale and the activities of receipt of goods, storage and effecting despatches are merely incidental to the sale. Its services would more specifically be covered under business auxiliary services as “commission agent” and be exempt upto 9.7.04 vide notification no. 13 dated 20.6.03 which exempts commission agents in respect of goods. [CCE v. Chandan Chemicals (2007) 7 STR 578 (Tri-Del); V.S.Distributors vs. CCE. (2010) 17 STR 530 (Tri-Del) – Per Rakesh Kumar – Member(T) Contra: CCE vs. ADH Agencies (2007) 7 STR 660 (Tri. – Del.)]

22.6 In order for a service to be covered under the category of ‘clearing and forwarding’ services, the service provider must provide both clearing “and” forwarding services and not only clearing “or” forwarding. [CCE v. Kulcip Medicines (P) Ltd. (2009) 14 STR 608 (P&H) overruling Medpro Pharma Pvt. Ltd. v CCE (2006) 3 STR 355 (Tri. – LB)].

22.7 By an agreement between the assessee and Cipla Ltd., the assessee was appointed as a “consignment agent” of Cipla under the following terms :

(i) the assessee received and stored the goods supplied by Cipla;

(ii) the assessee sold the goods as an “agent” of Cipla on a “commission” basis.

(iii) the price at which goods were to be sold were decided by Cipla after consultation with the assessee; and

(iv) the assessee was authorized to appoint stockists / dealers / distributors with the approval of Cipla.

On the question whether the assessee would be considered as a “clearing and forwarding agent” u/s. 65(16) which includes a “consignment agent” the High Court held as follows:

(a) The agreement with the principal clearly states that the assessee is a “consignment agent” and hence would be covered under the inclusive limb of definition of “clearing & forwarding agent” u/s. 65(16)

(b) The assessee in the present case doesnot stop at rendering only the commission agency service [i.e. mere procurement of purchase orders] but his duties extend beyond that involving activities such as price determination, appointment of stockists / dealers / distributors, etc.

[CCE v. Mahaveer Generics (2010) 17 STR 225 (Kar.)]

22.8 Where the assessee procured customers for its principal (Maruti Udyog Ltd.) for purchase of cars on commission basis and in that connection arranged documentary requirements; liaisoned with the customers for timely delivery; delivered vehicles; sent provisional receipts and inspection notes from consignee to the principal and arranged various permits required for dispatch of the vehicles etc, the High Court held that the assessee’s main work was to sell cars on behalf of its principal and carrying out the above work in that connection would not make them a ‘Clearing & Forwarding Agent’.[CCE vs. Amitdeep Motors (2010) 17 STR 514 (All.)]

22.9 Where the appellant was engaged in the activity of transmission of natural gas through pipelines for its clients (who were either suppliers or users of natural gas) from the source point to the point of utilisation pursuant to a Gas Transmission Agreement the Tribunal held that the appellant is not liable under the category of Clearing and Forwarding services since :

(i) the relationship between the appellant and its client (suppliers/ users) cannot be termed to be that of principal and agent and hence the essential ingredient of a Clearing and Forwarding agent’s services was not fulfilled;

(ii) the appellant’s activities are more aptly covered within the category of ‘Transport of goods through pipeline or other conduit service’ which is effective from 16.6.2005 and hence cannot be taxed under the category of ‘clearing and forwarding agent services’ prior to that date.

[Gujarat State Petronet Ltd. vs. CST (2010) 20 STR 502 (Tri. – Ahmd)]

22.10 Where the petitioners were engaged in liasoning, co-ordination and supervision of coal loading at mines to ensure that proper indents are placed, requisite quality of coal is loaded and wagons are loaded to full capacity and thereby facilitated movement of coal to plants and factories of their customers, the High Court held that the petitioners prima facie would not be liable for service tax under clearing and forwarding services. [Karamchand Thapar & Bros. (Coal Sales) Ltd. v. UoI (2010) 20 STR 3 (Cal.)].

22.11 The activity of cutting of sugarcanes and its loading and transportation upto the sugar factories does not amount to ‘clearing and forwarding agent’ services. [Ajinkyatara Sahakari Krishi Audyogik Otvs Ltd. vs. CCE (2010) 19 STR 285 (Tri-Mumbai)]

23 Clubs or Association services

23.1 There has to be a quid pro quo between the members and the association/club. This has to be established before levying service tax on the fees or subscription or any other amount received by any association. Thus, membership fees received by the appellant were held not taxable under the category of “club or association” services since no specific service was provided to its members. [Ahmedabad Management Association vs. CST (2009) 14 STR 171 (Tri- Ahmd.)]

24 Commercial coaching and training

24.1 Students trained in ‘private / parallel colleges’ in Kerala are trained in subjects such as humanities, language, commerce, etc. where they are allowed to write university examinations without completing “course study” since it is not a requirement as per University Regulations. However, University Regulations prescribe a “course-study” for subjects such as science etc. which a student must as a pre-condition to write university examinations, complete in an ‘affiliated college’. The affiliated college grants a course completion certificate to students to make them eligible to write the examinations in terms of the university regulations. Drawing the above distinction between a parallel college and an affiliated college, the Kerala High court held that the affiliated college therefore confer an “educational qualification” recognized by law and hence are specifically excluded from the definition of “commercial coaching and training” while the services of coaching and training rendered by parallel colleges would be liable for service tax. However, considering the special facts of the case and also the fact that the curriculum, the examinations written and the degrees obtained from the university are one and the same for students undergoing training in parallel colleges and students undergoing training in affiliated colleges, the High Court held that the levy of service tax on parallel colleges in Kerala is discriminatory and violative of article 14 of the Constitution of India and hence prohibited the department from demanding registration for service tax [Malappuram District Parallel College Association v. Union of India (2006) 3 STT 90 (Ker.)]. Following the above case, in yet another case, the Kerala High court laid down the general proposition that an educational institution conducting any course which is a requirement to write examination to obtain degree or certificate awarded by any agency created by law are specifically excluded from the definition of “commercial coaching and training” [St. Antony’s Educational and Charitable Society v. Union of India (2006) 1 STR 137 (Ker.)].

24.2 Notification no. 7/2003 dated 1.7.2003 exempted – (i) vocational training institute (ii) computer training institute and (iii) recreational training institute from the category of commercial coaching and training from 1.7.2003 – 30.6.2004. Thereafter, Notification no. 24/2004 dated 10.9.2004 exempted only “vocational training institute” and “recreational training institute” and this notification was amended on 16.6.2005 to provide that computer training institutes are excluded from the purview of vocational training institutes. However, in the interim period between 10.9.04 – 15.6.05 the Tribunal held that computer training institutes would qualify as vocational training institutes since such training imparts skill to the trainee to undertake self-employment or seek employment after such training and accordingly be exempt. [Sunwin Technosolutions Pvt. Ltd. vs. CCE, Ranchi 2007 (7) STR 700 (Tri. – Kolkata) see also Doon Institute of Information Tech. Ltd. vs. CCE (2008) 12 STR 459 (Tri-Del.)]

24.3 The appellants who provided coaching and training in business management and fashion technology, advertising, graphic design, media studies to the students who achieve skills to seek employment or undertake self employment directly after such training or coaching are eligible for exemption as a “vocational training institute” under notification no. 9/2003-S.T. dtd. 20-6-2003 and the exemption cannot be denied on the mere ground that it was not registered with AICTE as a ‘vocational Institute’. [Wigan & Leigh College (India) Ltd. vs. Jt. Com(2007) 8 STR 475(Tri-Bang)].

24.4 Where the appellants were conducting diploma or post graduation course in management but were a non-profit organisation under the Companies Act and a Public Charitable trust under the Income tax Act, 1962 and there were also restrictions on distribution of profits or dividends to their members, the Tribunal held that no service tax would be leviable under the category of commercial training or coaching service since the appellants were not providing “commercial” training with a sole object of making profit. [Great Lakes Institute of management Ltd. vs. CST (2008) 10 STR 202(Tri-Chennai). See also Magnus Society vs. CCCE (2009) 13 STR 509 (Tri-Bang.); Shri. Chandraprasad Desai Memorial Foundation vs. CST (2009) 16 STR 442 (Tri- Ahmd.); CCE v. Institute of Insurance and risk management (2010) 20 STR 836 (Tri- Bang.)]

N.B. :The above judgment may not hold good post enactment of Finance Act, 2010 wherein the definition of ‘commercial training or coaching centre’ has been amended (retrospectively w.e.f. 1.7.2003) to include all centres or institutes where training or coaching is imparted for consideration, whether or not such centre or institute is registered as a trust or a society or similar other organisation under any law for the time being in force and carrying on its activity with or without profit motive.

24.5 Where the appellants who were a non-profit making organisation engaged in doing research in advanced computing also provided training in certain aspects of advanced computing for a consideration the Tribunal held that the appellants would not be considered as a commercial training or coaching centre for the following reasons:

(i) imparting of training for consideration is only an incidental activity undertaken by the appellants.

(ii) The appellants were not carrying out the activity with an aim to make profit since they were –

a. a Society registered under the Societies Registration Act, 1860;

b. exempted under the Income-tax Act being a charitable organisation;

c. a scientific society recognized by the Ministry of Science & Technology of Government of India

d. ploughing back all incomes for the purpose of research and not distributing any dividends to its members.

(iii) the intellectual level in the activity imparted by the appellant is of very high order as against a case of coaching or training centre where the level of intellectual activity is not of a very high order but very repetitive like a drill.

Hence it could not be considered as a ‘commercial training or coaching centre’.

[Centre for Dev. Of Advanced Computing vs. CCE (2009) 14 STR 165 (Tri-Bang.); See also Inst. Of Chartered Fin. Analysts of India vs. CCE (2009) 14 STR 220 (Tri-Bang.) the appellant is in the activity of education and not coaching or training; Ahmedabad management Association vs. CST (2009) 14 STR 171 (Tri-Ahmd.); Indian School of Business vs C.C.E.C 2010(17) STR 83 (Tri-Bang)]

N.B. :The above judgment may not hold good post enactment of Finance Act, 2010 wherein the definition of ‘commercial training or coaching centre’ has been amended (retrospectively w.e.f. 1.7.2003) to include all centres or institutes where training or coaching is imparted for consideration, whether or not such centre or institute is registered as a trust or a society or similar other organisation under any law for the time being in force and carrying on its activity with or without profit motive.

24.6 In section 65(105) (zzc) defining “taxable service” in the context of “commercial training or coaching centre”, read with section 65(26) and 65(27) defining ‘commercial training or coaching’ and ‘commercial training or coaching centre’ respectively, the word ‘commercial’ qualifies the ‘coaching or training centre’. It doesn’t qualify ‘coaching or training’. It qualifies the centre. Thus, where the appellants, a society registered under Societies Registration Act, 1860 and also exempt from income tax as a charitable organization conducted various training programmes for professional people in service in all fields of administration and management, the Tribunal held that as long as the institute is registered under Societies Registration Act and is also exempted from income-tax, it cannot be considered as ‘commercial’ centre and accordingly not liable under the category of “Commercial training or coaching” services. [Administrative Staff College Of India vs. CCE (2009) 14 STR 341 (Tri-Bang.)].

24.7 Providing training to candidates, sponsored by various insurance companies to appear for examinations conducted by IRDA which are required to be cleared to work as an insurance agent would be considered as a vocational training entitled for exemption from service tax under Notification No. 9/2003 – S.T. [Pasha Educational Training Inst. vs. CCE (2009) 14 STR 481 (Tri-Bang.)]

24.8 Where the appellants provided ‘abacus’ training that made learning arithmetic / math enjoyable, the Tribunal held that the appellants provided ‘recreational training’ in terms of notification no 9/2003 dated 20.06.2003 and accordingly exempt [FAST Arithmetic vs ACEST (2010) 17 STR 158 (Tri-Bang.)].

24.9 Coaching provided by parallel colleges, having memorandum of understanding with the University, to the students registered under the distance education programme of University leading to issuance of certificate or diploma or degree recognized by law is not liable for service tax. [JMC Educational Charitable Trust vs. CCE (2011) 21 STR 421 (Tri-Chennai) relying on Malappuram District Parell College Association vs. UOI (2006) 2 STR 321 (Ker.)]

24.10 On facts, the tribunal held that, where the appellant imparted computer training to educated unemployed youth under Yuva.com programme (announced by the Government of Karnataka) and the said training equipped the candidates with skill and competence to set up their ventures, the appellant would be considered as ‘vocational training centre’ and would qualify to claim exemption under notification no. 24/04-ST dated 10.9.2004. [Svenpa Systems vs. CCE (2010) 19 STR 891 (Tri-Bang)]

24.11 Notification no. 7/2003 dated 20.6.03 exempted – (i) vocational training institute; (ii) computer training institute; and (iii) recreational training institute for the period 1.7.03 – 30.6.04. This notification specifically defined the scope of the three types of institutes. This notification was withdrawn from 1.7.04 and another Notification no. 24/2004 dated 10.9.04 was issued granting exemption to ‘vocational training institute’ and ‘recreational training institute’. Further, on 7.6.2005 the Government issued another notification no. 19/2005 w.e.f. 16.6.05 amending the 2004 notification to the effect that exemption shall not apply to computer training institutes. On the question whether the appellant, a computer training institute, is liable for service tax from 10.09.04 – 15.6.05, the Supreme Court held –

(i) ‘computer training institute’ was consciously excluded from purview of notification no. 24/2004 dated 10.09.04 so as to restrict the benefit of exemption to only ‘vocational training institutes’ & ‘recreational training institutes’.

(ii) Amendments to notification of 2004 vide Notification. No 19/2005 dated 7.6.05 was only in the nature of clarification.

Accordingly, computer training institutes are liable to pay tax during the period 10.09.04 to 15.6.05. [CST v. Sunwin Technosolution P.Ltd. (2011) 21 STR 97 (SC)]

25 Construction of Residential Complex service

25.1 Where the petitioners were engaged in development and sale of residential flats to various purchasers who booked such flats on payment of an advance under an agreement for sale which was executed and registered during the course of construction and the title to which passed after the completion of the construction the High Court held -

(i) “service” is an act of doing something useful, rendering assistance or help. Service does not involve supply of goods; “service” rather connotes transformation of use/user of goods as a result of voluntary intervention of “service provider” and is an intangible commodity in the form of human effort. To have “service”, there must be a “service provider” rendering services to some other person(s), who shall be recipient of such “service”.

(ii) Under the Finance Act, 1994, “service tax” is levied on “taxable service” only and not on “service provider”. A “service provider” is only a means for deposit of the “service tax” to the credit of the Central Government. Although the term “service receiver” has not been defined in the Finance Act, 1994, the “service receiver” is a person, who receives or avails the services provided by a “service provider”.

(iii) The petitioners were not engaged in rendering any services of construction of residential complex to the prospective purchasers but were merely undertaking the construction activities for its own self and any advance, made by a prospective buyer, or deposit received by the petitioner-company, is against consideration of sale of the flat/building to such prospective buyer and not for the purpose of obtaining any “service” from the petitioner-company. Accordingly amounts received from prospective purchasers were not liable for service tax.

[Magus Construction Pvt. Ltd. vs. UOI (2008) 11 STR 225 (Gau.). Also refer circular no.108/2/09 dated 29.1.09].

25.2 Construction and transfer of individual residential units would not be liable for service tax under the category of “Construction of residential complex services” since the service is not for construction of a residential complex comprising of more than 12 residential units. [Macro Marvel Projects Ltd. vs. CST (2008) 12 STR 603 (Tri-Chennai)].

25.3 In the present case the petitioners challenged the validity of Explanation inserted to section 65(105)(zzzh) [construction of complex services] on the grounds that the explanation widens the scope of levy beyond the concept of ‘service’ by including therein sale of flats and taxing of such sale and purchase was beyond the legislative competence of Union Legislature. Dismissing the above contention, the Hon’ble High Court held as follows:

(a) the levy of tax is on service and not on service provider and construction services are certainly provided even when a constructed flat is sold.

(b) Taxing of such transaction is not outside the purview of the Union Legislature as the same does not fall in any of the taxing entries of State list.

Hence the Explanation inserted by the Finance Act, 2010 is constitutional.

[G.S. Promoters v. Union of India (2011) 21 S.T.R. 100 (P& H)]

25.4 Where the appellant constructed residential quarters for the CPWD (Government of India) to rent the same to the employees of Income Tax Department (Government of India), the Tribunal held that since the complex was intended for “personal use” within the meaning of clause (a) of Explanation to s. 65(91a) of the Act which includes permitting the complex for use as residence by another person for rent the appellant’s services would fall within the exclusion part of the definition of ‘residential complex’ and accordingly would not be liable for service tax. [Khurana Engineering Ltd v. CCE (2011) 21 STR 115 (Tri-Ahmd)]

26 Commercial or Industrial Construction service’

26.1 Construction of a driveway in a petrol pump is excludible from the ambit of ‘commercial or industrial construction services’ as being construction of ‘roads’ and it is irrelevant whether the road is for public utility purpose or is part of a commercial complex [CST vs. Shilpa Constructions Pvt. Ltd. (2010) 19 STR 830 (Tri. – Ahmd.)]

26.2 Construction of warehousing complexes for the Central Warehousing Corporation, an undertaking of Government of India, which rents these warehouses and earns revenue is liable for service tax under the category of ‘Commercial or industrial construction service’, it being a commercial construction for the Government. [A. B. Projects Pvt. Ltd. vs. CCE (2010) 19 STR 886 (Tri. –Mum)]

26.3 Laying of pipelines for Gujarat Water Supply and Sewerage Board (GWSSB) for supply of drinking water to gram panchayats and nagar panchayats would not be liable under ‘commercial or industrial construction services’ [which includes construction of pipeline or conduit] since the pipelines were not laid to facilitate any commercial or industrial activity of GWSSB. [Nagarjuna Construction Co. Ltd. vs. CCE (2010) 19 STR 259 (Tri-Bang.) relying on Indian Hume Pipe Co. Ltd. vs. CCE (2008) 12 STR 363 (Tri)]

26.4 Where the appellant was engaged in laying of long distance pipe lines for the Gujarat Water Supply and Sewerage Board (GWSSB), the Tribunal held that the ‘pipelines’ were not used by GWSSB primarily for commerce or industry since-

(i) the sale of water was not the primary function of GWSSB. GWSSB was established for rapid development and proper regulation of drinking water supply and sewerage services in the state of Gujarat;

(ii) GWSSB was established by the State for the purpose of fulfilling the basic requirement of the people i.e. supply water at the nominal rates.

(iii) The water was sold at the subsidized rate i.e. even below the operating cost.

Hence, the appellant was not liable for service tax under the category of “Commercial or Industrial Construction services”. [Dinesh Chandra Agarwal Infracon P. Ltd. vs. CCE (2010) 21 STR 41 (Tri. – Ahmd.)]

27 Construction Services vs. Works Contract Services

27.1 Where the appellant was registered as works contractor under the state sales tax law and paid sales tax on the construction contracts executed by it, the Tribunal held that the services of the appellant would be liable for service tax only w.e.f. 1.6.2007 under the category of “works contract services” and not under commercial or industrial construction / construction of complex services prior to that date [Soma Enterprises Ltd. vs. CCE (2009) 15 STR 559 (Tri-Bang.); See also CEMEX Engineers vs. CST (2010) 17 STR 534 (Tri-Bang.). Contra Sunil Hi-Tech Engineers vs. CCE (2010) 17 STR 121 (Tri-Mumbai)].

28 Consulting Engineer

28.1 M/s. Indian Oil Corporation Ltd. awarded a contract for construction of a diesel hydro-desulphurisation plant to the appellants on a lumpsum turnkey basis. The contract involved “residual process design, detailed engineering, procurement, supply, construction, fabrication, erection, installation, testing, commissioning and mechanical guarantee”. The department sought to tax the residual process design and detailed engineering, commissioning of plant under the category of consulting engineers. After noting various clauses of the contract the Tribunal held that “Thus, a perusal of the clauses of the contract leaves no doubt that the appellant contract with IOC was a work contract on turnkey basis and not a consultancy contract. It is well settled that a work contract cannot be vivisected and part of it subjected to tax. The impugned orders have proceeded to do precisely that. Therefore, they are required to be set aside”. Thus, in case of works contract, the contract cannot be split into a services / labour component and material component in order to levy service tax on the service / labour component. [M/s. Daelim Industrial Co. Ltd. v. Commissioner of Central Excise (2003) 155 ELT 457 (Tri-Del.) See also Larsen & Toubro Ltd. vs. CCE – 2004 (174) ELT 322 (Tri.-Del), CCE v. Shapoorji Pallonji and Co. Ltd. (2006) 1 STR 164 (Tri-Del.), CCE v. Flex Engineering Ltd. (2006) 1 STR 208 (Tri-Del.), CCE v. Larsen & Toubro Ltd. (2006) 4 STR 63 (Tri-Mum.), Kerala State Electronics Dev. Corpn. Ltd. v CCE(A) (2007) 8 STR 163 (Tri. – Bang.), Orissa Sponge Iron Ltd. v.CCE (2007) 82 RLT 808 (CESTAT – Kol.), Transformers & Electricals Kerala Ltd. vs. CCE (2008) 9 STR 285 (Tri. – Bang.), Jyoti Limited vs. CCE (2008) 9 STR 373 (Tri. – Ahmd.), Air Liquid Engg. India Pvt.Ltd. vs. CCE (2008) 9 STR 486 (Tri-Bang), CCE vs. Ishikawajima-Harima Heavy Ind. Co. Ltd. (2009) 13 STR 650 (Tri-Ahmd.)]

28.2 The appellants who provided services to the owner of a plant under an operation & maintenance agreement were fully autonomous and responsible for the performance of operation and maintenance. Engineering issues if any were also attended to by the appellants, during the course of the operation of the plant. They were not required to render any advice or take any orders from the owner of the plant. On these facts the Tribunal held that the appellants are not liable for service tax under the category of Consulting Engineers, since service tax is attracted only in a case involving rendering of engineering consultancy and in the present case there are no two parties, one giving advise and the other accepting it. [Rolls Royce Indus. Power (I) Ltd. vs.CCE 2004 (171) E.L.T. 189 (Tri. - Del.)]

28.3 In the present case the appellants paid an amount of royalty for technical know how, equipment, skill, expertise and services for production of VAT dyes to M/s. Ciba Geigy Ltd., Switzerland. The lower authorities sought to tax the appellants in respect of the amounts paid by them under the category of consulting engineering services. The Tribunal quashed the demand, set aside the penalties and held as follows :

(i) During the period under dispute, the person liable to pay tax in respect of services provided by non-residents or persons from outside India was such person or his authorized representative. Since the fact that the appellants were authorized representatives of Ciba Geigy Ltd. was not forthcoming from the records the appellants could not be fastened with the tax liability.

(ii) Since royalty is a share profit reserved by the owner for permitting the use of his property, payment of royalty for the use of technology and know how cannot be equated with any services to be provided by Ciba Geigy Ltd. Payment of royalty is not payment for a service. Hence such royalty payments are not liable for service tax.

(iii) The reliance on the agreement with Ciba Geigy Ltd. which stipulates that payment to be made by the appellants are subject to withholding tax cannot be a reason for fastening service tax liability on the appellants.

(iv) The recipient of services cannot be made liable for service tax for the period prior to the amendment in rule 2(1)(d) in August 2002. The said amendment provides that in respect of services provided by non-residents or persons from outside India who do not have an office in India it is the person who receives the services in India who is liable for payment of service tax.

[Navinon Ltd. vs. CCE 2004 (172) E.L.T. 400 (Tri.-Mumbai) See also Bajaj Auto Ltd v/s CCE (2005) 179 ELT 481 (Tri-Chennai)]

28.4 By a Technical Collaboration Agreement M/s. Yamaha Co. Ltd., Japan granted the right to use Technical information (including Intellectual Property Rights such as designs, patents, utility models, etc.) and the use of their Trademarks to M/s. Yamaha Motor India Pvt. Ltd. for the manufacture of YBX model motorcycles in India. As part of the agreement certain teaching services which covered personal instruction and training was also to be given by the Japanese company. The lower authority sought to tax the transaction under the category of Consulting Engineering services. Allowing the appeal the Tribunal held –

(i) the consideration is not for any consultancy service rendered;

(ii) it is for the transfer of intellectual property;

(iii) the relationship between the parties is not one of consultant and client, but seller and buyer of assets;

(iv) the value of incidental advice, if any, cannot be cut out and subjected to service tax.

[Yamaha Motors (I) Pvt. Ltd. v. CCE (2005) 186 E.L.T. 161]

28.5 The Tribunal observed “advice” and “consultancy” services in a discipline of engineering envisage an intangible service. Further, the words “technical assistance” which follows the words “advice” and “consultancy” are required to be interpreted ejusdem generis with “advice” and “consultancy” and would also mean an intangible service. Thus, services of repairs and maintenance of machines which is a tangible service inasmuch as they are physically carried out would not be liable for service tax under the category of consulting engineering services. These services became taxable only from 1.7.2003. [Roots Multiclean Ltd. v. CCE (2006) 1 STR 17 (Tri-Chennai) see also Lakshmi Automatic Loom Works Ltd. v. CCE (2007) 7 STR 435 (Tri-Chennai)]

28.6 Where the appellant entered into an agreement with a foreign company for – (i) transfer of technical know under a licence; and (ii) provision of technical assistance in implementation and use of the technical know how in India, and the consideration for each of the above components was separately specified, the Tribunal observed that –

(i) The licencing of technical know is not a service and no service tax is leviable thereon;

(ii) The ‘utility’ of the technical information was first targeted in India in the plant of the appellant where the services would be considered to be received and hence there is no substance in the contention that services were not rendered in India.

(iii) The amount paid in respect of provision of technical assistance in implementation and use of the technical know how in India would however be distinct and different from the licence and be liable for service tax under the category of consulting engineering services.

[Indian Farmers Fertilizer Co-op. Ltd. v. CCE (2007) 5 STR 281 (Tri-Del.) See also Prudent Communications Sys P. Ltd. v. CCE (2007) 5 STR 264 (Tri-Bang.) for proposition (i)]

28.7 Services of supervising installation and commissioning equipments constituting an ‘oxygen plant’ would not be liable for service tax under the category of consulting engineering services but only under commissioning and installation services which is taxable w.e.f. 1.7.2003 [Southern Iron & Steel Co. v. CCE (2008) 12 STR 725 (Tri-Chennai)].

28.8 Where the appellants activities viz., testing and inspection of materials, machinery, designs etc., were classifiable under the category of ‘technical inspection and certification services’ w.e.f. 1.7.2003 the Tribunal held that the services rendered prior to 1.7.2003 would not be liable for service tax under the category of consulting engineer services. [Indian Institution Of Quality Assurance vs. CCE (2009) 14 STR 40 (Tri-Chennai)]

28.9 Where the agreement was mainly for transfer of technical know-how/ intellectual property for manufacture of cots and aprons but also included technical advice, technical assistance, training, etc. the Tribunal held that technical advice, technical assistance, training, etc. is not liable for service tax under the category of consulting engineering services since they are incidental in the process of achieving the dominant objective of manufacturing of licenced product as per the agreement and hence cannot be identified as constituting consulting engineer service. [Day International Inc. vs CCE (2009) 14 STR 333 (Tri- Chennai); See also B.E.Gelb Consultancy Services vs. CCE (2009) 14 STR 241 (Tri-Chennai)].

28.10 Prior to 16.6.2005, soil testing and survey work would not be liable for service tax under the category of consulting engineering services since post 16.6.2005, they are specifically covered under “site formation and clearance, excavation and earthmoving and demolition” and “survey and map-making services” respectively [Geo Foundations & Structures Pvt. Ltd. v. CCE (2009) 15 STR 408 (Tri-Bang.)].

28.11 Property valuation by an individual architect is not liable under the category of consulting engineering services. [CCE v. Sthapatya Rachana (2009) 15 STR 438 (Tri.- Ahmd.)]

28.12 Where the assessee company executed a works contract of design, development, commissioning etc., of an oil free compressor system for its client during the period 1997–2001 it was held that the assessee is not liable under ‘consulting engineering services’ –

(i) since services rendered by ‘companies’ were not liable prior to 1.5.2006 under this category;

(ii) since the assessee company’s service fall under works contract services which was brought into the ambit of service tax only w.e.f. 1.6.2007.

[CST vs. Turbotech Precision Engineering Pvt Ltd, (2010) 18 STR 545 (Kar)]

28.13 The appellant entered into a contract with IOCL for construction of a storage tank and certain utilities which involved drawing, designing and detailed engineering etc., and separate prices were demarcated for such activities. The department contended that the activities of drawing, design etc. were liable under the category of ‘Consulting engineering services’ since after the 46th amendment to the Constitution a works contract can be vivisected and the service component of it could be subjected to service tax under the relevant entries. Dismissing this contention the Tribunal (Third Member bench) held that –

(i) The ruling in Daelim’s case [(2006) 3 STR 124 (Tri-Del.)] given by a division bench of the Tribunal holding that a works contract cannot be vivisected and part of it be subjected to service tax and consistently followed by co-ordinate Benches in numerous subsequent cases is still binding on co-ordinate benches;

(ii) The 46th amendment to the constitution was made with an intent to enable the States to levy sales tax on the sale component of a works contract. It did not purport to enable the central excise authorities to levy any tax on the service component of a works contract.

(iii) Service portion of the works contract is subject to service tax levy only post 1.6.07 and not prior to 1.6.07

[CCE vs Indian Oil Tanking Ltd 2010 (18) STR 577 (Tri-Mumbai) relying substantially on INSA vs UoI 2009 (14) STR 289 (Bom.)].

28.14 When Article 366(29-A)(b) to the constitution has made indivisible works contracts divisible to find out goods component and value thereof, it can be unambiguously be stated that the remnant part of the contract may be attributable to the scope of service tax under the provisions or Finance Act, 1994. Thus, turnkey contracts can be vivisected and discernible service elements involved therein can be segregated and classifiable as well as valued for levy service tax under Finance Act, 1994 provided such services are taxable services as defined by that Act and depending on the facts and circumstances of each case, service by way of advice, consultancy or technical assistance in the case of turnkey contract shall attract service tax liability. [CCE vs BSBK Pvt. Ltd 2010 (18) STR 555 (Tri-LB) overruling Daelim’s case 2006 (3) STR 124 (Tri-Del.)]

29 Courier Services

29.1 The appellant, a courier agency had engaged several agents named as ‘Franchisees’ for collection of articles from customers and who collected service charges alongwith service tax from the customers and paid the tax under the category of ‘courier service’ in their own registration. The entire service charges were fully paid over to the appellant and appellant shared a fixed amount with the ‘franchisees’. On these facts, the High Court held that the appellant is not liable to pay any further service tax on the service charges retained after payment to the franchisee under the category of ‘franchise service’ since –

(i) The service tax on the entire amount of charges received from the customers having been paid by the franchisees (agents) under ‘courier services’, the net amount cannot again be taxed in the hands of the appellant under ‘Franchisees services’ since there is no provision in the Finance act, 1994 to tax the very same service charges twice under two heads.

(ii) Notwithstanding the (i) above, the net amount is not liable under the category of ‘franchise services’ since –

(a) the franchisee is acting only as an agent of the appellant;

(b) apart from appointing the franchisee the appellant is not providing any service to them.

(c) the franchisees do not make any payment to the appellant unlike in case of franchise where a franchisor provides a service to the franchisee for a fee paid by the franchisee. Infact it is franchisee who are paid for work done for the franchisor (the appellant) i.e. acting as an agent for rendering courier service to the customers.

[Speed and Safe Courier Service v. Commissioner (2010) 18 STR 550 (Ker.)]

30 Custom House Agent’s (CHA) services

30.1 The function of a CHA mainly relates to the documentation part for the clearance of goods from the customs for import/export. Thus, -

(i) Charges collect fees received from the importers for collecting freight on import consignments;

(ii) import console handling charges for deconsolidation of cargo on arrival to India, are charges relating to transportation of goods and not clearance of goods from customs and accordingly not liable for service tax under the category of CHA services. Further, delivery order fees is with regard to delivery of cargo and is not CHA service. Hence these services are also not liable under the category of CHA services. [Lee & Muir Head Pvt. Ltd. vs. CST (2009) 14 STR 348 (Tri- Bang.)]

31 Dredging Services

31.1 Where the appellant was engaged in the activity of dredging of the river for the purpose of drainage and flood control, the Tribunal held that ‘dredging service’ has been defined in an inclusive manner to include the appellant’s activities and the purpose for which the dredging is undertaken in the river whether it is for the navigational purpose or for any other purpose is irrelevant. [Mackintosh Burn Ltd. vs. CST (2010) 19 STR 682 (Tri. – Kol.)]

32 Erection, Commissioning or Installation

32.1 Where the appellants, who were engaged in manufacture and sale of medical equipments, had paid excise duty on the manufacture of the equipments including the charges for training, erection and installation of the equipments at the buyers premises and had not charged any separate amounts towards erection and installation of the equipments the Tribunal held that no service tax would be levied on erection / installation of the equipments. [Allengers Medical Systems Ltd. vs. CCE (2009) 14 STR 235 (Tri-Del.)]

32.2 Where the assessee a manufacturer of textile machineries had charged excise duty on the entire contract value inclusive of the charges for installation and commissioning of machinery the Tribunal held that since the commissioning and installation activity were so integrally connected with the activity of manufacture of machinery and excise duty had been paid on the entire value of contract including the installation and commissioning charges, no service tax was separately payable on the installation and commissioning charges. [Alidhara Texspin Engineers vs. CCE (2010) 20 STR 315 (Tri-Ahmd.)]

32.3 Where the appellant was engaged in fabrication of structures at the customer’s site the Tribunal held that this service was not covered under erection, commissioning and installation services in view of the following:

(i) After surveying all Board Circulars Tribunal held:

(a) Structures were not intended to be covered under Plant, Machinery or Equipments.

(b) Erection refers to civil work for installation / commissioning of a plant & machinery.

(c) Erection, commissioning or installation of structures whether fabricated or not was not covered by the definition of Erection, Commissioning or Installation service prior to 1-5-2006.

The activity undertaken by the appellant is fabrication of structures and this was not covered under erection of Plant, Machinery, or Equipments as no civil work was undertaken by the appellant. Accordingly, the process of pre-fabrication of structures was not covered under the “Erection, Commissioning & Installation Service” prior to 1-5-2006.

(ii) The activity undertaken by the appellant is covered under Section 2(f) of Central Excise Act as manufacturing activity. Hence the appellants are not liable to pay the service tax on the activities undertaken by them.

[Neo Structo Construction Ltd. vs. CCE & C (2010) 19 STR 361 (Tri. – Ahmd)]

32.4 Laying of pipelines is not covered under the category of “Erection, Commissioning or Installation” service and hence not liable for service tax [A. Sekar v. CCE (2010) 19 STR 82 (Tri. – Chennai) relying on Indian Hume Pipe Co.Ltd. v. CCE (2008) 12 STR 363 (P&H)]

32.5 Laying the pipes in wall/roofs/floors for crossing of wires, fixing the junction box, MS box, Wooden box, fixing the cable trays would not amount to installation or commissioning of plant, machinery or equipment and therefore would not be liable for service tax under ‘Erection, Commissioning or Installation service’ during the relevant point of time. [CCE vs Rajeev Electricals Works 2010 (18) STR 705 (P & H)].

33 Works Contract vs. Erection commissioning and installation services

33.1 A company PG, intending to set up a power plant, accepted the bid of a Swedish Company ABB and as requested by the bidder entered into 3 contracts – one with ABB (Sweden) for off-shore supply of equipment; another with ABB(India) for on-shore supply of equipment and a third again with ABB(India) for on-shore services including errection, commissioning etc. All the above contracts were interlinked and the overall responsibility for successful completion of all the 3 contracts was on ABB(Sweden). The revenue sought to tax the ‘on-shore service contract’ under the category of ‘errection, commissioning and installation services’. On appeal the Tribunal held that –

(i) three agreements were interlinked to each other and a combined reading of the 3 contracts taken together for the purpose of executing the turnkey project for PG, would satisfy the definition of ‘works contract’ under section 65(105)(zzzza).

(ii) the agreement had been subjected to state VAT / Sales tax as a ‘works contract’ and sales tax was also deducted from the payments made to the appellants under the sales tax law.

(iii) Accordingly the appellants would be liable for service tax only w.e.f. 1.6.2007 and not prior to that date under errection, commissioning or installation services.

[ABB Ltd. vs. CST (2010) 20 STR 610 (Tri-Bang.)]

34 Goods transport operators / Agencies

34.1 Service tax is leviable only on the services provided by a commercial concern engaged in the transportation of the goods. Hence, where the appellants who have received goods directly from their suppliers, who have themselves undertaken the deliveries of the goods at the appellants’ door-steps, it cannot be said that the appellants received the services of any commercial agency. The said suppliers cannot be held to be transporters. Hence payment of transport charges to the suppliers will not attract service tax. [Kesoram Spun Pipes & Foundries Vs. CCE (2002) 146 ELT 475 (Tri. – Kolkata)]

34.2 Where the service tax on GTA services was paid by the transporters, the Tribunal held that tax in respect of the same services cannot be demanded again from the service recipient. [Navyug Alloys Pvt. Ltd. vs. CCE (2009) 13 STR 421 (Tri-Ahmd.); See also Mandev Tubes v. CCE (2009) 16 STR 724 (Tri. – Ahmd.)]

34.3 Where the appellants imported yarn from Nepalese suppliers who charged the appellant in two invoices – one, for the cost of goods and transport upto Nepal border; and another, for the transport from Indo-Nepal border to the appellant’s factory, the Tribunal held that the appellant’s contract with the Nepalese suppliers was a contract for supply of goods and the arrangement of transportation is merely incidental to the supply of goods and not a provision of service. Since the appellants did not engage a transporter nor was there any evidence that the suppliers engaged transporters as agents of the appellant, the appellant is not liable to pay service tax on the transportation charges reimbursed to the suppliers under GTA services. [Sumangalam Suitings (P) Ltd. v. CCE (2010) 19 STR 809 (Tri- Del)]

35 Information Technology software services

35.1 Where the petitioners, an association of companies engaged in the business of reselling of the computer software products under an “End User Licence Agreement” challenged the legislative competence of the Parliament to impose service tax on ‘information technology software services’ [Section 65(105)(zzzze)] the Hon’ble High Court dismissing the petition observed as under:

(i) Software, whether canned or customized, is goods;

(ii) Entry 97 of List I of Schedule VII of the Constitution of India being a residuary entry the Parliament has legislative competence to make law for service tax under the said entry.

(iii) For the reason that software is goods, all transactions in relation to software need not necessarily amount to a sale and whether a transaction is a sale or service depends on the individual transaction and on that ground the vires of section 65(105)(zzzze) cannot be questioned.

(iv) The transaction between the members of petitioner association and the ultimate customer (end user) is not of a sale of software (goods) as such but is only allowing the right to use the contents of the data stored in the software (goods) which would amount only to a service. Further, the transaction would also not be considered as deemed sale under Article 366(29A)(d) of the Constitution of India i.e. ‘transfer of right to use any goods’ since the right to use the software (goods) as such is not transferred.

[Infotech Software Dealers Association vs. UOI (2010) 20 STR 289 (Mad.)]

36 Insurance Auxiliary Services

36.1 The appellants, reinsurance brokers, arranged reinsurance for certain Indian insurance companies. The overseas reinsurance companies paid the Indian insurance companies a ‘reinsurance commission’ – 50% of which was paid to the appellants and 50% to the Indian insurance companies. The department sought to tax the appellant’s remuneration under the category of “insurance auxiliary services” for the period from 16.7.2001 to 30.6.2005. On appeal based on the facts the Tribunal held that -

(i) a contract of reinsurance is essentially a contract of insurance and the definition of term ‘insurer’ as defined in section 65(58) was wide enough to include the services of ‘reinsurer’. The amendment made by the Finance Act, 2006 w.e.f. 1.5.06 to expressly include a “reinsurer” within the definition of “insurer” was a clarificatory amendment;

(ii) the services of reinsurance brokers were provided to the Indian insurance company. Hence its services cannot be considered to be exported out of India;

(iii) in absence of physical receipt of convertible foreign exchange the appellants could not claim exemption under notification no. 6/99 or 21/2003.

[Suprasesh G.I.S. & Brokers P. Ltd. vs. CST (2009) 13 STR 641 (Tri-Chennai)].

37 Interior Decorator services

37.1 Activities such as false ceiling, partitioning, flooring, providing modular systems, painting, carpeting, electrical connections; supply and fixing or various furniture, etc. would not be liable for service tax under the category of ‘Interior Decorator Services’ since -

(i) The said activities are in the nature of ‘execution of work’ and not in the nature of advice, consultancy and technical assistance or planning and designing and hence would not fall under ‘Interior Decoration Service’.

(ii) The appellant’s works are more aptly covered / included under the category of ‘Commercial or Industrial Construction services’ w.e.f. 16.6.2005. Thus, the appellant’s services were not liable to service tax under the category of ‘Interior Decoration Service’ prior to 16.6.2005.

[Spandrel v. CCE (2010) 20 STR 129 (Tri. – Bang.)]

38 Leased Circuit Services

38.1 Interconnection Usage Charges collected by one telecom authority from another telecom authority is not liable for service tax prior to 1.6.2007. [Bharti Airtel Ltd. v. CST (2008) 12 STR 565 (Tri-Ahmd.)]

39 Maintenance & Repair

39.1 Prior to 16.6.2005 any maintenance services carried out under any contract other than a pure maintenance contract would not be liable for service tax under the category “Maintenance and Repair Services”. Hence maintenance and repair of a ship in absence of a maintenance contract was held not liable for service tax. [Cochin Shipyard Ltd. v. CCE (2007) 80 RLT 484 (CESTAT-Ban.) see also Unipower Systems Ltd. v. CCE (2007) 7 STR 590 (Tri- Bang.)]

39.2 Where only repair work was undertaken by the appellants without a maintenance contract, maintenance and repair being distinct (maintenance is prevention from failure, repair is restoration after failure), such repair services were not liable to service tax prior to 16.6.05. [CCE vs. Bhiwadi Cylinders Pvt. Ltd. (2008) 11 STR 37 (Tri. – Del.)].

39.3 The assessee’s activities of maintenance of green belt (Horticulture and Landscaping) which comprised of activities like growing of grass, plants, trees or fruits, vegetables, regular mowing of lawns, pruning and trimming of shrubs and cleaning of garden etc. was held not liable for service tax under the category of maintenance of immovable property for the following reasons–

(i) The CBEC Circular no. B1/6/2005 – TRU dated 27.7.2005 refers to maintenance of civil/electrical and construction work of park and green belt and not maintenance of grass, plants trees or shrubs;

(ii) Services in relation to ‘horticulture’ is specifically kept outside the purview of ‘cleaning services’, a separate service;

(iii) The expression “immovable property” as defined under section 3 of the Transfer of Property Act, 1882 does not include standing timber, growing crops or grass.

[CCE vs. ANS Constructions Ltd. (2010) 17 STR 549 (Tri-Del.)]

39.4 It was held that activity of tyre retreading is neither ‘repair’ nor ‘maintenance’ but a ‘reconditioning’ activity to give economic life to the tyre retreaded and hence would be liable for service tax only w.e.f 16.6.05 when reconditioning activity was brought under tax net. [CCE vs Balwinder Singh 2010 (18) STR 70 (Tri-Del.)].

39.5 ‘Software Maintenance’ services provided in respect of application software already licensed and installed in the computer systems of the clients (banks) during the period 9.7.04 to 30.4.06 would be covered under the category of ‘information technology software services’ w.e.f. 16.5.2008 and not prior to that date under the category of ‘maintenance or repair services’ [EBZ Online Pvt. Ltd V. CCE (2011) 22 STR 185 (Tri- Mum)]

39.6 Where the appellants, were engaged in providing “software maintenance services” in respect of the ERP software package sold by them to their customers which were mainly in the nature of upgrading or enhancing the efficiency of software the Tribunal held that, since the said activities would be covered under the category of ‘information technology software services’ the same would be liable for service tax only w.e.f. 16.5.2008 and not prior to that date under the category of ‘maintenance or repair services’.[SAP India Pvt. Ltd. vs. CCE (2011) 21 STR 303 (Tri-Bang.)]

39.7 Notification No. 24/2009 dated 27.7.2009 which grants exemption from levy of service tax to road maintenance or repair is not retrospective.[Karvembu & Co. vs. Under Secretary, Dept. of Revenue (2010) 20 STR 591 (Mad.); R. Devarajan v Union of India (2010) 20 STR 758(Mad.)]

39.8 Where the appellants were engaged in erection and commissioning of pre-fabricated structures at site and also did maintenance and repair work under various work orders at pre-determined prices, the Tribunal held on facts, that there is no finding/evidence/ observation flowing from the agreement that both parties intended repair / maintenance is a separate part and has to be treated as such. Thus, in the absence of any maintenance & repair contract, the demand based on rate or value contract work is not sustainable prior to 16.6.05. [Neo Structo Construction Ltd. vs. CCE & C (2010) 19 STR 361 (Tri. – Ahmd)]

40 Management Consultancy services

40.1 The appellants, engaged in the business of manufacture and sale of drugs, recovered certain amounts towards ‘staff costs’ and ‘other expenses’ from a group company which was sought to be taxed by the lower authorities under the category of Management Consultancy Services. Allowing the appeal the Tribunal held –

(i) The plea of the appellant of being in the business of manufacture and sale of drugs & not belonging to a profession, trade or calling, would not ipso facto exempt them from service tax since it is the rendering of service that is taxed and not belonging to a profession, trade or calling. Similarly, the fact that the service is provided at cost or at profit is not relevant as taxable event will determine the Tax and not the compensation thereof.

(ii) Recovery of ‘other expenses’ such as publicity, freight, traveling, power and fuel, rent, and miscellaneous expenses are not for management consultancy services. Further, service tax is in any case not payable on reimbursement /out of pocket expenses charged on actuals as per the clarifications & Trade Notices of the department.

(iii) Recovery of ‘Staff Costs’ which comprised of staff costs incurred for 8 teams in marketing exclusively working for the group company, was for conducting executory functions and not advisory functions and hence not liable for service tax under the category of management consultancy services [CBEC circular dated 27.7.2001 noted].

(iv) The recovery of staff costs incurred for 8 teams in marketing working exclusively for the group company were more appropriately covered under the category of business auxiliary services. The Tribunal stated that when an existing Tariff definition remains the same, then the introduction of new Tariff entry would imply that the coverage under the new Tariff for purpose of Tax is an area not covered by the earlier entry. The new entry of business auxiliary services is extension of the scope of coverage of Service Tax and not carving out of a new entry, from the erstwhile entry of "Management Consultancy Service".

[Glaxo Smithkline Pharmaceuticals Ltd. v. CCE (2005) 188 ELT 171 (Mum.)]

40.2 Where the assessee trained his customers in computer programming which is not related to their basic business activity it was held that the activity of the assessee would not be liable for service tax under the category of management consultancy services [CCE v. Aisco Engineering Pvt. Ltd. (2006) 1 STR 324 (Tri - Mumbai)].

40.3 Tata Technologies Ltd. (TTL) entered into an agreement with SAP India whereby SAP India granted a licence to use SAP software for 5000 users of the Tata group. The agreement also provided for annual maintenance services. Each member of the Tata group entered into a tripartite agreement with TTL and SAP India for provision of software and annual maintenance services. SAP India provided the software and annual maintenance services directly to the relevant Tata group entity. TTL collected the amounts for licence fee and AMC charges and paid it over to SAP India. On these facts, it was held by the Tribunal that TTL acted as a payment conduit and did not provide any service to the Tata group companies and accordingly the amount collected from them was held as not liable for service tax [Tata Technologies Ltd. v. CCE (2007) 82 RLT 673 (CESTAT-Mum.)]

40.4 Enterprise Resource planning software implementation services would only be liable for service tax under “IT Software service” w.e.f. 16.5.2008 and not under the category of Management Consultancy Services prior to that date more so in view of the specific exclusion of same from the category of ‘consulting engineer’ services. [IBM India Pvt. Ltd. vs. CST (2010) 17 STR 317 (Tri- Bang)]

41 Mandap Keeper

41.1 In this case, the appellants let out their premises / complex for holding trade fairs to various parties and also to the Election Commission for arranging for voting, storing boxes, counting votes etc. for a rent. The revenue sought to tax the rental receipts under the category of Mandap Keeper. Negativing the Revenue’s contention the Tribunal held that –

(i) In order to be a “mandap keeper” a person must allow temporary occupation of a mandap for organizing official, social, or business “functions”. The appropriate meaning of the word “function” in this context would be a ceremony. The levy thus extends to temporarily organized official, social or business functions i.e. ceremonies and not to official, social or business activities.

(ii) A Trade fair is nothing but a temporary market place because what goes on at the fair is business as usual and not a business function. Likewise the letting out of stalls to Election Commission for storing election material etc. is letting out to carryout its official activities and not to organize official functions / ceremonies.

Accordingly the Tribunal held that none of the above activities of the appellant would be liable for service tax under the category of “mandap keepers”. [India Trade Promotion Organization V CCE 2004 (60) RLT 268 (CESTAT-Del.)]

41.2 In the present case, service tax levied on services rendered by Mandap–Keeper was challenged on two grounds:

(i) That it amounts to the tax on land and therefore by reason of Entry 49 of List 2 (State List) of the Seventh Schedule to the Constitution, only the State Government is competent to levy such tax; and

(ii) Insofar as it levies a tax on catering services, it amounts to a tax on sale and purchase of goods and, therefore, is beyond the competence of Parliament, particularly in view of the definition of tax on sale and purchase of goods contained in Article 366(29A)(f) of the Constitution.

Repelling the contentions of the appellants and upholding the judgment of the Madras High Court [133 ELT 36 (Mad.)] the Supreme Court in a landmark judgment made the following observations:

Tax on services provided by a Mandap Keeper is not a “tax on land”

In order to constitute a “tax on land” under Entry 49 of List 2 [State List] of Seventh Schedule [Tax on Land and Buildings] to the Constitution the tax must be directly a tax on land and tax on income from the land does not come within the purview of this entry. Therefore the tax on services provided by a Mandap Keeper is within the “legislative competence” of the Parliament.

Tax on catering services does not amount to tax on sale or purchase of goods

(i) For a tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of sale in the law of contract or more precisely the Sale of Goods Act, 1930. Article 366(29A)(f) of the Constitution only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise include the supply of services within the definition of sale and purchase of goods. The fact that there is a tax on sale of goods involved in a catering service under article 366(29A)(f) of the Constitution does not mean that service tax cannot be imposed on the service aspect of catering.

(ii) Making available a premise for a period of few hours for the specific purpose of being utilized as a Mandap whether with or without other services would itself be a service and cannot be classified as any other kind of legal concept. The services provided by a mandap keeper cannot be termed as a hire-purchase agreement or a right to use goods or property. The services provided by a mandap keeper are professional services which he alone by virtue of his experience has the wherewithal to provide. The manner in which services is provided assumes predominance over the providing of food in such situations which is a definite indicator of the supremacy of the service aspect.
A tax on services provided by a mandap keeper is therefore in pith and substance a tax on services and not a tax on sale or purchase of goods or on hire purchase activities.
[Tamil Nadu Kalyana Mandapam Association v. Union of India, (2004) 167 ELT 3 (SC)]

41.3 The petitioners a ‘members’ club’ sought a writ from the High court for a declaration that the petitioner is not a mandap keeper within the meaning of Chapter V of the Finance Act, 1994 and no service tax would be payable for the facilities / amenities provided to its members. Upholding this contention the High laid down the following propositions :

(i) A writ would not be entertained if there is an alternative efficacious remedy. Though in this case there was an alternative efficacious remedy, the court entertained the writ since interim relief had already been granted earlier and to nip litigation at its bud;

(ii) There should be existence of two sides / entities for having transaction. The ‘Members’ and the ‘club’ both are the same entity, one is the principal and the other is the agent and therefore a transaction between themselves cannot be regarded as a service.

(iii) The ratio of the judgments in income tax and sales tax would also be applicable to service tax in such a case and a transaction between the members and the club cannot be recorded as income, sale or service.

[Saturday Club Ltd. v. Asst. CCE (2005) 180 ELT 437 (Cal.)]

41.4 CKP, a charitable trust, let out its halls to several of its clients for official, social or business functions on the condition that the hirer shall, if catering or decoration service is required, avail them only from M/s. SCD. CKP entered into two separate contracts with SCD, giving them an exclusive monopoly right for rendering the services of catering and decoration to the hirers using the said halls for a consideration of Rs. 8.35 lakhs and 9.8 lakhs paid to them in instalments during the period spanning from 1997 – 2002. The question was whether these amounts are chargeable for service tax under the category of mandap keepers? The High Court reversing the judgment of the Tribunal held that the amounts are not liable for service tax under the category of “mandap keeper” since –

a. The hirers were the “clients” of CKP and the charges received from the hirers for use of the halls for organizing official, social or business functions is alone taxable;

b. There is no relationship of mandap keeper and client between CKP and SCD since SCD is not the person who has hired the halls for organizing any official, social or business function;

c. The consideration received from SCD is not an amount charged by CKP from the hirer but is for giving them monopoly rights to provide catering and decoration services to the hirers;

d. By giving SCD monopoly rights to provide catering and decoration services to the hirers it cannot be said that catering services are provided “indirectly” to the hirer (client) by CKP since CKP has not charged the hirer of the halls on that account.

[CKP Mandal v. CCE (2006) 4 STR 183 (Bom.)].

41.5 Where the appellants, a hotel which let out its halls for functions as well as conferences / meetings but registered itself only under mandap keeper services and not under convention services, the Tribunal held that the assessee is required to register under both as mandap keeper services and convention services and should classify the service each time either as convention or mandap keeper depending upon whether the hall is let out for organizing official, social or business function, or for formal meetings / conferences and discharge service tax appropriately. [Welcome Hotel vs. CCE (2009) 13 STR 375 (Tri-Ahmd.)]

41.6 “Breakfast” and “High Tea” (which in social context is used in replacement of dinner) would be considered as ‘substantial and satisfying meal’ within the meaning of Notification no. 21/97-S.T. dated 26.6.1997 and an assessee providing them whether on fixed menu basis or unlimited basis alongwith mandap keeper services would be entitled to abatement under the said notification. In order to claim exemption each and every invoice disclosing as to whether the supplied item was only tea or coffee or the same was inclusive of how many number of snacks etc. so as to fulfill the meaning of ‘substantial and satisfying meal’ is not required to be gone through. It would be sufficient if the mandap keeper has provided catering services and has disclosed the same as ‘inclusive of catering charges’ in the invoices raised by him. [Welcome Hotel vs. CCE (2009) 13 STR 375 (Tri-Ahmd.)]

41.7 In a “members club” the members and club both are the same entities. One maybe called as ‘principal’ and other may be called as ‘agent’. The members have formed the club to service themselves mutually and for this purpose, members are paying for such user and any amount of receipt and expenditure of the clubs is enjoyed and / or incurred by the members alone and not by third party. Thus, applying the principle of mutuality, the facility of use of premise by the members of the club cannot be termed as “letting out” nor the members of the club using such facilities can be termed to be “client”. In the absence of two entities the transactions between the club and its members would not be a service and consequently no service tax would be imposable. [Karnavati Club v. UoI (2010) 20 STR 169 (Guj.) See also Sports Club of Gujarat Ltd. v. UoI (2010) 20 STR 17 (Guj.)]

42 Manpower, Recruitment or Supply Agency Service

42.1 Where the appellants conducted examinations for recruitment of clerks, officers and specialist officers in banks, financial institutions and other organisations with the object to plan, promote and provide for competent, well qualified and efficient cadres of personnel at various levels to banks and financial institutions in the country, and also collected fees for rendering similar services to persons other than Banks and Financial Institutions, the Tribunal held that the appellant is not a “commercial concern” (whose primary aim is to earn profit) and hence not liable to pay service tax on such fees since –

(i) the activity undertaken by the appellants was within its object clause and was only with a view to minimise costs / fees charged to member banks; and

(ii) the profit earned from the aforesaid activity was ploughed back and used for the objects of the organisation itself and not for distributing the profits to its members. [Institute of Banking Personnel Selection vs. CST (2007) 8 STR 579 (Tri. – Mum.)].

42.2 The appellant’s employees were working on the client’s site. The clients were software companies. The issue was whether the appellant was providing a service or had only deputed personnel at the client’s disposal. The appellants contended that he provided a service viz., ‘Consulting engineering service’ or ‘Information technology service’ and the department contented that the appellant provided ‘Manpower Recruitment or Supply Agency Service’. The Tribunal observed that as per the actual operations the appellants are providing the skilled personnel to the client and hence would be liable under ‘Manpower Recruitment or Supply Agency Service’ based on the following reasons.

(i) There was no evidence to show that the software project undertaken by the clients are sub-contracted to the appellant or that the appellants were working on any such project on their own;

(ii) The appellant’s skilled personnel were working under the supervision and control of the clients;

(iii) The contract provided that in case where the appellant’s skilled personnel leave the job they are to be replaced by suitably trained personnel as substitutes thus indicating that the number of skilled persons supplied was important from the point of view of the client. If the appellants were actually to deliver the software projects, the clients would have nothing to say how many personnel the appellants engage to complete the project or who they employ.

[Future Focus Infotech India (P) Ltd. vs. CST (2010) 18 STR 308 (Tri. – Chen.)]

Contra : In a similar case, in Cognizant Tech Solutions (I) Pvt Ltd vs CCE 2010 (18) STR 326 (Tri-chennai) on facts it was held that services were in the nature of “IT software services” and not “Manpower recruitment services” since the work force recruited and retained by the appellants were required to work under a project manager appointed by the appellants who had to act as a single point of contact being responsible for overall management of the project and the nature of services required to be provided by the appellants were in the nature of information technology services as the same related to data management.

43 Operation and maintenance contracts

43.1 The appellants operated and maintained a power plant for the owner of the plant and were responsible for generation of electricity and selling it to TNEB which had an agreement with the owner. The appellants received a fixed monthly remuneration from the owners. The department sought to tax the remuneration under the categories of Management Consultancy services, consulting engineering services, clearing and forwarding services, business auxiliary services, maintenance and repair services. The Tribunal dismissed the department’s contentions and held as follows :

(i) In order to fall within the ambit of “management consultancy services” a person must provide advice in applying management principles for efficient functioning of an organization. In the present case the appellant was not offering any advice for improvement of owner’s organization. Its primary function was to generate and transfer power to TNEB including carrying out incidental and ancillary functions such as maintaining the plant with its team of experts including engineers. Accordingly, its services are not liable for service tax under the category of “Management consultancy services”.

(ii) As the plant is run by the appellants, it cannot be held that they had rendered any engineering consultancy to owner or anybody else. Accordingly its services are not liable for service tax under the category of “Consulting engineering services”.

(iii) Ensuring quality of the fuel and its availability to run the plant without interruption are functions incidental to the operation of the plant for generating power and therefore coordinating the delivery of lignite with the transporting agency and ensuring that the fuel of required specification is supplied cannot be held as a separate service rendered by it and such activities are not liable for service tax under the category of “Clearing & Forwarding Agent” as contended by the department.

(iv) As per the definition of “Business auxiliary services” any activity involving manufacturing of any goods within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944 is specifically excluded. Generation of electricity being “manufacture” would therefore not be liable for service tax under the category of “business auxiliary services”.

(v) The services provided by the appellants could not be considered as maintenance and repair since maintenance and repair are only incidental and ancillary functions to generation of power which was its primary function. Here these services could at the most be considered as services rendered to themselves and not to another person. Accordingly, their services are not liable for service tax under the category of “Maintenance and repair services”.

The Tribunal concluded that the O&M contract is a works contract and it is bad in law to vivisect it and tax certain activities covered by the contract. It held that the contract was intended to ensure generation and supply of power as per the power purchase agreement and not for rendering any service to the owner. It also observed that tax cannot be levied when the liability of the assessee is not determined precisely with respect to each of the taxable services found to have been rendered. No tax can be levied without specifying taxable value. [CMS (I) Operations & Maintenance Co. P. Ltd. v. CCE (2007) 7 STR 369 (Tri-Chennai) See also Basti Sugar Mills Co. Ltd. v. CCE (2007) 7 STR 431 (Tri.-Del.); GVK Power & Infrastructure Ltd. vs. CCE (2008) 10 STR 146 (Tri-Bang.)].

44 Online Information and Database Access or Retrieval service

44.1 Providing online computer courses through the medium of internet is in the nature of “commercial training and coaching services” and not “online information and database access or retrieval services” since, the essential character of the services involves providing education through the medium of internet i.e. providing online lessons on computer hardware and software, online interaction with the faculty, students and experts, online test, etc. and not merely providing online access to data or information. However, computer training institutes being exempt vide notification no. 9/2003 dated 20.6.2003, the appellants were not liable for service tax. [Dewsoft Overseas Pvt. Ltd. vs. CST (2008) 12 STR 730 (Tri. – Del.)].

45 Outdoor Caterer’s service

45.1 The appellant supplied food, beverage and dry stores to air lines; prepared two separate invoices – one for supply of food and another for service charges. It paid VAT on supply of food and service tax on the service charges after availing benefit of notification no. 12/2003. The department denied the benefit of notification no. 12/2003 on the ground that there is no ‘sale of goods’ but granted abatement of 50% of the total amount (supply of food + service charges) under notification no. 20/2004 dated 10.9.04. The Tribunal setting aside the order of department held that –

i. In view of the Article 366(29A) read with provisions of Karnataka VATAct, 2005 the supply of food would be deemed as sale of goods. Further, since VAT has been paid on such supply of goods service tax is not payable on the same value.

ii. Benefit of notification no. 12/2003 is squarely applicable to the appellant since the supply of food constitutes ‘sale of goods’.

iii. Where benefit under two notifications is available to the assessee, he has an option to choose more beneficial notification.

[Sky Gourmet Pvt. Ltd. Vs. CST (2009) 14 STR 777 (Tri. – Bang.); See also LSG Sky Chefs (India) Pvt Ltd. vs CST 2010 (18) STR 37]

45.2 Mere preparation and serving food items to the employees of the company using the facilities such as canteen, stores, furniture, utensils, gas, electricity, etc. provided by the company itself, is not covered under outdoor catering service. [Rajeev Kumar Gupta vs. CCE (2009) 16 STR 26 (Tri. – Del.)]

46 Packaging Service

46.1 Packaging and bottling of country made liquor would not be liable for service tax under the category of ‘packaging service’ since the same is in the nature of a manufacturing process as defined under Section 2(f) of the Central Excise Act, 1944 for the following reasons:

(i) ‘Manufacture’ includes any process which is incidental or ancillary to the completion of manufactured product such as ‘bottling’. Further, it is not necessary that the manufacturing process referred to in section 65(76b) of the Finance Act must result in excisable goods.

(ii) Bottling of liquor cannot be considered as a process distinct from manufacturing of liquor so as to levy service tax thereon.

[Maa Sharda WineTraders vs. UOI (2009) 15 STR 3 (M.P)]

47 Photography services

47.1 Goods and materials during the course of providing photography services is not includable in the value of taxable service for the purpose of charging service tax. Further, the Circular F.No.233/2/2003-CX-4 dated 3.3.2006 clarifying otherwise is not in accordance with the judgment of the Supreme Court in BSNL case. [Shilpa Color Lab v. CCE (2007) 5 STR 423 (Tri.-Bang.)]

47.2 Colour photo laboratories which are merely engaged in receiving exposed negatives/ rolls, developing the same and printing the photographs of desired size are liable for service tax under the category of photography service.[Colorway Photo Lab vs. UOI (2009) 15 STR 17 (M.P.)]

48 Port Services

48.1 The appellants were repairing, chipping, cleaning and painting vessels of one M/s. CGND and ONGC at a port. The Revenue sought tax the appellants under the category of Port services. The Tribunal dismissed the appeal and held as follows.

(i) Port service means a service rendered by a port or a “person authorised by a port” in relation to vessel or goods. S. 35 of the Major Port Trusts Act, 1963 (“MPTA”) empowers the Port to execute certain works which inter alia includes providing facilities for dry dock repairs etc. but does not require the port to carry out the repair job itself. Hence such activities would not amount to port services.

(ii) By s. 42(1)(e) the Port may inter alia undertake “piloting, hauling, mooring, remooring, hooking, or measuring of vessels or any other service in respect of vessels”. The term “any other service” is to be read ejusdum generis and would cover only those services which are connected with the movement of the vessel. So read, ship repairs do not fall under this clause either.

(iii) By s. 42(3) the port can authorise any other person to perform certain activities at fixed tariffs specified by the MPTA. The appellant’s consideration being decided by the contracts with their customers and not by the MPTA leads to the conclusion that their services are not port services.

(iv) The Revenue not having raised any objection to the appellants registering and paying service tax under the category of maintenance and repairs w.e.f. 1.7.2003 cannot ask the appellant to pay tax for the past period under port services.

(v) The Circular No. 67 dated 10.11.2003 issued by the CBEC (clarifying that ship repair activities at the dry dock would be taxable under port services) is not in accordance with law.

(vi) The extended period of limitation cannot be invoked since the issue involves a bona fide interpretation of statutory provisions and the appellants had a made a full disclosure of their activity in the statutory books required to be kept in the ordinary course of their business.

[Homa Engineering Works v. CCE (2007) 7 STR 546 (Tri-Mum.) See also Konkan Marine Agencies vs. CCE (2007) 8 STR 472 (Tri-Bang) affirmed in CCE vs Konkan Marine Agencies (2009) 13 STR 7 (Kar); Velji P. & Sons (Agencies) Pvt. Ltd. & ANR v CCE (2007) 82 RLT 678 (CESTAT – Ahmd.) see also Mazgaon Dock Ltd. vs. CST (2008) 11 STR 271 (Tri-Mumbai); Vikram Ispat vs. CCE (2008) 11 STR 639 (Tri-Mumbai); Western India Shipyard Ltd. vs. CCE (2008) 12 STR 550 (Tri-Mumbai)];Disagreed in Western Agencies Pvt. Ltd. s. CCE (2008) 12 STR 739 (Tri-Chennai) and matter referred to Larger bench].

48.2 Railway siding charges received by the appellants, a port trust, from the Railways for allowing them to utilise their railway marshalling yard for construction and maintenance of railway sidings are not services in relation to vessels or goods and accordingly not liable for service tax under Port Services. [New Mangalore Port Trust vs. CCE (2008) 9 STR 235 (Tri. – Bang.)].

48.3 The appellants, a minor port, provided various port services and registered for service tax with effect from 1.7.2003. It raised separate bills for wharfage, storage, etc. The department contended that the storage charges are liable for service tax under the category of “Storage and Warehousing Services” w.e.f. 16.8.02. Dismissing the contention of the department the Tribunal held that storage charges was not liable for service tax under “storage and warehousing services” but under “port services” since:

(i) Storage & Warehousing is not a separate service but were an essential, integral and core part of the port service and were performed for the better enjoyment of the port service;

(ii) Port services were subsequently introduced w.e.f. 1.7.03 without making a change in the definition of Storage and Warehousing service thus indicating that the two services were distinct and separate services.

[Gujarat Chemical Port Terminal Company Ltd. v. CCE (2008) 9 STR 386 (Tri. – Ahmd.)].

48.4 Where the appellants holding licences as a stevedoring agent were providing cargo handling services but such services were not rendered on behalf of the port authorities - the Tribunal held that the appellant’s services are Cargo handling services and not port services [H.K. Dave Ltd. v. CCE (2008) 12 STR 561 (Tri-Ahmd.) See also CCE vs. Konkan Marine Agencies (2009) 13 STR 7 (Kar)].

48.5 (i) In a case where the appellant conducted an auction of the cargo not cleared by the importers and appropriated the proceeds towards terminal /port charges, the Tribunal held that ‘conducting of auction’ of cargo is not a service rendered to importers and hence the service tax is not payable.

(ii) Fees collected for making available the infrastructure facility for examination of the cargo by customs authorities before the goods enter into the port area is not liable for service tax under the category of port services.

[India Gateway Terminal (P) Ltd. vs. CCE (2010) 20 STR 338 (Tri-Bang.)]

48.6 In the present case the Tribunal held that the following revenues would not be liable under the category “port services:

(i) Royalty received by the appellant [Cochin Port Trust (“CPT”)] from India Gate Terminal Pvt. Ltd. (IGTPL) to develop & operate a terminal named the Rajiv Gandhi Container Terminal (RGCT) in the port area is not a consideration for providing any port services (i.e. a service in relation to vessels or goods). Further, if at all IGTPL pays service tax as demanded the same will be available to it as cenvat credit to pay its output tax. Hence demand on this count under the category of the “Port Services” is not sustainable.

(ii) the rent collected from individuals / agencies for allowing them to construct and operate jetties, cannot be considered as consideration towards port services.

[Cochin Port Trust vs. CCE.(2011) 21 STR 400 (Tri-Bang.) see also Cochin Port Trust vs. CCE (2011) 21 STR 25 (Tri. – Bang.)]

49 Rent a Cab

49.1 Where the appellants provided the service of transportation of passengers of the Indian Oil Corporation to destinations fixed by the Corporation, in a “matador”, for a consideration fixed per trip depending on the distance, time, etc. and during the time of the operation the vehicles continued to be with the appellant and the vehicle was not leased out to the Corporation for use according to its discretion, the Tribunal held that the appellants were not a liable for service tax under the category of “rent-a-cab scheme” operator. [Kuldip Singh Gill v. CCE Jalandhar (2005) 186 ELT 373 (Tri-Del.) see also [Vijay Travels vs. CST (2010) 19 STR 671 (Tri-Ahmd)]]

49.2 Where the appellants had rented out two of its vehicles having seating capacity of less than 6 and 6-12 passengers for hire, the Tribunal held that the activity of the appellants would be covered under “rent-a-cab services” since all vehicles with the relevant seating capacity used for transportation of passengers would fall within the definition of ‘cab’, ‘motor cab’ and ‘maxi cab’ for the purpose of service tax notwithstanding that other requirements of Motor Vehicles Act with respect to the vehicles have not been complied to consider it as motor cab or maxi cab. [Neeraj Construction vs. CCE (2009) 13 STR 145 (Tri-Del)]

50 Renting of Immovable property

50.1 On a question as to whether renting of immovable property would be liable for service tax the Delhi High Court held -

(i) Service tax is a tax on value addition provided by a service provider. In the case of renting of immovable property there is no value addition and hence no service tax is payable.

(ii) If there is some other service, such as air-conditioning provided alongwith renting of immovable property then ‘it’ would fall within section 65(105)(zzzz).

The Court however did not examine the legislative competence of the Parliament in the context of Entry 49 of List II of the Constitution of India. [Home Solutions Retail India Ltd. vs. UOI (2009) 14 STR 433 (Del.)]

50.2 Letting out the property (air-conditioned space) where the customer airlines install and operate their x-ray machines would be liable for service tax under the category of ‘renting of immovable property services’. [Kerala State Industrial Enterprises Ltd. vs. CST (2011) 21 STR 423 (Tri-Bang.)]

50.3 In a petition seeking declaration of the provisions relating to service tax on renting of immoveable property as ultra vires, the Constitution, the Punjab and Haryana High Court held as follows:

(i) It cannot be held that renting of property did not involve any service. Renting of property for commercial purposes is certainly a service and has value for the service receiver.

(ii) service tax on the service of renting of property is not a “tax on land and building” covered by Entry 49 List II which is the subject of the State Legislatures but is on the service element in renting transaction which is within the legislative competence of the Parliament under Entry 92C read with Entry 97 of List I.

(iii) The amendment made by the Finance Act, 2010 retrospectively from 1.6.2007 is constitutionally valid.

[Shubh Timb Steels Ltd. v. Union of India (2010) 20 STR 737 (P&H)].

51 Sale of space or time for advertisement

51.1 The appellant’s services of soliciting clients for sale of space in newspapers would be considered as a service ‘in relation to’ sale of space and more aptly covered within the category of ‘sale of space or time for advertisement’ which is effective from 1.5.2006 and not under the category of ‘business auxiliary services’ prior to that date. [Margadarsi Marketing Pvt. Ltd. vs. CCE & ST (2010) 20 STR 195 (Tri. – Bang.)]

52 Scientific or Technical Consultancy

52.1 ‘Grants-in-aid’ received by the assessee from the Central and State Governments for implementing various social welfare schemes for the benefit of various sections of the society such as minorities, poor villagers, etc. is not liable for service tax under the category of ‘scientific and technical consultancy services’ since the assessee only acted as an implementing agency and did not render any ‘service’ to the Government and hence there was no service provider-client relationship between the assessee and the Government. [APITCO Ltd. Vs CST (2010) 20 STR 475 (Tri. –Bang.)]

53 Security agency services

53.1 The appellants were a corporation formed under the Punjab Ex-Servicemen Corporation Act, 1978 with an objective of welfare and rehabilitation of Ex-Servicemen. As a part of their objectives they were engaged inter alia in providing security agency services. They contested the levy of service tax on the grounds that they were not a commercial concern engaged in business and hence their activities would not be liable for service tax. Further in any case no service tax would be payable on the amount of salaries paid by it to its security personnel. On appeal the Tribunal dismissing the above contentions observed that

i) for levy of service tax the nature of activity is relevant and not the objectives. The test for determining as to whether a concern is a “commercial concern” would be as to whether it charges fully commercial price for the goods or services sold by it and monitors its commercial performance by preparing Annual balance sheets and profit and loss account. From mere objectives of an organisation – like welfare of ex-servicemen or other sections of the society requiring help, promotion of sports etc. it cannot be concluded that it is not a commercial concern. Since the appellants charged full commercial price for the services rendered by it and used to monitor its commercial performance by preparing Balance sheets and Profit and loss account it was held to be a “commercial concern”.

ii) the assessable value of the security agency services shall include the salaries of the security personnel provided.

[Punjab Ex-Servicemen Corpn. vs. CCE (2009) 13 STR 529 (Tri-Del.)]

54 Site formation and clearance, excavation and earth moving and demolition Services

54.1 Where the appellants under a contract with APMDCL were required not only to remove the overburden but to extract Barytes Ore the Tribunal held that the essential character of the activities of the appellants were in the nature of mining services and site formation (i.e. removal of overburden) was only incidental. Since mining services were liable to service tax only w.e.f. 1.6.2007 the demand for a period prior to 1.6.2007 is not payable. Further, the Tribunal also observed that the contract for mining being comprehensive in nature cannot be vivisected for the purpose of levying service tax on the portion of activity relating to site formation services.[M. Ramakrishna Reddy vs. CCE&C (2009) 13 STR 661 (Tri-Bang.)]

55 Supply of tangible goods for use services

55.1 The petitioner supplied various types of vessels (offshore drilling rigs, off-shore support vessels, harbour tugs and construction barges) on ‘time charter basis’ to various oil and gas producers to carry out off-shore exploration and production activities. The department contended that the services are in the nature of services ‘in relation to’ mining and hence liable under the category of ‘mining services’ w.e.f. 1.6.07, while the petitioners contended that it would be liable for service tax under the category of ‘supply of tangible goods for use’ without transferring effective control and possession w.e.f. 16.05.08. Upholding the contention of the petitioners the High Court observed:

(i) When a new entry is introduced and certain services are included in that entry, it would presuppose that there was no earlier entry covering the said services. Since the services of the petitioner are squarely covered by the entry 65(105)(zzzzj) i.e. service in relation to supply of tangible goods, prior to introduction of the said entry, the services rendered by the petitioners were not liable.

(ii) The services rendered by a person must have a direct or proximate relation to the subject matter of the taxing entry and the context in which the words ‘in relation to’ are used has to be borne in mind to judge the extent of the scope of an entry which may be of wide amplitude. Thus, in the present case, services having remote connections cannot be included in entry (zzzy) i.e. service in relation to mining of mineral, oil or gases on the strength of the words “in relation to”.

[Indian National Shipowners vs. UOI (2009) 14 STR 289 (Bom.)]

56 Stock broker services

56.1 In a case where assessee was registered as a stock broker with SEBI but working as a sub-broker the Tribunal held that the assessee was providing taxable services as a stock broker and is covered by the definition of stock broker. Accordingly service tax recovered from the customers is liable to be deposited u/s. 11D of the Central Excise Act, 1944. [U.S. Bengali vs. CCE&C (2008) 12 STR 71 (Tri-Ahmd.)]

56.2 Services provided by a sub-broker to a stock broker viz., of getting prospective investors for sale or purchase of securities is liable for service tax post 10.9.04 under the category of “stock broker services”. [Unique Investment Centre vs. CCE (2009) 13 STR 158 (Tri-Del.) Decision in Vijay Shantha v. CCE (2007) 7 STR 518 (Tri-Del.) held per incurium]

Note: As per Finance (No. 2) Act, 2009 services provided by sub brokers are excluded from service tax under the category of stock broking services w.e.f. 1.9.2009.

57 Storage and Warehousing services

57.1 Where the appellants, who were engaged in manufacturing of sugar, were required by Government of India to maintain a specific quantity of free sale sugar for a specified period to comply with the provisions of Sugar development Fund Act, 1982 for which they were compensated by way of reimbursement of expenses towards interest, storage and insurance, the Tribunal held that they would not be treated as providing of ‘storage and warehousekeeping services’ to Government and accordingly would not be subjected to service tax on the said reimbursement received from the Government.[Nawanshahr Co-op. Sugar Mills vs. CCE (2008) 12 STR 176 (Tri-Del.)]

57.2 In this case the Tribunal held that -

(i) Terminal charges collected by the custodian at the air cargo complex for providing services such as stacking, unloading and facilitation for x-raying of export cargo being incidental to the provision of storage services is liable for service tax under the category of storage and warehousing services.

(ii) Demurrage charges collected by the appellant for storing unaccompanied passenger baggage is liable for service tax under the category of storage and warehousing services.

[Kerala State Industrial Enterprises Ltd. vs. CST (2011) 21 STR 423 (Tri-Bang.)]

57.3 In this case the High Court held that subsidy received from the Government towards interest, storage and insurance for maintenance of a specific quantity of free sale sugar for a specified period (buffer stock) under the provisions of Sugar Development Fund Act, 1982 is not liable under the ‘storage and warehousekeeping services’ after making the following observations-

(i) Nobody can provide service to himself – the appellant stored the goods owned by himself for a specified period and after the expiry of the period he was free to sell the same;

(ii) Subsidy received was not on account of services rendered to Government but is received as compensation on account of loss of interest, cost of insurance etc. incurred on account of maintenance of stock.

(iii) Just because the storage period of free sale sugar had to be extended at the behest of Government of India, neither the sugar mills becomes ‘Storage and Warehouse Keeper’ nor the Government of India become their client in this regard.

[CCE vs. Nahar Industrial Enterprises Ltd. (2010) 19 STR 166 (P&H)]

57.4 The Karnataka State Warehousing Corporation, whose services are requisitioned by the State Government for storing of essential commodities like fertilizers on payment of a charge, does not perform a “statutory function”, and is liable for service tax under storage and warehousing services [Karnataka State Warehousing Corporation Ltd. v. CCE (2010) 19 STR 32 (Tri-Bang.)]

58 Survey or Map making services

58.1 Where the appellants undertook detailed engineering survey, cadastral survey (collection of records related to land), soil investigations (testing of soil samples), drawing and submissions of maps the Tribunal held that the said activities would be liable for service tax under the category of ‘survey or map making services’ w.e.f 16.6.2005 and not consulting engineering services. [CCE vs Mascon Multiservices & Consultants P. Ltd. (2009) 14 STR 190 (Tri-Ahmd.)]

59 Technical Inspection and certification services

59.1 Software testing is not liable for service tax under the category of ‘Technical inspection and certification service’ since

(a) it is an integral part of software development which is not liable for service tax;

(b) it has ben specifically brought under ‘Technical testing & Analysis’ w.e.f. 16.5.08 and hence not liable prior to that date.

[Relq Software Pvt. Ltd. vs. CST (2009) 14 STR 799 (Tri-Bang.)]
 

59.2 Licencing of standard mark popularly known as ‘ISI’ mark to be affixed in products (such as cement bags etc.) which is granted after drawal of sample, testing, etc. by the Burueau of Indian Standards (“BIS”) in consideration for a marking fee is liable for service tax under ‘technical inspection and certification services’. [Grasim Industries Ltd. v. CCE (2009) 15 STR 734 (Tri-Chennai).]

59.3 The Tribunal in the present case held that the activities carried out for certification of quality management systems practiced by clients for ISO 9001:2000 certification requirements, would not come within the purview of ‘Technical inspection and certification services’ after making the following observation:

(i) only inspections related with goods, materials or immovable property would be liable for service tax under the said category;

(ii) the word ‘process’ used in the definition clause would keep company with the words ‘goods’, ‘materials’ or ‘immovable property’ on the principle of ejusdem generis;

(iii) the word ‘process’ would relate only to physical and chemical process and would not extend to include ‘management process’ which is in relation to human beings;

[American Quality Assessors (I) Pvt. Ltd. vs. ACST (2009) 16 STR 413 (Tri Bang)]

60 Technical testing and analysis

60.1 Clinical testing of drugs is not liable for service tax under the category of “Technical testing and analysis” for the period prior to 1.5.2006 since –

(i) the testing is ‘in relation to’ human beings or animals which is specifically excluded; and

(ii) The Explanation to section 65(106) inserted w.e.f 1.5.2006 which specifically included within the definition of “Technical Testing and Analysis”, clinical testing of drugs and formulations but excluded diagnostic testing w.e.f. 1.5.2006 expanded the scope of the definition of Technical Testing and Analysis service and hence cannot considered as clarificatory in nature despite the use of the words “For the removal of doubts, it is hereby declare that” and accordingly the said Explanation would not have retrospective effect i.e. prior to 1.5.2006.

[B. A. Research India Ltd. vs. CST (2010) 18 STR 604 (Tri. – Ahmd.)]

61 Tour operator

61.1 Services like arranging guide services, monument visit services, porter services, food services, general assistance services etc. provided by the assessee to Principal Tour operators who offered package tours to tourists are liable for service tax even before 10.9.2004 since they are services “in relation to” to a tour. However, amounts paid as advances by the principal tour operators to be paid to tour escorts and inter-branch billing would not be liable. [Touraids (I) Travel Services vs. CCE (2008) 12 STR 452 (Tri-Del.)]

61.2 Where the appellants used its buses for transportation of its employees the Tribunal on facts held that appellants would not be liable for service tax under the category of Tour operator service since:

i. The appellants were not engaged in the business of operating tours;

ii. The vehicles used for transportation of employees is not a tourist vehicle

iii. The vehicles do not have a permit under the Motor Vehicles Act to conduct tourism business.

[Prakash & Poonam Tours & Travels vs. CCE(2009) 16 STR 452 (Tri-Del)]

62 Works contract services – Composition scheme

62.1 Where the appellant had an on-going works contract as on 1.6.07 (the date on which service tax on “works contract services” were introduced) but had paid service tax on payments received prior to 1.6.07 inter alia under the category of “construction services” the High Court held that the assessee would not be entitled to avail the benefits of the Composition Scheme [payment of 4% on the gross contract value] since the election to opt for the composition scheme is to be made before service tax is paid in respect of the works contract. [Nagarjuna Construction Company Ltd. vs. Government of India (2010) 19 STR 321 (AP)].

V. REGISTRATION, PAYMENT OF TAX, ADJUDICATION, APPEALS, etc.

63 Registration

63.1 Rule 4(5) of the Service Tax Rules, 1994, providing that the registration applied for shall be ‘deemed’ to have been granted if the Superintendent does not grant registration within 7 days from the date of application is applicable only to registrations granted by the Superintendent and not to Centralised Registration under rule 4(2) granted by the Commissioner of Central Excise for whom there is no time stipulation. However, Centralised Registration must be granted within reasonable time. 7 days may be considered reasonable time. But this time is only directory not mandatory. Further, registration would have to be granted so long as the form is completely and properly filled and cannot be refused. It cannot even be granted under a category other than that applied for nor can it be granted by the department on its own without application. [Karamchand Thapar & Bros. (Coal Sales) Ltd. v. UoI (2010) 20 STR 3 (Cal.)]

64 Payment of tax

64.1 Where the appellant had admittedly paid education cess alongwith the excise duty under the accounting head of basic excise duty, the Tribunal held that the appellant cannot be again held liable for payment of education cess. [Guala Closure (India) Pvt. Ltd. vs. CCE (2009) 16 STR 536 (Tri. – Ahd.)]

65 Payment of amount collected as service tax

65.1 The assessee, an authorized service station, provided services to customers of M/s HHM (a vehicle manufacturer), charged service tax on the customers and paid it to the Government. M/s HHM reimbursed 50% of the tax to the assessee. The revenue contended that the amount collected from HHM must be paid to the Government u/s 11D of the Central Excise Act, 1944 made applicable to service tax. On appeal, the Tribunal held that u/s 11D only excess amounts collected from the buyer of goods had to be paid to the credit of the government. Since in the present case, the tax was collected from the manufacturer (M/s HHM) and not the buyer section 11D did not apply and the assessee was not liable to pay such amount to the Government. [Nagappa Motors vs. CCE (2011) 21 STR 503 (Tri. – Che.)]

66 Interest

66.1 Where the assessee paid service tax by incorrectly debiting CENVAT credit account instead of payment in cash but later, corrected the error by making payment in cash the Tribunal held that there was no failure to make payment but only adoption of an incorrect method of payment and hence no interest is payable. [CCE v. Sterlite Industries (I) Ltd. (2011) 21 S.T.R. 534 (Tri- Che.)]

67 Adjustment of tax

67.1 Where service tax was collected and paid by the assessee on Commissioning and installation services prior to 01.07.03 (date of introduction of service tax on the said services) but was refunded to the customers by way of credit notes and the amount paid was adjusted against tax liability of July’ 03 onwards, the Tribunal allowed the adjustment of tax. The Tribunal dismissed the Revenues contention that such adjustment was not permissible under Rule 6(3) since the assessee has refunded only the service tax amount and not the value of taxable service on the ground that rule 6(3) was not applicable to the present case at all since rule 6(3) is applicable only when service rendered is taxable and not where service is not taxable. [CCE vs. Aurore Trust 2010(17) STR 376 (Tri-Chennai)]

67.2 Where the assessee had adjusted the excess service tax paid for services rendered to SEZ against its subsequent liabilities the Tribunal held that such adjustment was permissible [CCE vs. SRC Projects Ltd. (2010) 20 STR 687 (Tri-Chennai)]

67.3 Where the assesee adjusted the service tax liability for the month of January, 2008 – February, 2008 against the excess service tax paid in the month of October, 2007 and had intimated the same to the department but not within the prescribed period of 15 days the Tribunal held that the non-intimation of adjustment within 15 days was only a technical default and accordingly allowed the adjustment. [CCE vs. Rajdeep Buildcom Pvt. Ltd. (2011) 21 STR 663 (Tri. – Mum.)]

68 Show cause notice

68.1 Where the appellants had discharged the service tax liability along with interest before issuance of SCN and informed the department about the payment as well as bona fide belief they entertained as to their non-taxability, the Tribunal held that the SCN should not have been issued in view of section 73(3) and accordingly no penalties would be imposable. [V.S.T. Tillers Tractors vs. CCE (2009) 14 STR 159 (Tri-Bang.)]

68.2 Where the show cause notice failed to indicate the specific category of service under which the department proposed to levy service tax the Tribunal held the SCN to be defective and demand not sustainable [Coromandel Fertilizers Ltd. vs. CCE (2009) 13 STR 542 (Tri-Chennai)]

68.3 Where the assessee had centralised billing system at Vijaywada, Andhra Pradesh falling under the jurisdiction of Guntur commissionerate and rendered ‘site formation’ etc. services at Bilaspur falling under jurisdiction of Chindwan division of Bhopal commissionerate and took a separate registration at Madhya Pradesh and did not opt for centralised registration, it was held that a show cause notice issued by Guntur commissionerate on services rendered by assessee at Bilaspur, Madhya Pradesh is without jurisdiction. [CCE vs. Integral Construction Company 2010(17) STR 380 (Tri-Bang)]

69 Demand

69.1 The tribunal in this case held that where the show cause notice is only for imposition of penalty and for levy of interest no demand can be made in the absence of any specific demand for service tax in the show cause notice. [Bayer Diagnostics India Ltd. vs. CCE (2005) 182 ELT 487 (Tri-Mum.) See also Marked Oil & allied industries v. CCE (2002) 146 E.L.T. 466 (Tri–Del.); Gujarat Containers Ltd.v. CCE (2003) 157 E.L.T. 67 (Tri.-Mumbai) and L.H. Sugar factories v. CCE (2004) 165 E.L.T. 161, Diamond Cables Ltd. v. CCE (2005) 180 ELT 444 (Tri-Mum.)]

69.2 Where the SCNs did not specify the period of demand nor quantify it, the Tribunal held that the demands cannot be sustained. [Praseetha Suresh v. CCE (2006) 3 STR 777 (Tri-Bang.). Following Coolade Beverages Ltd. v. CCE (2004) 172 ELT 451 (All.); Bayer Diagnostics India Ltd. v. CCE (2005) 182 ELT 487 (T)].

69.3 The Tribunal laid down certain important propositions regarding demand as under:

(i) SCN should be issued in accordance with the provisions of law existing at the time of issue of SCN.

(ii) In view of the above, the larger period of limitation cannot be sustained without invoking in the SCN, the ingredients of the proviso to Section 73 (i.e. fraud, collusion, willful misstatement, etc.) which was enacted by the Finance Act, 2004 though the demand pertained to a period prior to the enactment.

(iii) The Adjudicating Authority cannot confirm demand under a different category of service other than the one alleged in the SCN as this leads to a change in the character of the SCN.

[Mahakoshal Beverages Pvt. Ltd. v. CCE (2007) 6 STR 148 (Tri. – Bang.)]

69.4 Where the show cause notice only demanded ‘interest’ on credit wrongly utilised [and subsequently paid], an order confirming the demand of ‘credit’ wrongly utilised is incorrect since it travels beyond the Show Cause Notice. [C.C.E vs. Jagatjit Industries Ltd 2010 (17) STR 137 (Tri-Del)]

69.5 Recovery of demand from the partners of a firm, in respect of service tax payable by the firm, is not permissible merely by marking a copy of the SCN to the partners of the firm [G. Govindaraj vs. CCE (2010) 17 STR 529 (Tri-Chennai)].

69.6 Where the SCN did not identify the documents based on which it raised the demand, the Tribunal held that there was a violation of principles of natural justice and accordingly the demand is not sustainable [V. S. Distributors vs. CCE. (2010) 17 STR 530 (Tri-Del) – Per D. N. Panda – Member (J)].

69.7 The respondents provided Pandal or Shamiana services which was liable for service tax w.e.f. 10.9.2004. They declared certain undisclosed incomes which they stated pertained prior to 10.9.2004 during a survey conducted by the Income tax Department on 6.1.2006. The Service tax department sought to tax the entire undisclosed income. On appeal the Tribunal held that the demand cannot be sustained without enquiry as to whether the undisclosed income is earned post 10.9.2004. [CCE vs. Bindra Tent Service (2010) 17 STR 470 (Tri-Del.)]

69.8 Income voluntarily disclosed to the income-tax authorities cannot be added to value of taxable services in absence of any evidence that such income disclosed was part of taxable service. [CCE v. Ramesh Studio & Colour Lab (2010) 20 STR 817 (Tri-Del.)].

70 Demand when service tax already paid by client

70.1 Two companies ‘B’ and ‘C’ respectively facilitated sale of insurance policies and finance to purchasers of vehicles of their parent company ‘M’ and received commission from Insurance companies and finance companies on which they paid tax under ‘Insurance Auxiliary services’ and ‘Business Auxiliary Services’ respectively. They shared part of the commission with the appellant ‘A’, a dealer in vehicles manufactured by ‘M’, for recommending buyers to avail Insurance and finance from those companies of which B & C were agent/brokers. On these facts, it was held that no separate tax was required to be paid by ‘A’ on part of the commission received from B & C based on the following reasons:

(i) tax on the entire commission has already been paid by B & C.

(ii) If tax was paid by A, B & C would be eligible for input credit thereby making the impugned demand revenue neutral.

[Popular Vehicles & Services Ltd. vs CCE, 2010 (18) STR 493 (Tri-Del.)]

71 Limitation

71.1 Where there was a doubt as to whether advisory services on mergers and acquisitions would be liable for service tax under the category of management consultancy services [the scope for doubt being established by the fact that the Bombay High Court in a writ directed the CBEC to clarify the position] the Tribunal held that the extended period of limitation cannot be invoked since there was no suppression of facts with an intention to evade tax and hence a Show Cause Notice dated September, 2001 seeking to recover tax for the period 16.10.98 to 31.3.99 is barred by limitation [CCE v. DSP Merrill Lynch Ltd. (2007) 7 STR 59 (Tri.-Mumbai)].

71.2 Where the departmental authorities were not clear as to the nature of activities rendered by the assessee and had taken different views at different points of time the extended period of limitation cannot be invoked. [Nexcus Computers (P) Ltd. vs. CCE (2008) 9 STR 34 (Tri. – Chennai)].

71.3 Where service tax is not paid as a result of confusion prevailing in the field as regards the liability of service tax it was held that the benefit of doubt is to be extended to the assessee and the extended period of limitation is not invokable. [Dalveer Singh vs. CCE (2008) 9 STR 491 (Tri-Del)].

71.4 Where there were conflicting tribunal decisions on the issue whether a consignment agent would be liable for service tax under the category of “clearing and forwarding agents”, an SCN dated 2.7.2002 seeking to demand tax from the assessee under the above category on the same issue for the periods 16.7.1997 – 31.8.1999 is barred by limitation [Bharat Aluminium Co. Ltd. v. CCE (2007) 8 STR 27 (Tri-Del.) See also Sunil Metal Corporation vs.CCE (2009) 16 STR 469 (Tri-Ahmd.); Padam Chand Mutha & Co. v. CCE (2009) 16 STR 721 (Tri-Del.)].

71.5 Where the appellants had filed the memorandum and articles with the department at the time of registration specifying the activities carried out by company it was held that there was no suppression of facts and the extended period of limitation cannot be invoked. [Karvy Consultants Ltd. vs. CCE (2008) 10 STR 166 (Tri-Bang.)]

71.6 The department in the year 2000 asked the appellants to register and pay service tax on security services w.e.f. 16.10.1998. The appellants replied vide letter dated 3.4.2000 claimed exemption under notification no. 58/2002-ST. The department did not pursue the matter until 2002 and finally issued a SCN on 22.1.2004 demanding service tax for the period 16.10.1998 to 30.9.2002. The Tribunal held that the department was aware of the relevant facts and hence the SCN being beyond the one year limitation period the demand is time-barred [Dolphine Detective Agency v. CCE (2006) 4 STR 25 (Tri-Bang.)].

71.7 Where the issue involved legal interpretation as to whether the appellant could be considered as clearing and forwarding agents it can be safely concluded that the appellants were under a bona fide belief and the extended period of limitation is not invokable [NRC Ltd. v. CCE (2007) 5 STR 308 (Tri-Mum.)].

71.8 Where the department had earlier issued a show cause notice for an issue, the department being aware of the appellant’s activities, cannot invoke the extended period for issuing a second show cause notice. [Cairn Energy (I) Pvt. Ltd. vs. CCCE (2008) 11 STR 632 (Tri-Bang.)]

71.9 Where the assessee had suo-motu assessed and paid the tax and reflected their income in the balance sheet and income tax returns for the impugned period the Tribunal held that the extended period of limitation cannot be invoked. [Om Sai Professional Detective & Sec. Ser. P. Ltd. vs. CCE (2008) 12 STR 79 (Tri-Bang.)]

71.10 Where an order was issued u/s. 11C dated 4.4.2007 of the Central Excise Act under which the Government acknowledged that there was a general practice of not levying service tax in respect of vehicles used as stage carriages and accordingly granted exemption for the period 1.4.2000 to 4.2.2004, it was held that a show cause notice dated 13.6.2005 invoking longer period of limitation to demand tax for the period 1.4.2001 to 31.3.2004 is time barred. [Mangalwardhini Travels vs. CCE (2009) 13 STR 51 (Tri-Del)]

71.11 Where the SCN is based on the information disclosed in balance sheet and other documents maintained by the appellants and the appellants have been regularly paying tax and filing returns the Tribunal held that there is no suppression of facts with an intent to evade tax and hence larger period of limitation cannot be invoked. [Rolex Logistics Pvt. Ltd. vs. CST (2009) 13 STR 147 (Tri-Bang.)]

71.12 Where the department had issued an SCN to include erection, commissioning and installation charges in the assessable value for charging excise duty, a subsequent SCN on the assessee seeking to invoke the larger period of limitation for charging the said charges to service tax is not permissible since the department is deemed to be aware of the facts and there was no suppression of the facts.[Kirlburn Engg. Ltd. vs. CCE (2009) 13 STR 285 (Tri- Ahmd.)]

71.13 Where the appellants had been regularly furnishing the ST-3 returns which was assessed and finalized by the department larger period of limitation cannot be invoked. [Alvares & Thomas vs. CCE (2009) 13 STR 516 (Tri-Bang.)]

71.14 Where the assessee was a PSU of the Govt of India, no mala fide intention to evade tax could be attributed to it and hence extended period of limitation cannot be invoked. [BSNL vs. CCE (2009) 14 STR 359 (Tri- Ahmd.)]

71.15 Where no objections were raised by the department as regards valuation when the appellant firm filed returns regularly during its existence nor when they surrendered their registration certificate on dissolution of the firm, the Tribunal held that extended period of limitation cannot be invoked to confirm a demand prior to dissolution. [CCE & ST v. P.V. Narayana Reddy (2009) 14 STR 701 (Tri-Bang.).

71.16 Where the appellant could take Cenvat credit on payment of tax on ‘Goods Transport Agency’ (GTA) services availed by him, non-payment of service tax on GTA services (as a payer of freight) cannot be said to be with an ‘intent to evade service tax’ since it would be revenue neutral. Accordingly it was held that the extended period of limitation cannot be invoked [Dineshchandra R. Agarwal Infracon Pvt Ltd. vs CCE 2010 (18) STR 39 (Tri-Ahmd.)].

71.17 The law as it stood on the date of issuance of show cause notice is relevant for applying the provision of limitation under section 73 [Viking Tours & Travels (2011) 22 STR 69 (Tri. – Che.)]

71.18 Where the appellant bonafide believed himself to be entitled to exemption, the extended period of limitation is not invokable and the fact that the appellant did not approach the Revenue for clarification and did not disclose the activities undertaken by them, cannot be made a reason for alleging any suppression or mis-statement on the assessee. [Aditya Birla Nuvo Ltd. vs. CCE (2011) 22 STR 41 (Tri. – Ahmd.)]

71.19 Where the original refund claim (under notification no. 41/2007) was filed within the prescribed time limit but before a wrong authority, a subsequent filing before the appropriate authority even though after the prescribed period cannot be held to be barred by limitation. [CCE vs. AIA Engineering Ltd. (2011) 21 STR 367 (Guj.)].

71.20 Where the Revenue had invoked the larger period of limitation, in a case where the assessee who was earlier registered for service tax but had subsequently surrendered the same under the belief that his services were not liable for service tax, the Tribunal observed that the revenue having failed to adjudge the activities of the appellant and their subsequent liability to pay service tax under any category of service at the time of surrender of the registration certificate could not subsequently question the assessee’s intention and his belief that his activities were not liable for service tax.[Needwise Advertising Pvt. Ltd. vs. CST (2011) 21 STR 229 (Tri-Ahmd.)]

71.21 Income voluntarily disclosed to the income-tax authorities cannot be added to value of taxable services in absence of any evidence that such income disclosed was part of taxable service. [CCE v. Ramesh Studio & Colour Lab (2010) 20 STR 817 (Tri-Del.)].

71.22 Where the department issued the first show cause notice for a period 1.4.00 to 31.3.01 on 20.10.05 and subsequently issued another show cause notice for the period 1.4.01 to 31.3.04 on 31.8.2006 on the same issue invoking the extended period of limitation the Tribunal held that the second show cause notice would be barred by limitation. [Vijay Travels vs. CST (2010) 19 STR 671 (Tri-Ahmd)]

71.23 Where the appellants, challenged the constitutional validity of levy of service tax on tour operators, was upheld by the High Court vide order dated 30.4.01, tax on tour operators became payable 1.4.2000. However , the appellants paid tax only from 1.5.01. On the facts the Tribunal held that a show cause notice issue to the appellant in the year 2005 seeking to levy service tax for the period 1.4.2000 – 30.4.01 is barred by limitation. The extended period of limitation cannot be invoked since the facts were already known to the department. [Travel Aid vs. CST (2010) 19 STR 570 (Tri-Chennai)]

71.24 The appellant, a hotel, was registered for service tax under the category of ‘Mandap Keeper’ services and filed its returns regularly from 1997-2007 but had stopped paying service tax under mandap keeper services from 2002 claiming exemption under notification no. 12/2001 dated 20.12.2001. The department issued a SCN dated 30.1.2007 seeking to reclassify the services under ‘Convention Services’ to deny the exemption for the period 1.2.2002 – 13.7.2004. The Tribunal held that the extended period of limitation cannot be invoked on the ground of suppression of facts since the assessee was regularly filing its returns and the department could have asked for further details as they were aware of the appellant’s activities. [CCE vs. Casino Hotel (2010) 19 STR 425 (Tri. – Bang.)]

71.25 Where the appellant a service recipient, who received services from foreign companies did not pay service tax for the period 18-4-06 to June 2006 though it had disclosed the transactions to the department it was held that the SCN issued on 5.12.07 cannot invoke the extended period of limitation. However, the Tribunal did not accept the plea of revenue neutrality to uphold the bar of limitation. [ABB Ltd vs. CCE,, 2010 (18) S.T.R.433 (Tri-Bang)]

72 Rectification of mistakes

72.1 The Superintendent of Service tax assessed the quarterly and half yearly returns from September 97 to March 99 without any demand. The Deputy Commissioner reopened the assessment u/s 74 on the ground that there was mistake apparent from records and made demand and imposed penalties. On appeal, the Tribunal held -

i. Where the ST-3 returns have been assessed, it cannot be said that there was error and non-production of records by the assessee;

ii. Where assessment of ST-3 returns has become final under section 71 i.e. no appeal is filed within the time allowed u/s 85, it cannot be reopened by invoking s. 74 on the ground that there is “mistake apparent from record” so as to circumvent the provisions of s. 85.

iii. S. 74 can be invoked only by the Superintendant who passed the order of assessment and not by Deputy Commissioner

[Onkar travels Ltd v.CCE, 2006, (3) S.T.R 164 (Tri-Del).]

72.2 An order of the Tribunal concluded contrary to a decision of a superior court (High Court or Supreme Court) rendered “subsequent” to the order of the Tribunal would be amenable to rectification as involving an error apparent from records even though the Tribunal had decided the order “prior to” the judgement of the superior court since the subsequent decision does not “enact” the law but “declares” the law as it always was [Hindustan Lever Ltd. vs. CCE (2008) 10 STR 91 (Tri. – LB)].\

73 Penalty

73.1 Where the breach flowed from a bonafide belief that the assesses were not liable for service tax; they paid the tax alongwith interest and also co-operated with the investigating authorities, the Tribunal held that they had reasonable cause under section 80 and accordingly set aside the penalties imposed under section 76 and 77.[ETA Engineering Ltd. v. CCE – 2004 (174) ELT 19 (Tri-Larger Bench) See also CCE v. Sikar Ex-Serviceman Welfare Co-op. Society Ltd. (2006) 4 STR 213 (Tri-Del.); Jagdeep Singh Saluja v. CCE (2008) 12 STR 309 (Tri. – Del.)]

73.2 A subsequent amendment in the statue with retrospective effect cannot bring about penal consequence on the assessee. [Mahalakshmi Sugar Mills Co. Ltd. v. CCE (2006) 1 STR 121 (Tri. – Del.)]

73.3 Once it was found by the original authority that there was reasonable cause for the failure of the assessee to pay service tax in time, the proposal to impose penalties on them u/s. 76 and 77 should be dropped inasmuch as the assessee had, by showing such reasonable cause for the failure to pay tax in time, established a case for exoneration from penalty u/s. 80. Once the adjudicating authority forms his satisfaction on reasonable cause for commission of the offence it is not open to Commissioner (Appeals) to substitute his ‘satisfaction’ for the ‘satisfaction’ recorded by the lower authority for purposes of s. 80 of the Finance Act. [Sre Venkateswara Hi-Tech Machinery v. CCE (2007) 6 STR 139 (Tri. - Chennai)]

73.4 Where the assessee was bona fide labouring under a mistake as to the extension of an exemption notification and had also disclosed the receipts in his books indicating that he had no intention to evade tax, the Tribunal held that there is a reasonable cause u/s. 80 for failure to pay the service tax and accordingly no penalty u/s 76 and 78 is impossible. [Ace Computer Education v. CCE (2007) 6 STR 361 (Tri.-Del.)]

73.5 Penalty under Rule 15 of Cenvat Credit Rule was waived by the Tribunal since issues involved in this case were a question of interpretation of the provisions. Since there could have been two possible interpretations, the appellant cannot be visited with a penalty, as there was no malafide intention to avail ineligible Cenvat Credit on these two services. [Universal Cable Ltd V. CCE (2007) 80 RLT 821 (Tri. – Del.)]

73.6 With respect to quantum of penalty for delay in payment of taxes u/s. 76 the adjudicating authorities can, in exercise of the discretion u/s. 80, impose a penalty lesser than that prescribed u/s. 76. [CCE v. Mukul S. Patil (2008) 10 STR 115 (Bom.); See also CCE v. Vinay Bele & Associates (2008) 9 STR 350 (Bom.); M.R. Bhagat & Associates v. CCE (2008) 10 STR 130 (Tri-Mum.)].

73.7 On facts, the Hon’ble High Court held:

a. The Tribunal cannot entertain an appeal on merits where the appeal has been rejected by the lower adjudicating authorities on account of non-compliance with the requirement of pre-deposit; and

b. Penalty imposable u/s. 76 of the Finance Act, 1994, in absence of reasonable cause, cannot be reduced below the minimum amount prescribed in that section. It can, however, be completely dispensed with (not reduced below prescribed minimum) if reasonable cause is shown by the assessee.

[UoI vs. Aakar Advertising (2008) 11 STR 5 (Raj.).See also CCE vs Bhakya Beauty Parlour (2008) 12 STR 44 (Tri-Chennai)]

73.8 Where the service tax was paid before the issuance of show cause notice and the assessee also had a bona fide doubt as to the taxability of their activity, the Tribunal held that penalty u/s. 78 is not imposable since-

(i) u/s. 73(3) show cause notice itself was not required to be issued; and

(ii) there was ‘reasonable cause’ u/s. 80 for not imposing penalty.

[Bhoruka Aluminium Ltd. v. CCE (2008) 11 STR 163 (Tri. – Bang.). See also Tidewater Shipping Pvt.Lt. vs. CST (2008) 11 STR 475 (Tri-Bang.); Haiku Motors Pvt Ltd. vs CST (2009) 14 STR 410 (Tri-Bang); see also Majestic Motorbikes Pvt. Ltd. vs. CST (2008) 11 STR 609 (Tri- Bang.); Reach Event Managements vs CCE 2009 (14) STR 251 (Tribunal)].

73.9 Where the appellants, bonafide believed that only services provided by cable operators who were receiving signals directly from the satellite, and not from multi system operator, were liable under cable operator service, the Tribunal held that there was a reasonable cause for waiver of penalty u/s. 80. [Krishna Satellite Cable Network vs. CCE (2008) 12 STR 605 (Tri-Del.)]

73.10 Though the plea of bona fide belief was not specifically raised before the lower authorities the fact that the appellant had been resisting the demand of service tax on the premise that his activity is not liable for service tax led the Tribunal to believe that the appellants were entertaining bona fide belief of not being liable to pay service tax. Accordingly the penalties u/s. 76, 77 and 78 was waived on the reasonable cause ground. [Prodorite Anticorosive Ltd. v. CCE (2008) 12 STR 618 (Tri-Chennai]

73.11 When the original authority waived the penalty exercising the discretion vested in him u/s. 80 the Tribunal held that such order cannot be revised by the Commissioner. [Solomon Foundry v. CCE (2008) 12 STR 750 (Tri-Chennai) following the Karnataka High Court judgement in CCE vs. Sunitha Shetty (2006) 3 STR 404 (Kar.); Handiman Services Ltd vs. CST (2008) 12 STR 765 (Tri. – Bang.); Ganesh Tours and Travels vs Commissioner of service tax 2010 (18) STR 171 (Tri-Bang.)].

73.12 In absence of malafide intention for delay in payment of tax, penalties u/s.76, 77, 78 and 79 must be waived under section 80 on the ground of “reasonable cause” instead of merely reducing the penalties.[M.R. Coatings Pvt. Ltd. vs. CCE (2009) 13 STR 79 (Tri-Ahmd.) see also Pawnar Satellite vs. CCE (2011) 22 STR 14 (Tri. – Del.)]

73.13 On a question as to whether the benefit of immunity from penalty under the Extraordinary Tax Payer Friendly Scheme communicated vide D.O. Letter dated 20.9.2004 would be available to the assessees who have registered themselves prior to the communication of Scheme, The Hon’ble High Court observed:

(i) the amnesty scheme is an administrative instruction issued for the benefit of both the service providers and the Revenue and is not an instruction envisaged under section 37B of the Central Excise Act. Thus it would not be considered as having a statutory force.

(ii) The scheme is issued with an intention to provide immunity to defaulters who chose to deposit arrears of tax and interest before the cut off date and hence immunity should not be denied to persons who have already got themselves registered prior to the communication of the Scheme.

[UOI vs. Amit Kumar Maheshwari (2009) 13 STR 119 (Raj.)]

73.14 Where there is no intent to evade tax and prevalence of confusion as to taxability at the infancy stage of implementation of the law the Tribunal waived the levy of penalties u/s. 76, 77 & 78. [Gajanand Agarwal vs. CCE (2009) 13 STR 138 (Tri-Kolkata)]

73.15 Where the provisions of S. 73(1A) were in existence at the time of issuance of SCN, proceedings shall be deemed to be concluded on voluntary payment of service tax, interest and 25% of penalty u/s. 73(1A) even if the demand pertains to the period prior to the introduction of section 73(1A). [Aneja Property Dealer v. CCE (2009) 13 STR 266 (Tri. – Del.)].

73.16 Where the appellants had reflected their income from services in their financial statements and had collected it by raising invoices the Tribunal observed that there was no attempt to on the part of appellant to suppress or hide the fact from the revenue. Further in view of the prevalence of divergent view with regard to the interpretation of law during the relevant point of time the Tribunal held that the larger period of limitation was not invokable. [Steelcast Ltd. vs. CCE (2009) 14 STR 129 (Tri-Ahmd.) affirmed in (2011) 21 STR 500 (Guj.) See also R. R. Construction Company vs. CCE (2008) 11 STR 53 (Tri-Del.)]

73.17 Where non-payment of service tax was on account of confusion with regard to the liability to pay service tax the Tribunal held that there was a reasonable cause as envisaged u/s. 80 for waiver of penalties. [Life Insurance Corporation of India vs. CCE (2009) 14 STR 495 (Tri-Del.)]

73.18 Enhancement of penalty by way of revising the order of adjudicating authority during the pendency of appeal before CCE(A) is not sustainable. [Agarwal Color Lab vs. CCE (2009) 14 STR 547 (Tri-Del.)]

73.19 In this case the question before the Hon’ble bench was – Can the penalty levied u/s. 78 of the Finance Act, 1994 be reduced below the statutory minimum envisaged in the said section by invoking the provisions of section 80. The Tribunal observed that on invoking of section 80 of the Finance Act, no penalty was imposable. On the other hand where section 78 was invoked the penalty imposable cannot be less than the amount of service tax not levied or paid. If at all, section 80 is invoked no penalty can be imposed. Accordingly, it held that the quantum of penalty leviable u/s. 78 cannot be reduced below the statutory minimum envisaged by invoking the provisions of section 80. [CCE vs. Riya Travels & Tours (I) Pvt. Ltd. (2009) 15 STR 124 (Tri-Mumbai); See contra in CCE vs. Madhuri Travels (2009) 15 STR 241 (Bom.)]

73.20 In this case the appellant sought waiver of the deposit of penalty levied under section 76 of the Finance Act, 1994 since they had deposited the amount of service tax alongwith interest before the issuance of SCN. The Tribunal granted stay of recovery of penalty u/s. 76 distinguishing the case of UOI vs. Dharmendra Textile Processors (2008) 231 ELT 3 (SC) which dealt with penalty u/s. 11AC of the Central Excise Act by distinguishing that penalty u/s. 11AC is not comparable with section 76 since section 11AC provided for penalty on defaulter of Central Excise duty, whose default arises on account of fraud, suppression of facts or contravention of provisions of law with intent to evade payment of duty. [Deccan Mechanical & Chemical Industry Pvt. Ltd. vs. CCE (2009) 16 STR 263 (Tri-Mumbai);]

73.21 Mere detection by the department does not amount to non – payment with an intent to evade payment of service tax. Department ought to bring out clear facts that appellant was in the know that service tax was payable but still chose not to pay tax inorder to evade the same. Accordingly, the Tribunal held that no penalty u/s. 78 for suppression of facts was imposable. [Sands Hotel Pvt. Ltd. vs. CST (2009) 16 STR 329 (Tri-Mumbai)]

73.22 Where the appellants had paid duty on the bearings manufactured and supplied to the Railways but failed to discharge the service tax payable on their installation the Tribunal held that since the department was well aware that installation flows from the supply there cannot be case for suppression of material fact and accordingly no penalties were imposable.[National Engineering Industries vs. CCE (2009) 16 STR 340 (Tri-Del.)]

73.23 Where appellants had paid the service tax alongwith interest and had also paid the differential amount of tax on being pointed by the department the Tribunal observed that there was no need to issue show cause notice u/s. 73 of the Finance Act for recovery of tax and interest. Further, where no show cause notice was required to be issued u/s. 73, issue of show cause notice for recovery of penalty u/s 76 does not arise. Accordingly, the Tribunal held that no penalty u/s. 76 was imposable.[U.B.Engineering Ltd vs. CCE (2009) 16 STR 457 (Tri-Ahmd.) see also Amiras Enterprises vs. CCE (2010) 20 STR 631 (Tri-Ahmd.); Ratindranath K. Kanungo vs. CCE (2010) 20 STR 636 (Tri-Ahmd.); Lajpat Rai Jindal vs. CST (2010) 20 STR 645 (Tri-Del.); P. Jani & Co. vs. CST (2010) 20 STR 701 (Tri-Ahmd.); Nischint Engineering Consultants Pvt. Ltd. vs. CCE (2010) 19 STR 276 (Tri-Ahmd.)]]

73.24 The appellants in the present case had paid service tax alongwith interest as a recipient of service on royalty payments made abroad for the period October, 2004 to March 2006. The Revenue contended to impose penalties u/s. 76,77 and 78. The Tribunal relying on the decision of High Court in Indian National Ship Owners Association vs. UoI (2009) 13 STR 235 (Bom.) held that since the services provided from outside India were held to be liable for service tax only w.e.f. 18.4.06 no service tax was payable by the assesse. Accordingly, where the liability to pay tax was absent no penalty u/s. 76,77 and 78 was held imposable. [Jet Audio Pvt. Ltd. vs. CCE (2009) 16 STR 497 (Tri-Mumbai)]

73.25 Where the department had not imposed penalty u/s. 78 on the ground that there was no suppression of facts by the assessee it cannot impose penalty u/s. 76 & 77 on the ground that there is no “reasonable cause”. [Sanghi Industries Ltd. v. CCE (2009) 16 STR 696 (Tri. – Ahmd.)]

73.26 Penalty u/s 78 is not imposable for wrong availment of cenvat credit. [C.C.E vs. Jagatjit Industries Ltd (2010) 17 STR 137 (Tri-Del)].

73.27 Mere failure to apply for registration and failure payment of tax and file the returns cannot be construed as suppression with intent to evade payment of duty [CCE vs. Star Crane Service (2010) 17 STR 576 (Tri-Ahmd.)].

73.28 Where service tax was paid with interest before the issue of SCN and the adjudicating authority imposed penalties u/s. 76 and 78 the Tribunal held that:

(i) Once penalty u/s. 78 is imposed penalty u/s 76 is not imposable since they are mutually exclusive.

(ii) Penalty u/s 78 is to be reduced to 25% of the service tax in view of the first proviso to section 78 which provides that where the service tax as determined under Section 73(2) and the interest payable thereon under Section 75 is paid within 30 days from the date of communication of the order of the Central Excise officer determining the tax, amount of the penalty liable to pay shall be 25% of the Service tax so determined.

[Safe Test Enterprises vs CCE 2010 (18) STR 172 (Tri-Chennai)]

73.29 Where the lower appellant authority did not impose penalty u/s. 76 & 77 on the reasonable cause ground by invoking the provisions of the Section 80, the Tribunal held that the penalty u/s. 78 (which was imposed ) would also stand deleted on the same ground [Anil Kumar Yadav vs. CCE (2011) 22 STR 20 (Tri. – Che.)]

73.30 Where the appellant has paid service tax alongwith interest and filed its returns and on the basis of these returns an SCN was issued seeking to impose penalties u/s 76, the Tribunal held that no penalty is imposable u/s. 76. [Inland Mines & Minerals Pvt. Ltd. vs. CCE (2011) 21 STR 630 (Tri. – Ahmd.) see also Jay Dwarkadish Engg. & Electricals Contractor vs. CCE (2011) 21 STR 631 (Tri. – Ahmd)]

73.31 Section 80 confers a discretion on the authorities to condone imposition of penalty u/s. 76 and 78. Such discretion includes imposition of penalty less than that is prescribed under law depending upon the reasonable cause to be shown for failure to pay the tax. Further, the appellate authority also has jurisdiction to reduce the penalty imposed by the assessing officer. [CCE vs. Tiger Service Bureau (2011) 21 STR 364 (Kar.)]

73.32 Where the appellant voluntarily registered and paid service tax alongwith interest when he came to know about his liability and the department thereafter started proceedings for confirmation of the demand and imposition of penalties, the Tribunal held that there is no intent to evade payment of tax and accordingly no penalty u/s. 76 and 78 is imposable. [Ascent Communication vs. CST (2010) 20 STR 655 (Tri-Ahmd.)]

73.33 Where the appellant paid tax on C&F agency services but took cenvat credit of the tax so paid on the belief that the tax was not payable, instead of claiming refund the Tribunal held that –

(i) penalty u/r. 15(4) of the Cenvat Credit Rules, 2004 is not imposable in absence of an allegation of fraud, collusion, etc. in the SCN; and

(ii) penalty u/s. 76 and 77 is not imposable since the default does not concern delay / non-payment of tax or infraction of any provisions of the Finance Act, 1994.

[Sudhakar Plastic Ltd. v. CCE (2010) 20 STR 792 (Tri-Bang.)]

73.34 Where the assessee paid excess tax in March 2007 and adjusted the same in subsequent months, the Tribunal held that the assessee has in a way paid tax in advance and as such penalty no penalty u/s. 76 is imposable since it applies only to cases of failure to pay service tax. [Chettinad Cement Corporation Ltd. v. CCE (2010) 20 STR 815 (Tri- Chennai)]

73.35 Where the appellant voluntarily registered and paid service tax alongwith interest when he came to know about his liability and the department thereafter started proceedings for confirmation of the demand and imposition of penalties, the Tribunal held that there is no intent to evade payment of tax and accordingly no penalty u/s. 76,77 and 78 is imposable. [Star Energy Systems vs. CST (2010) 20 STR 479 (Tri. – Ahmd.)]

73.36 On a question whether the penalty u/s.76 can be reduced below the limit prescribed by section 76, the Gujarat High Court held that –

(i) the quantum of penalty has been specified in Section 76 by laying down minimum and maximum limits with further cap insofar as the maximum limit is concerned. Hence it is not possible to read any further discretion, than the discretion provided by the legislature when legislature has prescribed minimum and maximum limits. Thus, section 76 does not give any discretion to the authority to reduce the penalty below the minimum prescribed.

(ii) Section 80 says no penalty is imposable once the assessee establishes reasonable cause. The provision does not say that even upon establishment of reasonable cause a reduced quantum of penalty is imposable.

Therefore on a conjoint reading of Section 76 and 80 of the Act it is not possible to envisage discretion as being vested in authority to levy a penalty below the minimum prescribed limit. The High Court disagreed with several other High Court judgments whose citations are - (a) 16 STR 19 (P&H); (b) 9 STR 348 (Bom.); (c) 14 STR 145 (P&H);

(d) 15 STR 241 (Bom.); (e) 16 STR 135 (P&H); (f) 9 STR 123 (Bom); (g) 17 STR 8 (P&H); (h) 9 STR 350 (Bom.); (i) 14 STR 9 (Kar.); & (j) 7 STT 372 (Raj.) on the ground that in none of the judgments have the provisions of either Section 76 or Section 80 of the Act been analyzed and dealt with. [CCE vs. Port Officer (2010) 19 STR 641 (Guj.)]

73.37 Penalties u/s. 76 & 78 cannot be imposed simultaneously for the same default viz, default in payment of service tax.[CCE vs. City Motors (2010) 19 STR 486 (P& H)]

73.38 Where the Commissioner had enhanced the penalty by way of a revisonary order passed u/s. 84 during the pendency of appeal before the Commissioner (Appeals) the Tribunal held that the revisionary order u/s. 84 was not sustainable. [K.T.V. Oil Mills vs. CCE (2010) 19 STR 587 (Tri-Chennai)]

74 Refunds

74.1 The assessee billed its clients at an amount less discount but paid tax on the gross amount before discount. On realizing that service tax is payable only on the amounts after discount it issued credit notes for return of the excess service tax and claimed refund from the department. The lower authorities rejected the refund claim on the ground that the issue of credit note cannot be considered to conclude that the burden of the duty has not been passed on to the buyers or ultimate customers. On appeal, the Tribunal allowing the refund held that since service tax is payable only on the amount realized and not on the amount billed the decisions in the context of Central Excise duty laying down that once invoice is issued it is conclusive proof that the incidence of duty is passed on notwithstanding subsequent issue of credit notes would not apply to service tax considering that the service tax recognizes post clearance transaction by way of refund of value of taxable service and the tax paid thereon [rule 6(3)]. [Prachar Communications Ltd. V. CCE (2006) 2 STR 492 (Tri. – Mum) followed in Standard Charted Bank v.CCE (2007) 7 STR 449 (Tri-Mum)]

74.2 The assessees, engaged in providing telephone services, inadvertently paid service tax on the MRP mentioned on the recharge vouchers instead of the discounted price [i.e. on the net monies received] and on certain vouchers distributed free. The vouchers were distributed by their agents. The assessees filed refund claims which were rejected by the lower authorities on the time bar, eligibility and unjust enrichment. However, the Tribunal allowed the refund observing as follows:

(i) As regards time-bar the department had returned back the refund claim for insufficiency of documents and thereafter re-submitted by the assessees. The department contended that the date of re-submission is relevant and the refund claim was time barred. The Tribunal held that even if a refund claim is incomplete or is not substantiated by documentary evidence it cannot be retuned back by the adjudicating authorities. It is incumbent upon the authorities to make an order on such refund claim. Hence the re-submitted refund claim is in continuation of the original refund application and thus not hit by limitation.

(ii) As regards the eligibility for refund the department had contested that the invoices were issued by the assessee’s agent and hence the assessee would not be eligible. The Tribunal disagreed and held that the agent issued invoices “on behalf of” the assessees, collected the monies and paid to the assessees. Further, the Tribunal held that the assessee is the service provider and having paid service tax on the entire MRP they are eligible for the refund of service tax on the amounts not realised by them.

(iii) As regards unjust enrichment, though the issue was raised in the show cause notice and replied by the assessee the lower authorities did not record any adverse finding in the Order-in-Original nor was it challenged before the CCE(A) who relied upon the Chartered Accountant’s Certificate and the invoices and found that doctrine of unjust enrichment did not arise. The Tribunal concurred with CCE(A)’s findings though it observed that the said question cannot be raised before it. [CST vs. Reliance Communication Ltd. (2008) 11 STR 258 (Tri-Mumbai)]

74.3 The assesee DTIPL provided services to DT, USA for preparation and filing of US Federal, State and local tax returns, and property tax returns, as well as for computing advance Tax estimates, wage card processing and transfer pricing planning and execution which involved data entry, data processing, and such other incidental and support services. They paid service on the said services under the category of “Business Auxiliary Services”. Further they also claimed input credit on – (i) Equipment hiring charges; (ii) Professional Consultation Service; (iii) Recruitment Services; (iv) Security Services; (v) Telephone Services; (v) Transport Services; (vi) Training Services; (vii) Facility Operation Service; (viii) Courier Services; (ix) Cafeteria Services; (x) Other input services like advertisement service. They claimed refund of input credit on the basis that their services were exported. The Department denied refund on the ground that –

(i) The services were in the nature of information technology service not liable under business auxiliary services and accordingly input credit cannot be taken;

(ii) Notwithstanding (a) above, the input services were not used for providing output services;

(iii) The input credit pertained to services exported prior to 14.3.2006

Tribunal dismissed the Revenue’s contention and held as follows –

(a) The services are not information technology services since the use of computer or computer programme for their services is only secondary and the primary activity that of is business-related services. Hence their services would be liable as “Business Auxiliary Services”.

(b) The services on which credit has been claimed are necessary for providing output services and fall within the definition of input services u/r. 2(l) of Cenvat Credit Rules, 2004 which has defined the scope of an input service quite widely.

(c) Rule 5 of the Cenvat Credit Rules alongwith Notification no. 5/2006 dated 14.3.2006 provides for refund of credit on input services used for exports. This rule would apply even in cases where the claim for refunds are filed on or after 14.03.06 but the exports in respect of which were made prior to that date.

[CCE vs. Deloitte Tax Services India Pvt. Ltd. (2008) 11 STR 266 (Tri –Bang.)].

74.4 Any amount including interest (though not forming part of duty), wrongly collected, is refundable by the Government. The department cannot refuse refund on the ground that it is not provided under the statutory provisions of the refund. However, the refund is subject to the bar of unjust enrichment [Mothersons Sumi Systems Ltd. v. CCE (2007) 5 STR 16 (Tri-Del.)].

74.5 Documents produced in a Compact Disc (CD) is admissible evidence for the purpose of sanction of refund in view of the provisions of the section 4 of the Information Technology Act, 2000 and Rule 5(1) of the Service Tax Rules, 1994 which provides that the records including computerized data as maintained by the assessee shall be accepted. [Standard Chartered Bank v. CCE (2007) 7 STR 449 (Tri-Mum)]

74.6 The appellants initially collected and paid service tax on the assumption that they are liable to pay service tax but on discovery of the error they returned the service tax to their clients by way of cheques as well as by credit notes and claimed refund from the department. The department sought to disallow the refund on the ground of unjust enrichment since the issue of credit note does not alter the fact of unjust enrichment. The Tribunal allowed the refund and held that issue of credit note is also a form of payment as held in Mohd. Ekram Khan and Sons (2004) 6 SCC 1083 and accordingly there was no unjust enrichment since the assessee had returned the service tax to their clients. [Shiva Analysticals (India) Ltd.v.CCE (2007) 80 RLT 112 (CESTAT – Bang.)]

74.7 Where refund is granted by the Assistant Commissioner pursuant to the order of the Tribunal, the CCE cannot revise the Assistant Commissioner’s order merely because the order of the Tribunal has been appealed against by the department unless a competent court stays the operation of the Tribunal’s order. [Bharati Hexacom India Ltd. v. CCE (2007) 7 STR 438 (Tri-Del.)].

74.8 The assessee debited excess amount to their Cenvat credit account and made an application vide letter dated 12.6.01 to take credit of the same. On advise of the Revenue they filed a refund claim although after a year. The Revenue claimed time bar. The Tribunal allowed the refund claim after holding:

(i) It is a simple arithmetical mistake meriting adjustment;

(ii) If at all a refund claim is required to be made the letter dated 12. 6.01 must be considered as the refund claim

(iii) The amount paid should be considered as a deposit and not duty.

(iv) The denial of the refund claim for the excess amount paid on account of clerical error is unjust.

[Motorola India Pvt. Ltd. V. CCE (2007) 7 STR 613 (Tri-bang.)].

74.9 The appellants collected certain amounts from the customers from April, 2000 to January, 2005 and paid service tax under the category of Real Estate Agent’s services, filed returns and accepted assessments for the said period. However, when the services of Management, Maintenance and Repair of immovable property was notified w.e.f. 16.6.2005, the assessee claimed refund for the said period arguing that the amount paid was not “tax” but “money simplicitor” and must be refunded unaffected by the provisions of Section 11B. The authorities refunded the amount paid for the period March, 2004 – January, 2005 (which was within 1 year limitation period provided u/s. 11B) but rejected the refund claim for the previous period. On appeal, the Tribunal, on facts, dismissed the appeal of the assessee and held that the amount paid was “tax” and not “money simplicitor” especially considering that the assessee had paid tax, filed returns and also accepted the refund for 2004-05 for which he submitted a CA certificate that the tax was not collected from the customers. Accordingly, the provisions of S. 11B were held to be applicable and the amount for the period April 2000 – March 2004 was held time barred. [Campus Service (India) Pvt. Ltd. vs. CCE (2008) 9 STR 259 (Tri. – Chennai)].

74.10 Where the order of the Tribunal granting refund to the appellants was pending adjudication before the Supreme Court and show cause notice was issued to nullify the order and to withhold the amount of refund the Tribunal observed that in the absence of any interim order by Supreme Court the department was bound to implement the orders of the Tribunal. [CCE vs. Diamond Cement (2008) 10 STR 183 (Tri-Del.)]

74.11 Where on the facts the amount of service tax paid by the assessee could not be recovered from the customers and a claim for refund of the amount paid in excess was made it was held that the principle of unjust enrichment would not apply to such refund since it is just money which the assessee is entitled as the same was paid by assessee in excess. [CST vs. Standard Chartered Bank (2008) 10 STR 6 (Kar) affirming CCE & ST v. Standard Chartered Bank (2006) 3 STR 751 (Tri-Bang.)]]

74.12 Rule 5 of the Cenvat Credit Rules alongwith Notification no. 5/2006 dated 14.3.2006 provides for refund of credit on input services used for exports. This rule has been held to apply even in cases where the claim for refunds are filed on or after 14.03.06 but the exports in respect of which were made prior to that date. [Caliber Point Business Solutions Ltd. vs. CCE (2008) 11 STR 15 (Tri. – Mum.)].

74.13 Where the appellants have not challenged the order of assessment passed by the Superintendent, no refund claim is maintainable after the order has become final notwithstanding that the Superintendent had no jurisdiction to pass the assessment order.[Malwa Cotton Spinning Mills Ltd. vs. CEGAT (2008) 11 STR 82 (P&H)].

74.14 Where locational exemptions to units located at Jammu was granted by a Notification by allowing refund of “duty of excise or additional duty of excise” paid by such units, it was held that the exemption also extended to “education cess” since cess is also excise duty as per section 93 of the Finance Act, 2004. [Sun Pharmaceutical Industries vs. CCE (2008) 11 STR 93 (Tri. – Del.) relying on T.T.K.-LIG Ltd. vs. Commissioner (2006) 193 ELT (169) (Tribunal – LB)].

74.15 The assessee was granted refund pursuant to the Tribunal’s order. The assessee subsequently also asked for interest u/s. 11BB of the Central Excise Act. However, the department instead of paying the interest issued another SCN seeking to recover the refund already granted on the ground that the Revenue appealed against the Tribunal’s order to the High Court. The assessee made a miscellaneous application to the Tribunal which held that, in absence of stay against the order of the Tribunal, refusing to pay the interest u/s. 11BB is illegal and issue of SCN for recovering refund already granted amounts to contempt of the Tribunal. [Toyota Kirloskar Motor Ltd. vs. CCE (2008) 11 STR 551 (Tri-Bang.)]

74.16 Amounts paid by mistake cannot be termed as duty. Accordingly the limitation u/s. 11B would not apply for seeking refund of such amounts. [CCE vs. Motorola India Pvt. Ltd. (2008) 11 STR 555 (Kar)]

74.17 In this case the Tribunal held:

(a) Where the assessee paid service tax on amounts not received from the customers, it is not necessary for the CCE(A) to examine each and every entry to overrule the plea of unjust enrichment. Further, the question of unjust enrichment would not arise in such a case [7 STR 449 (Tri-Mum.); 3 STR 751 (Tri-Bang.); 10 STR 6 (Kar) relied on];

(b) Boards instruction No. 137/50/2007 CX 4 dated 16.3.2007 clarifying that in the event of centralized registration obtained by the assessee, the rebate refund claim shall be dealt with the Service tax Commissionerate having jurisdiction over the centralized registration of the assessee is not applicable to refunds pertaining to the period prior to 16.3.2007.

[CCE v. Standard Chartered Bank (2008) 88 RLT 440 (Tri-Bang.)]

74.18 Where the assessee erroneously paid service tax on pilotage services rendered in minor ports, under the category of Management consultancy services instead of ‘minor port’ services which came into effect from 1.07.2003 and claimed refund of tax for the period 1.10.99 to 30.09.2002 on 9.10.2003 the Tribunal rejected the refund claim as barred by limitation after observing that payment on account of mis-construction, mis-application or wrong interpretation of the provisions of law would not change the character of the amounts from tax to deposit, and accordingly the refund claim being filed beyond the statutorily prescribed period (of 1 year) would be barred by limitation. [Karnik Maritime Pvt. Ltd. vs. CCE (2008) 12 STR 145 (Tri-Mumbai)]

74.19 Passing an assessment order is contemplated only when a notice u/s.73 is issued. Otherwise, there is no provision for assessment. Thus, where the assessee deposited excess services tax and claimed refund (which was rejected by the lower authorities for certain reasons), the rejection of the refund claim by the Tribunal on the ground that the assessee had not challenged the assessment by filing a statutory appeal is not sustainable since no order capable of being appealed against had ever been passed. [Central Office Mewar Palace Org. v. Union of India (2008) 12 STR 545 (Raj.) See also CCE v. Noble Grain India Pvt. Ltd. (2009) 14 STR 617 (Tri. – Mumbai)]

74.20 The appellants claimed refund on the ground that service tax was not recovered from the client at the time of receipt of the value of services. It produced evidence in the form of CA certificate, invoices and books of account where the amount of service tax was shown as receivable. The department contended that service tax might have been recovered after the issue of CA certificate. The Tribunal allowed the refund claim and held that as the tax was not paid or recovered at the time of payment of value of services the Revenue’s contention is in the realm of assumption and presumption. [CCE vs. Gujarat Chemical Port Terminal Co. Ltd. (2008) 12 STR 564 (Tri-Ahmd.)]

74.21 Refund arising due to the order of the Tribunal is refundable even if SLP has been filed by the department and the matter is pending before the Supreme Court. [Jai Bhagwati Impex Pvt. Ltd. vs. UoI (2009) 13 STR 24 (Bom.)]

74.22 Where the revenue contended that since goods exported out of country were exempted from payment of duty and therefore, the amount paid by the respondent manufacturer cannot be treated as “duty” paid and he is not entitled to rebate on account of duty paid on goods removed from factory / authorised warehouse for export out of India, the High Court held that -

(i) if no duty was leviable and the assessee was not required to pay the duty but still he has paid the duty the Government cannot retain the same on any ground and must refund the amount received from the assessee as on their own showing. It has not received the amount by way of duty which could be appropriated by them nor to which Section 11B applies.

(ii) If on the other hand, the assessee is entitled to remove such goods on payment of duty in ordinary course he is entitled to claim rebate thereon because the goods were exported out of country on payment of excise duty.

In either case the refund is admissible. [CCE vs. Suncity Alloys Pvt. Ltd. (2009) 13 STR 86 (Raj.)]

74.23 Claim for refund of service tax not required to be paid under the law (“illegal levy”), [in the present case – interest on loans which is not subject to service tax], would also fall within the corners of section 11B and the claim has to be preferred within the statutory period, else it would be barred by limitation. [Mysore Leasing & Finance Ltd. vs. CCE (2009) 14 STR 54 (Tri-Bang.)]

74.24 Refund claim filed by the service recipient is maintainable [Chandigarh Vayu Bharti Co-op. Society vs. CCE (2009) 14 STR 161 (Tri-Del.)]

74.25 Refund of service tax paid under TR-6 challan cannot be denied merely on the ground that the same was not a prescribed document at the relevant point of time especially when the payment of service tax has not been denied; the objection of the revenue pertains more to the form rather than substance.[CCE vs. Nitin Spinners Ltd. (2009) 14 STR 527 (Tri – Del.)]

74.26 Where the appellants, the service provider, had made excess payment of service tax on which Cenvat credit was also availed by the service recipient, but subsequently, they returned the service tax to the service recipient by way of credit notes on which the Cenvat credit availed was also reversed by the service recipient alongwith interest, the Tribunal allowed the refund claim filed by the appellants holding that there was no unjust enrichment. [Professional International Couriers (P) Ltd. vs. CST (2009) 15 STR 295 (Tri-Chennai)]

74.27 Even in respect of refund of amounts paid in excess due to clerical error, the provisions of section 11B would be applicable and hence the refund application filed beyond the period of one year from the relevant date would be considered as time barred. [General Manager, B.S.N. L vs. CCE (2009) 14 STR 250 (Tri-Bang.); See also CCE vs. Beharay & Rathi Constructions (2009) 14 STR 246 (Tri-Mumbai)]

74.28 Where the appellant, an exporter of services, claimed rebate of tax paid on various ‘input services’ like telephone, fax, management consultancy, real estate agent, security agency, etc. under notification no. 12/2005 dated 19.4.2005 but filed a declaration only prior to the date of refund and not prior to the date of export as required by the notification, the Tribunal held –

(i) On facts, the various services qualified as ‘input services’ and accordingly the tax paid on them qualified for rebate;

(ii) The belated filing of declaration is only a procedural lapse for which the substantive benefit of rebate should not be denied.

[CST v Convergys India Pvt. Ltd. (2009) 16 STR 198 (Tri- Del.) see also Manubhai & Co. vs. CST (2011) 21 STR 65 (Tri. – Ahmd.)].

74.29 Where the appellant claimed refund of tax paid as a recipient of services on reimbursement of expenses to foreign technicians the Tribunal disallowed the refund claim holding as follows.

(i) The tax paid was on ‘reimbursements’ and not on consideration for ‘services’, and hence the tax paid is not in the nature of service tax and accordingly would not qualify for cenvat credit. Thus, clause (c) of the proviso to Section 11B(2) of Central Excise Act, 1944 which provides that the bar of unjust enrichment would not apply to refund of cenvat credit would not be applicable.

(ii) the appellant has debited the said tax payments to its Profit and Loss Account which implied an increase in the cost of finished goods sold. Hence the appellant had passed on incidence of such duty to another person and accordingly the refund claim would be hit by the bar of unjust enrichment.

N.B.: The above judgment reiterates the point that if an assessee claims refund of any tax it should appear in the ‘current assets’ and should not have been written off.
[Keihin Fie Pvt. Ltd. vs. CCE (2009) 16 STR 71 (Tri. – Mum.)].

74.30 Where tax has been erroneously paid on an activity which is not liable (architectural activity in Sri Lanka), what is paid is not “Service tax” and consequently, a refund claim filed (on 20.09.2006) even beyond a period of one year from the date of payment of tax (on 04.07.2005) is not barred by the limitation u/s 11B of the Central Excise Act, 1944 [Natraj and Venkat Associates vs.ACST 2010 (17) STR 3(Mad.); See also K.V.R Constructions vs CCE 2010 (17) STR 6 (Kar.)].

74.31 A refund of tax on notified services such as Port services, Goods transport services, Custom house agent services, technical testing and analysis services etc., used for the export of goods under Notification no. 41/2007 dated 17.9.07 cannot be denied to the service recipient on the basis that a part of the services of the service providers would not fall in the notified service categories without first revising the assessment of service providers. [CCE vs Anant Commodities Pvt. Ltd. 2010 (18) STR 214 (Tri-Del.)].

74.32 Bar of unjust enrichment would not be applicable to pre-deposit made during pendency of appeal since pre-deposit amount is not payment of duty. [CCE vs. Sam Industries (2009) 16 STR 382 (Tri-Mumbai)]

74.33 Where the assessee filed refund claim for the period July 2002 to June 2003 on 29.8.2003 but on the department pointing out certain defects and deficiencies it filed a revised claim on 17.3.2004, the Tribunal held that the date of the filing the refund claim was 29.8.2003 and accordingly only part of the refund claim was held time-barred i.e. tax paid on 16.08.2002 [CST v. HMA Udyog Pvt. Ltd. (2010) 20 STR 827 (Tri-Del.)].

74.34 Notification no. 41/2007 – ST dated 6.10.07 which provided for refund of tax paid on specified input services used for exports initially provided for a time limit of two months from the end of the quarter to which the refund relates for claiming refund of the said quarter. The time limit was extended to six months vide notification no. 32/08 – ST dated 18.11.08 by ‘substituting’ the word “six” for the word “two”. The Tribunal held that the amendment is retrospective and hence a claim for December, 2007 quarter filed on 27.5.2008 is within the time limit [CCE v. Essar Steel Ltd. (2010) 20 STR 769 (Tri-Ahmd.)]

74.35 Where the assessee paid service tax on advance received for construction services to be provided but did not provide the service due to cancellation of contract and returned the same alongwith service tax to their clients, the Tribunal held that the assessee is entitled to refund and the time limit of 1 year from the date of payment of service tax would not be applicable, there being no service provided there is no liability to pay tax and consequently the amount of tax paid earlier would be treated as deposit with the department liable to be refunded without invoking the provisions of Section 11B of the Central Excise Act, 1944 [CCE v. Pratibha Constn. Engnr & Contr (I) P. Ltd (2011) 22 STR 182 (Tri- Mum)]

74.36 Where the appellant- manufacturer reimbursed service tax on services used by the merchant exporter through whom he exported goods and filed a refund claim under the notification no. 41/2007 dated 6.10.07 with respect to service tax so paid by him the Tribunal denied the refund claim observing that the refund can be claimed only by the exporter of goods and not by the appellant-manufacturer who did not export the goods. [Noble Grain India Pvt Ltd v. CCE (2011) 22 STR 189 (Tri-Mum)]

74.37 ‘Relevant date’ for reckoning the due date of one year for filing the refund claim of service tax paid on input services used for export of services is the date when the assessee has received the payment for service exported [CCE v. Eaton Industries P.Ltd 2011 (22) S.T.R. 223 (Tri – Mum)]

74.38 Where the appellant, a stock-broker, refunded brokerage with service tax to his clients on the basis that the clients had reached a certain turnover of business with him, and claimed refund of the excess tax after a period of one year from the date of payment of tax ( to the Government), the Tribunal held that the refund claim was barred by limitation and the proper course for him was to avail the facility of provisional assessment for payment of tax. [H. Nyalchand Financial Services Ltd v. Comm of S T , 2011 (21) S.T.R. 669 (Tri- Ahmd)]

74.39 The New Delhi branch of Bank of Tokyo raised a debit note with service tax on its Tokyo Branch for transferring funds of Suzuki Motor Corporation, Japan to Suzuki Motor Cycles India Pvt. Ltd. in India on the advice of the Tokyo Branch. It also paid the tax on the same to the Government. Subsequently, on the advice of its Tokyo branch it reversed the debit note and filed refund claim of service tax paid. The revenue denied the refund on ground of unjust enrichment. On appeal, the Tribunal allowed the refund on the following grounds :

(i) that New Delhi Branch and Tokyo Branch of Bank of Tokyo both were branches of the same legal entity. Thus, even if any services are provided between them it would be considered as self-service and hence would not be liable for service tax.

(ii) Notwithstanding, there is no service to third party the services, if any, rendered by New Delhi Branch would qualify as export of services and accordingly refund would be allowed without reference to unjust enrichment.

[Bank of Tokyo – Mitsubishi Ufj Ltd. vs. CST (2010) 20 STR 509 (Tri. – Del.)].

74.40 Refund of credit of tax paid on input services used for exports under rule 5 of Cenvat Credit Rules, 2004 is not deniable on the ground that the credit pertained to a month in which there was no exports [Fine Care Bio-systems vs. CCE (2010) 20 STR 193 (Tri. – Ahmd) relying on Philco Exports v. CCE (2009) 234 ELT 568 (Tri. Del) wherein it was held that the time lag between date of receipt of inputs, date on which they were used and date of export are not relevant.; See also CCE v. Chamundi Textiles (Silk Mills) Ltd. (2010) 20 STR 219 (Tri.- Bang.)]

74.41 Refund granted to the assessee by an order passed by the Asst. CCE can be recovered by the department as being “erroneously refunded” by issuing a show cause notice u/s 73 without the department filing an appeal before CCE(A) against the refund order of Asst. CCE. [Ogilvy & Mather Pvt Ltd vs CST 2010 (18) 502 (Tri-Bang.)]

74.42 Where an assessee paid tax on a misinterpretation of the statutory provisions, it was held that refund claim filed after 1 year from the payment of service tax would be time-barred. [CCE vs Manorath Builders (p) Ltd. 2010 (18) STR 453 (Tri-Del.)]

74.43 ‘Amount deposited’ during investigation not found payable on adjudication is only a deposit refundable to the assessee and the claim for refund of such deposit made within one year from the date of order of adjudication was held as within the prescribed time limit. The Tribunal further held that there was no unjust enrichment since tax was paid as deposit much later than the issue of invoices. [Wazir Singh Swaran Singh Consignment Stockist (P) Ltd. vs CCE 2010 (18) STR 468 (Tri-Del.)]

75 Revision

75.1 Where the original authority had exercised his discretion under section 80 of the Finance Act, after recording proper reasons, the matter cannot be reopened to enhance the penalty by the Commissioner in the Order-in-Revision. [VEE AAR Secure vs. CST (2009) 14 STR 50 (Tri-Bang.) see also Paramount Corporate Network Ltd v. CST (2011) 21 STR 542 (Tri – Bang.)]

75.2 The show cause notice and order in revision issued by the Commissioner in exercise of its revisional power cannot go beyond the original show cause notice.[Sands Hotel Pvt. Ltd. vs. CST (2009) 16 STR 329 (Tri-Mumbai)]

75.3 The revision order dated 16.12.08 being passed two years after the date of passing the original order dated 14.12.06.(although issued on 28.12.06) is time-barred u/s 84 (5) [Paramount Corporate Network Ltd v. CST (2011) 21 STR 542 (Tri – Bang.)]

75.4 Revision of adjudicating authority’s order by the commissioner after appeal decided by the Commissioner of Central Excise (Appeals) is bad in law [SMP Steel Corporation vs. CCE (2011) 22 STR 56 (Tri. – Che.)]

76 Stay of demand

76.1 The department issued notices for recovery of amount stayed by the Tribunal on the grounds that stay order passed by the Tribunal stands vacated on expiry of 180 days. On appeal the Tribunal held that there was no requirement to pass any order extending stay already granted since the order of stay of recovery shall remain valid till final disposal of appeal.[A. Mohammed Mubarrac vs. CCE (2009) 16 STR 385 (Tri-Chennai)]

76.2 (i) Even in the absence of express provisions conferring power to the Tribunal to pass stay order the power of granting stay is incidental and ancillary to its appellate jurisdiction.

(ii) Under the first proviso to section 35C(2A) of the Central Excise Act, where in an appeal, the Tribunal has granted a stay, it is obligatory on the Tribunal to dispose the appeal within 180 days from the date of the stay order. If the appeal is not so disposed, the second proviso to section 35C(2A) provides that the stay order shall stand vacated. However, even in the absence of express provisions, the Tribunal has the power to extend the stay order beyond 180 days.

(iii) But, the extension of stay order is not automatic. The assessee has to make proper application before the Tribunal for extension of stay order otherwise the stay order granted comes to an end at the expiry of 180 days.

(iv) When an application is filed for extension of stay, the Tribunal has to apply its mind to find out for what reasons, the appeal is not disposed within statutory period of 180 days. If the assessee’s conduct is not the cause for the appeal not being disposed of, then the assessee cannot be denied the benefit of extension of the stay order.
[CCE vs. Indian Oil Corporation (2010) 20 STR 458 (Kar.)]

77 Appeals

77.1 New pleas such as relating to coverage under service tax is a legal plea and can be raised at any stage of the appeal proceedings. [Siddhi Travels v. CCE (2006) 2 STR 132 (Tri-Mum)]. Similarly, question of limitation is a question of law and can be raised for the first time even at the stage of second appeal. [Euro Advertising (P) Ltd. V. CCE (2006) 2 STR 38 (Tri-Kol.)].

77.2 Section 85(4) does not authorise the Commissioner (Appeals) to issue any fresh show cause notice of the nature contemplated under section 73 of the Act for recovery of service tax. It only empowers the Commissioner (Appeals) to issue show cause notice for enhancing the service tax, interest or penalty. Thus, were the original show cause notice u/s. 73 alleged that the appellants were liable for service tax under the category of consulting engineering services, the Commissioner (Appeals) u/s. 85(4) cannot issue a notice alleging that the assessee is liable under other categories . [Autolite (India) Ltd. v. CCE (2006) 2 STR 343(Tri.-Del.)]

77.3 Where the issues before the Commissioner (Appeals) against the order-in-original were only grant of refund by way of cheques and relief in respect of the amounts rejected by the lower authority on account of time-bar he was not expected to go into matters such as unjust enrichment which were not raised before him. Hence an appeal by the department before the Tribunal is not maintainable on a ground which is entirely new and it is not permissible for the Tribunal to consider a case laid for the first time in appeal. [CCE & ST v. Standard Chartered Bank (2006) 3 STR 751 (Tri-Bang.)].

77.4 Dispatch of adjudication order by speed post / registered post would not amount to a valid service in absence of proof of actual delivery of the speed post [Triveni Glass Ltd. v. CCE (2007) 5 STR 41 (Tri-Del.)].

77.5 Rule 20 of the CESTAT (Procedure) Rules, 1982 which provides for restoration of the appeal disposed of ex-parte where the “appellant” afterwards shows sufficient cause for non-appearance, is not applicable to a case where the Revenue’s appeal has been upheld and none appeared for the assessee who was only a respondent. [CCE v. Yamuna Bardana Trading (2007) 6 STR 150 (Tri. – Del.)]

77.6 The miscellaneous application signed by a person having a vakalatnama is not valid. It has to be signed by the appellant. [SBEC Sugar Ltd. vs. CCE (2008) 9 STR 573 (Tri-Del)]

77.7 Appeal to Commissioner (Appeals) - additional grounds can be added by filing an addendum before the hearing [CCE vs. Tata SSL Ltd. (2008) 9 STR 579 (Tri-Mumbai)].

77.8 Amounts pre-deposited at the time of pendency of appeal before the Tribunal is required to be refunded to the appellants on success notwithstanding that department had filed a reference before the High Court, in absence of stay by the High Court. [Morargee Goculdas Spg. & Wvg. Mills Co. Ltd. vs. CCE (2008) 11 STR 444 (Tri-Mumbai)]

77.9 Where a compendious order was passed by lower authorities disposing of two SCNs there was no need to file as many number of appeals as the SCNs before the higher authority – a single appeal would be in order. [Escorts vs. CCE (2008) 11 STR 532 (Tri-Del.)]

77.10 Where the respondents had failed to avail the opportunity of agitating before the Tribunal by filing a cross objection, they were not allowed to raise new grounds at a later stage.[ CCE vs. Delta Elastometal Compound Pvt. Ltd. (2008) 11 STR 534 (Tri-Mumbai)].

77.11 Where the appeal was dismissed on account of non-compliance of pre-deposit and its restoration on compliance was refused by the CCE(A) the Hon’ble High Court held that it was not permissible to refuse the restoration of appeal on compliance of the pre-deposit requirement. [Scan Consultancy vs. UOI (2008) 12 STR 108 (Guj.) see also D.K Mishra v. CCE (2011) 22 STR 241 (Tri-Del)]

77.12 The Tribunal need not decide all the grounds raised in the memo of appeal if the authorised person has appeared and argued only some of grounds therein.[CCE vs. Kothari Products (2008) 12 STR 5 (All.)]

77.13 An appeal filed even after the statutory period for which delay can be condoned by the CCE(A) is barred by limitation and cannot be saved even by Section 5 of the Limitation Act,1963, since:

(i) the provisions of Limitation Act, 1963 apply only to courts or the forums that has trappings of the court;

(ii) under the provisions of Central Excise Act, CCE(A) is only an executive authority performing quasi judicial functions but he cannot be considered as a court or a forum having trappings of the court;

(iii) the application of Limitation Act must be held to be expressly excluded by virtue of the specific provisions in section 35 of Central Excise Act which have provided a maximum period for which delay can be condoned.

[Navinon Ltd.vs. UOI (2008) 12 STR 84 (Bom.)]

77.14 Where additional evidence was not adduced before the Tribunal by filing an application in writing to that effect under r. 23 of CESTAT (Procedures), Rules, 1982 it was held by the High Court that the order of the Tribunal rejecting the additional evidence and upholding the order of lower authorities was correct. [Kay Iron Works Pvt. Ltd. vs. CCE (2009) 13 STR 87 (Bom.)]

77.15 Appeals filed before the High Court u/s. 35G of the Central Excise Act, 1944 beyond the prescribed period of limitation in terms of section 35G(2)(a) [180 days from the date of receipt of the order] would be barred by time and the High Court would have no jurisdiction to condone the delay and entertain the appeal after the said period of limitation. Further, the language of the provisions [especially section 35G(9) – opening words] seen in conjunction with the legislative intent and the objects of expeditious disposal sought to be achieved would exclude the application of section 5 of the Limitation Act, 1963 (which provides for condonation of delay on sufficient reasons) by necessary implication. [CCE vs. Shruti Colorants Ltd. (2009) 13 STR358 (Bom)].

77.16 Appeal filed inadvertently in the office of Dy. CCE, a month in advance of the due date, which is in the same premise as that of the CCE(A), in whose office it should have been filed cannot be rejected as time-barred. [Global Telecom v. CST (2009) 14 STR 634 (Tri. – Mum.)]

77.17 Where, while passing ‘orders’, the CESTAT members differed in their opinion on some points and referred the matter to a Third member but did not give their findings on several points raised by the petitioner for which the petitioner made an application for rectification of ‘order’ before the CESTAT, which application was resisted by the Revenue on the ground that no ‘order’ came to be passed since the matter was pending before the Third member, the High Court allowed the application and held –

a. Orders made by the CESTAT though differing in opinion are nevertheless ‘orders’ and not merely ‘opinions’ though they may not be enforceable ‘orders’ due to absence of majority;

b. the rectification application before the CESTAT is maintainable and should be heard first before disposing of the reference to the Third member.

[Suzlon Infrastructure Ltd. v. Union of India (2009) 15 STR 529 (Bom.)].

77.18 The question whether a member’s club is liable for service tax on the amounts received from its members is a question ‘having a relation to the rate of service tax’ and accordingly an appeal against the order of the CESTAT would lie to the Supreme Court and not the High Court u/s. 35L of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994.[CST v. Delhi Gymkhana Club Ltd. (2009) 16 STR 129 (Del.) see also CST vs. Atria Convergence Technologies P. Ltd. (2011) 21 STR 209 (Kar.)].

77.19 Where the appellant initially did not intend to challenge the impugned order but on pronouncement of favourable decision by the Larger bench in a similar matter filed an appeal against the impugned order with a delay of more than 73 days, the Tribunal considering the same to be a sufficient cause for delay in filing the appeal condoned the delay. [Daman Polyfab vs. CCE (2010) 17 STR 276 (Tri-Ahmd.)]

77.20 Though there is no limitation of time to file an application for restoration of appeal, such an application cannot be prolonged inordinately. The Tribunal observed, since the original period for filing the appeal is itself three months, the application for restoration will have to be filed within the maximum period of three months from the dismissal of the appeal. In any case, any application filed beyond such period has to disclose cause for the delay. Thus, where the appeal was dismissed on 5.11.07 and an earlier restoration application was also dismissed on 25.6.08, a second application for restoration made on 29.8.08 without disclosing sufficient cause for delay was dismissed by the Tribunal. [KirtiKumar J. Shah v. CCE, (2011) 22 STR. 246 (Tri- Mumbai)]

78 Appeals – Letter from Commissioner appealable ?

78.1 Pursuant to a clarification sought by the respondent-assessee the Addl. CCE vide letter dated 23.12.2004 clarified that service tax was not payable on international door-to-door courier service but the Commissioner vide letter dated 9-1-2006 stated that the clarification of the Addl. CCE was not in accordance with a Board Circular and directed the payment of service tax. On appeal, the CESTAT held that the Commissioner’s letter dated 9.1.2006 was an order but was bad in law since it did not give an opportunity to the assessee of being heard / showing cause either under section 73 or section 84. The High Court affirmed the order of the CESTAT. [Chief Commissioner, LTU,Bangalore vs.TNT India Pvt. Ltd 2010 (19) STR 5 (Kar)]

79 Rectification of Tribunal orders

79.1 When the finding given in Tribunal order is after due consideration of all the issues raised, it is not open to the revenue to reargue the matter or call upon the Tribunal to review the basis of decision on the ground of non-citing of an existing judgement and failure to make enquiries. Hence the application for rectification of mistakes not tenable. [CCE v. Victor Gaskets India Ltd. (2008) 12 STR 341 (Tri. – Mumbai)]

80 Authority on advance ruling

80.1 Having regard to the provisions of section 96A(a) and (b), the Authority held that it is only an applicant who is yet to commence his business activity who can take the benefit of an advance ruling and not a person who has an ongoing business or an undertaking which has already commenced the business [McDonald’s India Pvt. Ltd. (2004) 165 ELT 404 (A.A.R.)].

80.2 The Authority on Advance ruling refused to modify its ruling in the applicant’s case on the ground that there was no mistake of law or fact. It held that since the Authority had recorded its findings based on the material before it there was no mistake of law or fact which is a sine qua non for modification of an advance ruling. The authority further observed that a modification in a ruling cannot be made – (i) for addressing a question [relating to quantum] which is not the subject matter of the question of the original ruling [relating to exigibility]; or (ii) due to a change in approach of the CBEC on the subject; or (iii) for clarification of some positions of the ruling which the applicant fears would be misinterpreted [In Re : Google Online India P. Ltd. (2007) 5 STR 69 (AAR)].

81 Departmental clarifications

81.1 The following propositions with respect to departmental circulars was laid by the larger bench of the Supreme Court:

i. Circulars and clarifications issued by the board are binding on the authorities under the respective statute but are not binding upon the courts.

ii. When the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that Circular should be given effect to and not the view expressed in a decision of the Supreme court or the High Court.

iii. Circulars issued by the board which run contrary to the statutory provisions have no existence in law.

iv. The revenue can lodge an appeal taking a ground contrary to a circular if it runs counter to the decision of a court.

[CCE vs. Ratan Melting & Wire Industries (2008) 12 STR 416 (SC)]

82 Binding effect of precedents

82.1 Once the Court lays down the law that the recipient of the service is not liable for paying service tax, that law is binding on all Tribunals and Authorities functioning within the jurisdiction of the said court [A.C.Nealsen Org-marg Pvt. Ltd. vs. UOI (2009) 16 STR 259 (Bom)]

83 Recovery

83.1 The revenue cannot proceed to recover dues if the stay application for waiver of pre-deposit of the said dues is pending before the Tribunal. [FCM Travel Solutions(India) Pvt. Ltd. vs Commissioner of service tax 2010 (18) STR 24 (Tri-bang.)]

83.2 The department has no authority to use coercive measures to collect any amount of tax in advance at the time of raid. It can legitimately do so only at the time of recovery proceedings when tax liability has been ascertained by following the procedure of issue of show cause notice and not before that. Thus where the assesee had to make a compulsory payment towards tax in advance at the time of raid and in absence of any show cause notice issued by the department, the Hon’ble High Court held that the department had no right to do so and accordingly ordered the amount to be refunded.[Naresh Kumar & Co. vs. UOI (2010) 19 STR 161 (Cal.)]

83.3 Where the department had issued notice to ONGC u/s. 87(b)(i) of the Finance Act, 1994, for recovery of service tax on services provided by certain manpower supply agencies to ONGC without passing assessment orders crystallising the service tax liability of the manpower supplying agencies the High Court held that, only after an assessment order has been passed and the assessees have defaulted in payment of assessed tax, the department has powers to issue notice to ONGC u/s. 87 and not before that.[O.N.G.C. Ltd. vs. DyCCCEST (2010) 19 STR 164 (A.P.)]

83.4 The Delhi High Court held that no proceedings can be initiated by the department against assessee for payment of tax on renting of immovable property where the matter is in appeal before the Supreme Court (by the department) and there is no order passed by the Supreme Court staying the operation of the High Court order in appeal. [SSIPL Retail Ltd vs. UOI (2010) 18 S.T.R. 262 (Del.)]

84 Reimbursement of service tax under a contract not conditional upon payment by the service provider

84.1 In case where the service recipient contended that he would pay service tax only upon the service provider first paying the service tax the court dismissing his contention directed –

(a) the service recipient to pay the service tax along with interest @ 18%; and

(b) the service provider to deposit the service tax amount with the department.

Further, this fact was considered as reasonable cause for not depositing the service tax in time and accordingly penalty proceedings were quashed. [Introspective Detective Pvt. Ltd vs BSNL 2010 (18) STR 3 (All.)]

VII CENVAT CREDIT

85 General

85.1 Even if a job-worker’s services to a manufacturer are exempt under notification no 8/2005-ST, where a job-worker has forgone exemption and paid service tax, the manufacturer is eligible for Cenvat credit in respect of service tax paid to the job-worker [CCE vs Laxmi Metal Pressing works Pvt. Ltd. 2010 (18) STR 149 (Tri-Mumbai.)].

Capital Goods

85.2 Where the capital goods were installed in the factory premises and were in a position to be used at any time, Cenvat credit on the capital goods cannot be denied for the mere reason that the said capital goods could not be made functional. [CCE vs. Seat Metal Components India (P.)Ltd. (2008) 10 STR 108 (Tri-Bang)]

Inputs

85.3 Where the appellants entered into two agreements with a contractor - one for supply of components and parts and the other for erection at the appellant’s site, the Tribunal held that credit of duty paid on parts and components which were used in setting up of the plant at the appellant’s site was fully admissible and the department’s contention that the components and parts were inputs of the contractor who supplied and assembled them at the manufacturer’s site since it is he who used it to manufacture the plant is incorrect. [Rajarambapu Patil SSK Ltd. v. CCE (2008) 11 STR 437 (Tri-Mumbai)]
 

Inputs / Capital Goods

85.4 Excise duty paid on ‘Tippers’ used for providing excavation, site formation, etc., services is not available since -

(a) Tippers are not ‘capital goods’ for the assessee since -

(i) they are classifiable under Chapter 87 and not under Chapter 82, 84, 85, 90 or other goods specifically included in the definition of ‘capital goods’ as per rule 2(a); and

(ii) he is not one of the service providers for whom ‘motor vehicles’ qualifies as capital goods as per rule 2(a).

(b) Tippers are not ‘inputs’ since ‘motor vehicles’ are specifically excluded from the definition of inputs.

[Ganta Ramanaiah Naidu vs CCE 2010 (18) STR 10 (Tri-Bang.)].

Input Services

85.5 Where the assessee used internet services in its factory at Satna but the bill was addressed to and paid by its head office at Mumbai, the Tribunal held that the internet services were used for information relating to manufacture, sale and dispatch instructions and hence the input credit is not deniable. [Universal Cable Ltd V. CCE (2007) 80 RLT 821 (Tri.-Del.); See also CCE v.DNH Spinners (2009) 16 STR 418 (Tri.-Ahmd.)]

85.6 The appellants generated power in their power plants situated 200 kms away from their factory and supplied the same to Gujarat Electricity Board in consideration whereof they were permitted to withdraw electricity for their factory from the power grid on payment of fixed wheeling charge. On the question whether credit of service tax paid on maintenance and repair services consumed in their power plants would be admissible the Tribunal observed that the transaction of delivering power to the grid and sale of power from the grid are two distinct transactions and there was no direct nexus between the services received within the power plant and goods manufactured within the factory by the appellants and hence credit was not admissible. [Ellora Times Ltd. vs. CCE (2009) 13 STR 168 (Tri-Ahmd.)]

85.7 The definition of input service has been expanded by the words “and includes” basically for the reason that the service which are enumerated after the words “and includes” are those services which may not be as directly or indirectly relatable to manufacture but yet the intention is to provide the benefit of credit of service tax paid on such services as Cenvat Credit. Thus, service tax paid on services relating merger (which is basically for financing), issuance of NOC by the bank for borrowing, custody fees (relating to share registry) and maintenance of fax machines at the residences of company’s executives are all covered by the inclusive clause of the definition. [Aditya Birla Nuvo Ltd. v. CCE (2009) 14 STR 304 (Tri.-Ahmd.)]

85.8 Though the contents of advertisements made by the appellants, a manufacturer of ‘concentrates’, essentially featured the ‘bottle of aerated waters’, the bottles being the final products manufactured by bottlers and not the appellants, the High Court held that the credit on advertising services received by the appellant cannot be denied on the ground that the advertisement is not of the final product of the appellants viz., ‘concentrates’ but is of ‘aerated waters’ which are manufactured by bottlers. The High Court laid down the following propositions –

(i) so long as the manufacturer can demonstrate that the advertisement services availed have an effect or impact on the manufacture of the final product and establish the relationship between the input service and the manufacture of final product, credit must be allowed. In the present case, Court held that the advertisement of soft-drink enhanced the marketability of the concentrate [Pepsi Foods Ltd. v. CCE (2003) 158 ELT 552 (SC); Philips India Ltd. v. CCE (1997) 91 ELT 540 (SC) ; and Explanatory Notes to HSN – heading 21.06 relied on].

(ii) The definition of “input service” which is expressed in the form of ‘“means” … and “includes”…..’, would cover even those services in the ‘inclusive’ part which otherwise would not come within the ambit of the ‘means’ part.

(iii) The phrase “activities relating to business such as accounting, auditing, financing,....” are words of wide import. The expression ‘such as’ is illustrative and not exhaustive of services related to ‘business’. The word ‘business’ is also of wide import and cannot be given a restricted definition to say that business of a manufacturer is to manufacture final products only. In the present case, the business of the appellant would include apart from manufacture of concentrates, also entering into franchise agreements with bottlers, permitting use of brand name, promotion of brand name, etc. The expression ‘relating to further widens the scope of the expression ‘activities relating to business’ and therefore all activities (essential or not) in relation to a business would fall within the ambit of input service and in the present case all activities having a relation with the manufacturer of a concentrate would fall within the definition of input service.

(iv) Service tax is a value added tax and a consumption tax and the burden of service tax must be borne by the ultimate consumer and not by any intermediary i.e. the manufacturer or service provider. In order to avoid the cascading effect cenvat credit on input stage goods and services must be allowed as long as a connection between the input stage goods and services is established. Conceptually as well as a matter of policy, any input service that forms a part of value of final product should be eligible for the benefit of cenvat credit. In the present case, since the advertising cost forms part of the assessable value the assessee is eligible to take credit of tax paid on advertising services.

(v) The definition of ‘input service’ under rule 2(l) can be conveniently divided into the following five independent limbs :

a. Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products,

b. Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal,

c. Services used in relation to setting up, modernization, renovation or repairs of a factory, or an office relating to such factory,

d. Services used in relation to advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,

e. Services used in relation to activities relating to business and outward transportation upto the place of removal.

Each of the above limbs of the above definition is an independent benefit/concession. If an assessee can satisfy any one of the above, then credit on input service would be admissible even if the assessee does not satisfy the other limbs.

[Coca Cola India Pvt. Ltd. v. CCE (2007) 15 STR 657 (Bom.)].

85.9 Where an assessee was engaged in the business of manufacturing cement and claimed credit on outdoor catering services availed by it for the purpose of provision of canteen facility to the workers of the factory, the Bombay High Court allowed the credit holding as follows:

(i) The definition of “input service” as per Rule 2(l) of Cenvat Credit Rules, 2004 (insofar as it relates to the manufacture of final product is concerned), consists of three categories of services. The first category, covers services which are directly or indirectly used in or in relation to the manufacture of final products. The second category, covers the services which are used for clearance of the final products up to the place of removal. The third category, includes the following services :

(a) Services used in relation to setting up, modernization, renovation or repairs of a factory,

(b) Services used in an office relating to such factory,

(c) Services like advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs;

(d) Activities relating to business such as, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit relating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.

Thus, the definition of ‘input service’ not only covers services, which fall in the substantial part, but also covers services, which are covered under the inclusive part of the definition.

(ii) The definition of input service read as a whole makes it clear that the said definition not only covers services, which are used directly or indirectly in or in relation to the manufacture of final product, but also includes other services, which have direct nexus or which are integrally connected with the business of manufacturing the final product.

(iii) The expression “activities in relation to business” in the definition of “input service” postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be an input service under Rule 2(1) of the Cenvat Credit Rules, 2004 .

(iv) The judgment of the Apex Court in Maruti Suzuki Ltd. (supra) would not apply in its entirety because unlike the definition of ‘input’, which is restricted to the inputs used directly or indirectly in or in relation to the manufacture of final products, the definition of ‘input service’ not only means services used directly or indirectly in or in relation to manufacture of final products, but also includes services used in relation to the business of manufacturing the final products.

(v) The assessee carried on the business of manufacturing cement by employing more than 250 workers and mandatorily required under the provisions of the Factories Act, 1948 to provide canteen facilities to the workers. Failure to do so entails penal consequences under the Factories Act, 1948. To comply with the above statutory provision, the assessee had engaged the services of a outdoor caterer. Thus, in the facts of the present case, use of the services of an outdoor caterer has nexus or integral connection with the business of manufacturing the final product viz., cement. Hence, the assessee is entitled to the credit of service tax paid on outdoor catering service. However, credit of service tax would not be allowable to a manufacturer in cases where the cost of the food is borne by the worker.

[CCE v. Ultratech Cement (2010) TIOL 745 (Bom.)]

85.10 Any service to be construed as “input service” must satisfy the main part of the definition that it should be ‘used for the manufacture’ including those that are specifically mentioned in the inclusive part of the definition. The Tribunal further held that –

(a) credit of tax paid by the appellant, a manufacturer of steel, on the membership of Sponge Iron Manufacturers Association would not be entitled to credit

(b) credit on tax paid by the appellant on – (i) security services at railway siding where the raw materials were loaded / unloaded; (ii) rent-a-cab services and

(iii) mobile telephone services would not be available to the appellant on the ground that the appellant did not adduce any evidence that the said services were used for manufacture of products.

[Vikram Ispat v. CCE (2009) 16 STR 195 (Tri – Mum.)]

85.11 Cenvat credit on “input services” cannot be denied on the ground that they are incurred outside the factory premises. [CCE vs H.E.G Limited 2010 (18) STR 56 (Tri-Del.)].

85.12 Cenvat credit of service tax paid on Rent-a-cab services, Outdoor catering, Air Travel agent services, and Telephone/mobile services and Steamer agent services was held allowable as being ‘activity relating to business’. [Semco Electrical Pvt. Ltd. vs CCE 2010 (18) STR 177 (Tri-Mum.) relying on Coca cola India Pvt. Ltd vs CCE (2009) 15 STR 657 (Bomb);Maruti Suzuki vs CCE (2009) 240 ELT 641 (SC) distinguished].

Air Travel Agent Service

85.13 Credit of service tax paid on Air ticket service charges (air travel agent services) since it is used for the company’s business. [CCE v. Fine Care Biosystems (2009) 16 STR 701 (Tri. – Ahd.)]

85.14 Credit of service tax paid on air travel fare incurred for the purpose of company’s business is admissible. [CCE v. DCW Ltd (2011) 22 STR 214 (Tri-Chennai)]

Business Auxilary Services

85.15 Cenvat credit of service tax paid under business auxiliary services on follow-up services for installation of captive power plant is allowed being ‘services in relation to setting up or modernization of factory’ which are specifically covered in the input service definition. [Monnet Ispat & Energy Ltd. vs. CCE (2010) 19 STR 417 (Tri. – Del.)]

Clearing and forwarding agent’s services at port:

85.16 Where the goods exported have been sold on FOB/CIF basis the Tribunal held that the load port would be the “place of removal” and accordingly, credit of service tax paid on CHA services availed for facilitating clearance of goods from the place of removal (i.e. load port) would be admissible. [CCE vs. Adani Pharmachem P. Ltd. (2008) 12 STR 593 (Tri-Ahmd) See also Beekay Engg. & Castings Ltd. (2009) 16 STR 709 (Tri. – Del.); Adani Pharmachem (P) Ltd. vs. CCE (2010) 20 STR 386 (Tri-Ahmd.)].

Services of clubs or associations

85.17 Cenvat Credit of service tax paid by the appellant on club membership fee for its Directors (who individually were members of the club) is not admissible in absence of any evidence that they hold their business meetings in the club for which the directors took membership of the club. [Jai Corporation Ltd v. CCE (2011) 22 STR 222 (Tri – Mum)]

Commission Agent’s services

85.18 Services of commission agent being in the nature of sales promotion, cenvat credit of service tax paid thereon is admissible as input credit. [CCE vs. Bhilai Auxiliary Industries (2009) 14 STR 536 (Tri-Del.); See also Lanco Industries Ltd vs. CCE 2010(17) STR 350 (Tri-Bang);Cadila Healthcare Ltd vs C.C.E 2010(17) STR 134 (Tri-Ahmd)]

85.19 Credit of service tax paid on Commission Agent’s services is allowed as input credit in full. The services cannot be split so as to allow credit on pre-clearance activities (procuring of orders) and disallow credit on post-clearance activities (collection of monies). [Pan Asia Corporation vs. CCE (2009) 16 STR 587 (Tri-Mumbai)]

85.20 Credit of service tax paid on the services received from commission agent for selling DEPB scrips is not allowed since no nexus exists between the service availed for selling DEPB scrips and the manufacture of pharmaceutical products. [Shasun Chemicals & Drugs Ltd v. CCE (2011) 21 STR 536 (Tri- Che.)]

85.21 Credit of service tax paid on brokerage to brokers/ commission agent appointed for sale of finished goods is admissible since the assessee has availed services of brokers before clearance of goods from factory. [CCE vs. Indorama Synthetics (I) Ltd. (2010) 20 STR 626 (Tri-Mumbai); See also CCE vs. Ambika Forgings (2010) 20 STR 662 (Tri-Del.)]

85.22 Credit of service tax paid on commission paid to the overseas agent for the purpose of canvassing and procuring order is admissible being sales promotion activities. Since the tax was paid as a recipient of services the appellant is correct in taking credit on the basis of TR-6 challans in terms of rule 9(1)(e) of the Cenvat Credit Rules, 2004. [CCE vs. Ambika Overseas (2010) 20 STR 514 (Tri. – Del.)]

85.23 Input credit in respect of services of procuring sales order and collecting payment from customers was held to be eligible being “activity relating to business” and hence covered by the definition of input services. [Nav Bharat Tubes Ltd. vs CCE 2010 (18) STR 470 9Tri-Del.)].

Construction services

85.24 Input credit of tax paid on ‘construction services’ for construction of compound wall around the factory is admissible since on facts the compound wall is an integral part of the factory. [CCE vs Raymond Zambaiti Pvt Ltd 2010 (18) STR 734 (Tri-Mumbai)].

Courier (inward freight)

85.25 Credit of service tax paid on courier (inward freight) is allowed [CCE v. Beekay Engg. & Castings Ltd. (2009) 16 STR 709 (Tri. – Del.); See also Cadila Healthcare Ltd vs C.C.E 2010(17) STR 134 (Tri-Ahmd)].

85.26 Credit of service tax paid on Courier Services used for placing orders, filing quotations for procurement as well as marketing, dispatch instructions, issuing cheque for procurement, sending stock transfer documents to depots, receiving dispatch instructions from marketing, depots, head office etc. is admissible since the services have been used in relation to manufacture and clearance of final product as well in relation to its business activities.[ CCE vs. Apar Industries Ltd. (2010) 20 STR 624 (Tri-Ahmd.)]

Custom House Agents Services

85.27 Custom house agent’s services availed for clearance of goods exported does not have any nexus with the manufacturing and clearance of the final products from the factory and hence tax paid on custom house agent services is not eligible for cenvat credit. [Nirma Ltd. vs. CCE (2009) 13 STR 64 (Tri-Ahmd.)]

85.28 Where the goods have been exported by the appellant on FOB basis retaining ownership till the delivery of goods on board the vessel, the ‘load port’ would be the place of removal and hence CHA service upto sea port would be treated as input service (being services used for clearance of goods upto the ‘place of removal’) [Fiamm Minda Automotive Ltd v. CCE, (2011) 22 STR 210 (Tri- Del) see also Leela Scottish Lace Pvt. Ltd.. vs. CCE. (2010) 19 STR 69 (Tri. – Bang.); CCE vs. Fourrts (I) Laboratories Pvt. Ltd. (2010) 19 STR 86 (Tri. – Che.)].

85.29 Cenvat credit in respect of Custom House Agent service used for clearance of imported inputs used in the manufacture of dutiable finished goods is admissible. [Nelsun Paper Mils Ltd. vs CCE 2010 (18) STR 648 (Tri-Chennai)]

Dry Cleaning Services

85.30 Dry Cleaning Services : Wearing of clean uniforms / clothing is mandatory under Drugs and Cosmetics Act for personnel engaged in the manufacturing of medicaments or drugs. Hence, said services are relating to business and cenvat credit of tax paid on same is allowed [CCE vs. Fourrts (I) Laboratories Pvt. Ltd. (2010) 19 STR 86 (Tri. – Che.)]

Expenditure for employees entertainment

85.31 Expenditure to entertain the employees for social functions such as Kannada Rajyostava Function and inauguration of police station is not “activity relating to business such as accounting, auditing, financing, etc.” since it is not in the nature of services which are illustrated (marked bold). Hence, no cenvat credit would be allowed on such expenditure. [Toyota Kirloskar Motor P. Ltd. vs. CCE (2008) 12 STR 498 (Tri-Bang.)]

85.32 On facts, the Tribunal held that ‘event management services’ availed for celebration by employees on expansion of plant cannot be said to ‘activity related to business’ in the absence of evidence to prove that the event was organised for sales promotions/advertisements and hence input credit of service tax paid on such services is not eligible. Before the above conclusion the Tribunal observed that “any expenses incurred relating to business activity would be treated as input service cannot be accepted, unless it is established by evidence that the service was rendered for the purpose of business include advertisement or sale promotion….” [Hindustan Zinc Ltd vs CCE 2010 (18) STR 33 (Tri-Del.)].

85.33 Credit on services used for organizing employee picnics would not be allowable, since they do not have any nexus with the business activity. [L’oreal India Pvt. Ltd. vs. CCE (2011) 22 STR 89 (Tri. – Mum.)]

Expenses of employees’ residential colony

85.34 Where the appellant’s factory for manufacture of cements was located at remote places without any facilities for accommodation and stay of their employees, and the appellants had constructed residential colonies for its employees so that their employees are available to them on the spot in order to maintain continuity of manufacture it was held that management, maintenance or repair services used by the appellants in the residential colonies are “input services” being relatable to business of the assessee and service tax paid on such maintenance and repair services is entitled to input credit. [Manikgarh Cement vs. CCE&C (2008) 9 STR 554 (Tri-Mumbai)].

85.35 Credit of service tax paid on security agency services engaged by the appellants with regard to the residential colony of its employees which is in proximity to the factory is admissible. [GHCL Ltd. vs. CCE (2009) 16 STR 588 (Tri-Ahmd.) relying on Manikgarh Cement vs. CCE (2008) 9 STR 554 (Tribunal); See also CCE v. Hindustan Zinc Ltd. (2009) 16 STR 704 (Tri. – Bang.). Contra CCE vs. Ultra Tech Cements Ltd. vs. CCE (2009) 16 STR 611 (Tri-Mumbai) – In this case the Tribunal disallowed the Cenvat Credit on security agency services engaged by the appellants with regard to the residential colony of its employees on the following grounds –

(i) Services mentioned in the inclusive part of the definition of “input service” have also to satisfy the parameters laid down in the main (general) part of the definition. The two parts are not independent of each other.

(ii) Provision of security in a residential colony is not one of the activities relating to business of the appellant and, in any case, no nexus between the security and the business of manufacturing excisable products has been established.]

85.36 On facts, the tribunal held that, where the appellant owing to business exigencies maintained a residential colony for staff (sale and purchase of land in the vicinity of the factory being prohibited), all the services availed for maintaining the staff colony would qualify as input service being “activities relating to business”. [ITC Ltd vs C.C.E 2010 (17) STR 146 (Tri-Bang)]

85.37 Where an assessee engaged in the business of manufacturing cement claimed credit of service tax paid on account of repairs, maintenance and civil construction services used in the residential colony of the assessee on the ground that the said services were ‘activities relating to the business’, the Bombay High Court denied the credit and held as follows :

(i) the expression ‘activities relating to business’ in Rule 2(l) of CENVAT Credit Rules, 2004 refers to activities which are integrally related to the business activity of the assessee and not welfare activities undertaken by the assessee;

(ii) rendering taxable services at the residential colony established by the assessee for the benefit of the employees, is not an activity integrally connected with the business of the assessee.

[CCE vs. Manikgarh Cement (2010) 20 STR 456 (Bom.)]

85.38 Cenvat credit of service tax paid on construction of staff quarters is allowed on the ground that staff quarters are premises of the bank and input services include services used in the premises of output service provider [The Lakshmi Vilas Bank Ltd. vs. CCE (2010) 19 STR 40 (Tri.-Che)]

85.39 Credit of service tax paid on inspection charges for constructing staff quarters admissible. [Port Officer, Gujarat Maritime Board vs. CCE (2010) 19 STR 282 (Tri-Ahmd.)

Garden Maintenance

85.40 In absence of even a remote nexus between the manufacture of excisable goods and garden maintenance service and since the same was not used either directly or indirectly in relation to the manufacture or clearance of final product cenvat credit paid thereon was inadmissible. [GKN Sinter Metals Ltd. vs. CCE (2009) 16 STR 615 (Tri-Mumbai) see also Kirloskar Oil Engines Ltd. v. CCE (2009) 241 ELT 474 (Tri. Mum.); H.E.G Ltd vs CCE 2010 (17) STR 178 (Tri-Del)]. However, per contra cenvat credit of service tax paid on garden maintenance services was allowed as being activity relating to business’ relying on Coca Cola case. Further, the Tribunal dismissed the argument of Revenue that Maruti Suzuki case had impliedly overruled the Coca Cola case, since in Maruti Suzuki case the court was considering the definition of “input” which in the inclusive part also contains the condition that the inputs must be “used in relation to manufacture of final products” and hence the definition of “input” is not in part materia with that of “input sevices”. [ISMT Ltd. v. CCE & C – 2010-TIOL-27-CESTAT-Mum; See also Millipore India Ltd. vs. CCE (2009) 13 STR 616 (Tri-Bang.); L’oreal India Pvt. Ltd. vs. CCE (2011) 22 STR 89 (Tri. – Mum.); Rane TRW Steering Systems Pvt. Ltd. vs. CCE (2010) 19 STR 251 (Tri-Chennai)]

85.41 Cenvat credit of service tax paid on garden maintenance services is allowable being activity relating to business. [I.S.M.T.Ltd. v. C.C.E&C (2010) 20 STR 68 (Tri. – Mumbai). Maruti Suzuki case [240 ELT 641(SC)] was held not applicable since in Maruti Suzuki case the court was considering the definition of “input” which in the inclusive part also contains the condition that the inputs must be “used in relation to manufacture of final products” and hence the definition of “input” is not in pari materia with that of “input services”. See also Kirloskar Oil Engines Ltd. v. C.C.E (2010) 20 STR 30 (Tri. – Mumbai)]

85.42 Cenvat credit availed on the garden maintenance service and repair of freezer installed in canteen is admissible being input services used ‘in relation to the manufacture of final product’ or ‘in relation to the business activity’. The Tribunal further held that since there are no contrary decisions there is no need to refer the issue to a Larger Bench. [Reliance Industries Ltd v. CCE (2010) 19 STR 823 (Tri-Mum). Case law analysis: (i) ISMT Ltd v. CCE (2010) TIOL 27 (Tri-Mum) and SEMCO Electricals v. CCE (2010) 18 STR 177 (Tri-Mum) relied on. (ii) Kirloskar Oil Engineers Ltd.v. CCE (2009) 247 ELT 734 (Tri-Mum) being set aside by Bombay High Court and remanded back to the Tribunal, held, cannot be followed. (iii) Vikram Ispat v. CCE (2010) 19 STR 52 (Tri-Mum) only follows Kirloskar case and hence cannot be followed. (iv) CCE v. Manikgarh Cements (2010) 18 STR 275 held not on same facts. Consequently, the matter was not referred to Larger Bench]

85.43 Cenvat credit of service tax paid on manpower recruitment services used for maintenance of garden within the factory premises using treated industrial and domestic sewage water, was held to be admissible where it was a statutory requirement under the consent given by the Karnataka State Pollution Control Board (KSPCB).[Brakes India Ltd. vs. CCE (2010) 19 STR 524 (Tri-Bang.)]

85.44 Credit of service tax paid to interior decorator towards garden development and to manpower supplier for supply of manpower for gardening activity is admissible [CCE vs. Nirma Ltd.(2010) 20 STR 346 (Tri-Ahmd.) relying on Millipore India Ltd. vs. CCE (2009) 13 STR 616 (Tri-Bang.)]

85.45 Jungle cutting service availed by the appellant for the purpose of keeping the environment bacteria free in the surroundings of the factory is a service for their business of manufacturing and accordingly credit of tax paid on the jungle cutting service is allowable. [L’oreal India Pvt. Ltd. vs. CCE (2011) 22 STR 89 (Tri. – Mum.)]

85.46 A garden creates a better atmosphere and environment which increases the working efficiency and hence credit of service tax paid on garden maintenance is allowable. [Balkrishna Industries Ltd vs CCE 2010 (18) STR 600 (Tri-Mumbai)]

85.47 Where the assessee was allowed to manufacture goods and discharge the effluents within his factory premises subject to maintenance of a green belt (garden), the cenvat credit of service tax paid on garden maintenance services utilized by the assesseee was held allowable. [CCE vs. Voith Turbo Pvt. Ltd. (2011) 21 STR 52 (Tri. – Bang.)]

Goods Transport Agency Services

85.48 “Input service” is defined as any service used by a manufacturer whether directly or indirectly “in or in relation to” -

(i) “manufacture” of final products; and

(ii) “clearance” of final products from the place of removal, and includes amongst other things “outward transportation upto the place of removal”. On a question whether “transportation services” availed by a manufacturer for transporting his goods from his factory to the customer’s premises would be “input services”, the Tribunal answered in the negative and held as follows:

(i) Such transportation services cannot be said to be used “in or in relation to the manufacture” of the goods since ‘‘manufacture” completed in the factory is an anterior process to such transportation.

(ii) Such “transportation” starts from where “clearance” ends. The term “clearance” under the relevant provisions of the Central Excise Act or under common parlance does not include “transportation”. Hence such transportation is not a service used directly or indirectly “in the clearance” of final products from the place of removal.

(iii) A service can be said to be used, directly or indirectly, “in relation to the clearance” of final products when the service has at least remotely aided the clearance of the final products or when the clearance of the final products would have been facile in the absence of the service. Outward transportation of final products from factory (i.e. the place of removal), being an activity posterior to the clearance of the goods cannot be said be used directly or indirectly “in relation to the clearance” of final products from the place of removal. Had the “place of removal” of final products been other than factory say a depot, the transportation of the goods out of the factory upto the depot (place of removal) would have qualified to be “input service” for in such a situation, transportation is anterior to clearance from the place of removal.

(iv) The services specified in the inclusive part of the definition of “input service” pertain to activities performed either in relation to manufacture of final products or in relation to clearance of such goods. They can, definitely, be of aid to the determination of the scope of the expression, “in relation to”, used in the main part of the definition. This is not to say generally that the inclusive part of the definition is expansive or restrictive. But one thing which can be said with certainty is that, insofar as transportation of final products is concerned, the inclusive part of the definition is restrictive as it permits such transportation upto the place of removal only as input service. Hence where the place of removal is the factory the transportation from the factory to the customers premises would not fall within this clause.

[India Japan Lighting Pvt. Ltd. vs. CCE (2007) 8 STR 124 (Tri. – Chennai) see also CCE v. N.H.K Springs Ltd. (2007) 7 STR 63 (Tri.-Del.); Gujarat Ambuja Cements Ltd. v. CCE (2007) 6 STR 249 (Tri-Del.) reversed in ABB Ltd. v. CCE (2009) 15 STR 23 (Tri- LB) – see below]

85.49 The Larger Bench of The Tribunal holding that outward transportation of final product from the factory (place of removal) to customer’s door-step would be considered as “input service” under the Cenvat Credit Rules, 2004 laid down the following propositions:

(ii) The definition of ‘input service’ under rule 2(l) can be conveniently divided into the following five independent limbs :

(a) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products,

(b) Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal,

(c) Services used in relation to setting up, modernization, renovation or repairs of a factory, or an office relating to such factory,

(d) Services used in relation to advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,

(e) Services used in relation to activities relating to business and outward transportation upto the place of removal.

(iii) Each of the above limbs of the above definition is an independent benefit/concession. If an assessee can satisfy any one of the above, then credit on input service would be admissible even if the assessee does not satisfy the other limbs.

(iv) Transportation of goods to customer's premises is “an activity relating to business”. The term ‘business’ is of a wide import. Further, the word ‘relating to’ further widens the scope of the expression ‘activities relating to business’. It is not essential that the activity should be relating to main/ essential activity. It is an integral part of the business of a manufacturer to transport and deliver goods manufactured. If services like advertising, market and research which are undertaken to attract a customer to buy goods of a manufacturer are eligible to credit, services which ensure physical availability of goods to the customer, i.e. services for transportation should also be eligible to credit.

(v) Though “outward transportation upto the place of removal” is specifically mentioned in the inclusive part the Tribunal held that the principle of specific over general does not apply to such provisions just as it does not apply to exemption provisions where an assessee can successfully claim exemption if brings his case within any one notification notwithstanding he does not satisfy others.

(vi) The use of the expression ‘outward transportation' in the inclusive clause of the definition is by way of abundant caution so as to avoid any dispute being raised on the “means clause” which refers to clearance from the place of removal thereby resulting in transportation upto the place of removal not being eligible for credit. Credit in respect of transportation within the factory is available under the inclusive part.

(vii) Credit on outward transportation is admissible even if freight does not form part of value since the definition of input service has no connection with the definition of value under the Central Excise Act.

[ABB Ltd. vs. CCE (2009) 15 STR 23 (Tri-LB; relied upon in Thiru Arooran Sugars Ltd. vs. CCE (2009) 16 STR 404 (Tri-Chennai); Daman Polyfab vs. CCE (2010) 17 STR 276 (Tri-Ahmd.)]

85.50 The appellants in the present case had availed credit of service tax paid on transportation charges in case of ‘FOR Sales’. The department sought to disallow such credit. On appeal the Hon’ble High Court observed that the customer’s doorstep would be considered as “place of removal” u/s.4(3)(c) of the Central Excise Act, 1944 which inter alia considers “any other place or premises from where excisable goods are to be sold …..” as “place of removal” since -

(i) the ownership of the goods remained with them till the delivery thereof since the sales were ‘FOR’ basis;

(ii) they bore all the risk of loss or damage during the transit substantiated by the fact that they took insurance; and

(iii) the freight charges were integral part of price in a FOR Sale.

[Ambuja Cements Ltd. vs. UOI (2009) 14 STR 3 (P&H) - CBEC Circular No. 96/6/2007 – ST dated 23.8.2007 referred. See also CCE Vs. Colour Synth Industries P. Ltd (2009) 14 STR 309 (Tri- Ahmd.); Inox Air Products Ltd. v. CCE & C (2009) 16 STR 411 (Tri. – Mum.); CCE v. Fine Care Biosystems (2009) 16 STR 701 (Tri. – Ahd.); CCE v. A. D. F. Foods Ltd (2009) 16 STR 564 (Tri. – Ahmd.); Cauvery Stones Impex Pvt. Ltd. vs CCE. (2010) 18 STR 73 (Tri-Chennai); Hindustan Coca Cola Beverages Pvt Ltd v CCE 2010(17) STR 140 (Tri-Bang) – Circular No. 96/7/2007-ST dated 23.08.07 held clarificatory and applicable for prior period also.]

85.51 Service tax paid on goods transport agency services availed for transportation of goods from the factory to the consignment agent’s premises is entitled to cenvat credit since consignment agent’s premises is also defined as a place of removal and the property in the goods never passes to a consignment agent. [CCE vs. Rajhans Metals P. Ltd. (2008) 12 STR 597 (Tri-Ahmd.)]

85.52 Goods transport services used for transporting iron, steel and cement for construction of new plant is eligible as input services as the said service is used in relation to setting up, modernization, renovation or repairs of a factory. [CCE v. Videocon Industries Ltd. (2009) 14 STR 692 (Tri. – Ahmd.)

85.53 Empty containers are used for packing final products and hence can be treated as inputs used by the manufacturer in relation to manufacture of final products. Accordingly, credit of service tax paid on freight for moving empty containers called for export of goods is held to be admissible. [CCE vs. Nitin Spinners Ltd. (2009) 16 STR 323 (Tri-Del.)

85.54 Cenvat credit of service tax paid on Goods Transport Agency services used for transportation from the factory of inputs / capital goods removed as such is not reversible though the credit of duty paid on such inputs/ capital goods is reversible under rule 3(5) of the Cenvat Credit Rules, 2004 [J.S.Khalsa Steels (P) Ltd. vs. CCE (2010) 17 STR 517 (Tri-Del.) relying on Chitrakoot Steel and Power Pvt. Ltd. vs. CCE (2008) 10 STR 118 (Tribunal) where the Tribunal held that credit of service tax on inward transportation of inputs/ capital goods removed as such is not reversible see also A.R. Casting (P) Ltd v. CCE 2010(19) S.T.R. 384 (Tri-Del)].

85.55 The appellant, a dealer in motor cycles and also a service station, paid service tax on Goods Transport agency service for transporting new motor cycles from the manufacturer’s factory to its showroom (where it would be sold) and took credit of the service tax paid on such GTA services and utilised the same for payment of service tax on ‘Authorised service station’ services. The credit was denied on the ground that GTA services are related to sale of vehicle and not for providing output services. The Tribunal allowed the credit holding that unless vehicles are received and sold there cannot be any servicing of the same. [CCE vs.Shariff Motors (2010) 18 STR 64 (Tri-Bang.)]

85.56 The main issue in this case was whether tax paid for transport of empty containers from yard to factory for stuffing export goods is eligible for refund. The Tribunal held that the expression ‘in relation to transport of export of goods’ is wide enough to cover transport of empty containers from the yard to the factory for stuffing of export goods. [CCE v. Tata Coffee Ltd. (2011) 21 STR 546 ( Tri – Chennai)]

85.57 Where the appellant availed GTA services for transportation of goods from the factory to the consignment agent’s premises from where the goods are sold to the customers the Tribunal held that such premises of consignment agent would be treated as ‘place of removal’ and credit of tax paid on GTA services would be allowed. [Anmol Bakers Pvt. Ltd. vs. CCE (2010) 19 STR 656 (Tri. – Del.)]

85.58 Cenvat credit of service tax paid by the assessee on goods transport agency services availed by them for transportation of empty cylinders from its factory premises to the supplier for procuring liquid chlorine, which was an essential input used in manufacture of its final product is admissible being ‘service used for procurement of inputs’ [Kerala Minerals and Metals Ltd. vs. CCE (2010) 19 STR 505 (Tri-Bang.)]

85.59 Where the goods are sold on F.O.R. basis the Tribunal held that credit is admissible on outward transportation upto the buyers’ premises based on CBEC Circular dated 23.08.2007 and Ambuja Cements Ltd. v .UoI (2009) 14 STR 3 (P & H). The Tribunal made the following significant observations -

(i) Since a value added tax operates by taxing input goods and services and output goods and services with provisions for credit of tax paid on input goods and services which can be utilized for payment of tax on output goods services, the present system of levy of central excise duty on manufactured goods and levy of service tax on certain services with facility of credit being available of the central excise duty paid on inputs capital goods and of service tax paid on input services, which can be utilized towards payment of central excise duty on finished goods or for payment of service tax on output service, has the character of a value added tax. Since basic principle of a value added tax is that while subjecting a finished product to tax, credit of tax paid on all input goods, capital goods and input service is allowed which can be utilized towards payment of tax on the finished product, a corollary to this principle would be that in an indirect tax of the nature of value added tax, when a finished product is taxed, credit of duty paid on all input goods, capital goods and input services has to be allowed.

(ii) When the assessable value of the goods under Section 4 of the Excise Act is not confined to the manufacturing cost and manufacturing profit but includes all the components like marketing and selling organization expenses, advertisement expenses, after sales service, storages upto time of removal etc. which have contributed to the value of the goods and in case of FOR destination sales at the customer’s premises, all expenses including transport expenses upto the customer’s premises are includible in the assessable value for charging duty, the input duty credit cannot be confined only to the services used in the completion of manufacturing process. Therefore, while interpreting the scope of “input services” as defined in Rule 2(l) of Cenvat Credit Rules, 2004, clause (xvia) and (xviaa) of subsection (2) of Section 37 of the Excise act should not be looked at in isolation and it is the entire Central Excise Act containing the scheme of levy and collection of central excise duty which has to be taken into account. In view of the above, there is no conflict between the provisions of Rule 2(l) of the Cenvat Credit Rules, 2004 and clause (xvia) and (xviaa) of Section 37(2) of the Excise Act.

(iii) Credit cannot be denied just because the duty on the goods has been paid on the assessable value determined under Section 4A of the Central Excise Act i.e on the value determined with reference to declared MRP minus abatment instead of transaction value under section 4 of Central Excise Act.

(iv) The appellant’s sales are on FOR destination basis and the three conditions in this regard mentioned in the Board’s Circular dated 23-8-07 are satisfied, that is, ownership and property in the goods remains with the appellant till delivery of the goods in acceptable condition to the customers at their door steps, the appellant bear the risk of loss or damage to goods during transit upto the destination and freight charges are integral part of the price of the goods.
[L.G. Electronics (India) Pvt. Ltd. vs. CCE (2010) 19 STR 340 (Tri. – Del.). See also Automobile Corporation of Goa Ltd. vs. CCE (2010) 19 STR 518 (Tri-Mumbai)]

85.60 Where goods are exported on FOB/CIF basis, Cenvat credit of service tax paid on outward transportation from factory to port of shipment is admissible. [Modern Petrofils vs CCE 2010 (18) STR 625 (Tr-Ahmd.)].

85.61 Where the appellants, manufacturers of ‘Instant Coffee’ required metal tins for packing their final product and to procure the metal tins, it transported plastic pallets to metal tin suppliers it was held that ‘Goods Transport Agency’ (“GTA”) services used for transport of plastic pallets to and from suppliers is an input service being a service in relation to ‘procurement of inputs’ or alternatively as ‘activities relating to business’ and hence service tax paid on such GTA services is eligible for credit.[CCE vs. CCL Products (India) Ltd. 2010 (18) STR 430 (Tri- Bang)].

Guest house maintenance expenditure

85.62 Credit on maintenance services of guest house which is used in connection with the business would be allowed as being ‘activities related to business’. [CCE v. Hindustan Zinc Ltd. (2009) 16 STR 704 (Tri. – Bang.)]

85.63 Cenvat credit on outdoor catering services and house keeping services availed at the guest house by the appellant is allowable except to the extent of recoveries made from the guests since the guest house has been maintained by the appellant for business activity and not for any welfare of the society.

House Keeping services

85.64 Credit of tax paid on house keeping services vital for keeping factory in good condition is allowable. [Rotork Control (India) Pvt.Ltd. v.C.C.E (2010) 20 STR 29 (Tri.- Chennai)]

85.65 Plant house keeping services are essential and related to manufacturing activity and accordingly the cenvat credit of service tax paid on house keeping service is admissible.[ Balkrishna Industries Ltd vs CCE 2010 (18) STR 600 (Tri-Mumbai)]

Insurance Services

85.66 Insurance on plant and machinery is an expenditure which goes into costing and, therefore, the credit of service tax on the same cannot be denied. Further following Excel Corp Care v. CCE (12) STR 436 (Guj.) & CCE v. GTC Industries (2008) 12 STR 468 (Tri.-LB) credit on mobile phone services and catering services were allowed. [Finolex Cables Ltd. v. CCE (2009) 14 STR 303 (Tri-Mumbai)]

85.67 Service tax paid on medical and personal accident insurance policies of employees and catering services would be entitled to input credit since these costs are included in the cost of final product in terms of CAS-4. Further, in view of the broad definition of input services, cenvat credit on the services of landscaping the surrounding of the factory premises was held to be admissible especially in the present day conditions where much importance is given to keeping the environment in a proper manner. [Millipore India Ltd. vs. CCE (2009) 13 STR 616 (Tri-Bang.)]

85.68 Credit of service tax paid on insurance premium for losses due to fire, machinery breakdown, cash handling, group gratuity and group accident policy is allowed [CCE v. Beekay Engg. & Castings Ltd. (2009) 16 STR 709 (Tri. – Del.) See also H.E.G Ltd vs CCE (2010) 17 STR 178 (Tri-Del)].

85.69 Where the goods have been exported by the appellant on FOB basis retaining ownership till the delivery of goods on board the vessel, the ‘load port’ would be the place of removal and hence transit insurance upto sea port would be treated as input service (being services used for clearance of goods upto the ‘place of removal’) [Fiamm Minda Automotive Ltd v. CCE, (2011) 22 STR 210 (Tri- Del) see also Somaiya Organo Chemicals v. CCE, (2011) 21 S.T.R. 114 (Tri – Mum].

85.70 Credit of service tax paid on insurance charges of company vehicles being availed in relation to manufacture of final products is admissible. [CCE v. DCW Ltd (2011) 22 STR 214 (Tri-Chennai)]

85.71 Cenvat Credit on group insurance and health policy for the employees and workers is admissible [Fiamm Minda Automotive Ltd v. CCE, (2011) 22 STR 210 (Tri- Del) contra Tangence Solutions (India) Pvt. Ltd. vs. CCE (2011) 21 STR 504 (Tri. – Del.)]

85.72 Credit of service tax paid on insurance taken by the appellant, a port service provider for individual employees working in port area is admissible. [India Gateway Terminal (P) Ltd. vs. CCE (2010) 20 STR 338 (Tri-Bang.)]

85.73 Credit of service tax paid on Group Mediclaim Policy and Workmen’s accident policy would be considered as input services since they are part of manufacturing cost as per Cost Accounting Standard – 4 issued by the ICWAI and accordingly credit of the same is admissible. [CCE & C vs. Endurance Systems India Pvt. Ltd. (2010) 20 STR 267 (Tri. – Mum)]

85.74 (i) Marine inland transit insurance : Cenvat credit of service tax paid on insurance of captive power plant during its transportation was allowed on the ground that since the ‘input service’ definition specifically covers ‘inward transportation of input and capital goods’, it also covers insurance during such transportation.

(ii) Insurance for money in transit : Cenvat credit of service tax paid on insurance of money in transit is allowed being ‘activity relating to the business’.

(iii) Accident Insurance of personnel: Cenvat credit of service tax paid on accident-insurance on personnel working in the appellant’s factory is allowed being activity relating to the business even if they relate to workers supplied by the contractors since as per the provisions of the Facties Act, the appellant asa principal employer has a vicarious liability for any compensation in the case of injury etc. to even contract workers

[Monnet Ispat & Energy Ltd. vs. CCE (2010) 19 STR 417 (Tri. – Del.)]

85.75 Cenvat credit in respect of service tax paid on

(i) insurance of capital goods in factory or in transit;

(ii) group personnel accident insurance; and

(iii) Group Health Guard policy of the workers and staff was held admissible.

[CCE vs Raipur Rotocast Ltd 2010 (18) STR 466 (Tri-Del.)]


Maintenance & Repairs for warranty obligation

85.76 The assessee was under legal obligation to provide repair and maintenance services during the warranty period with regard to the products sold by it, but had outsourced the same to another service provider and had availed credit of service tax paid to such service provider and adjusted credit against the excise duty payable. The Tribunal allowed the cenvat credit taking into consideration that –

(i) it was a legal obligation to provide the services during warranty period;

(ii) the warranty cost is included in the assessable value of the products; and

(iii) these activities are relating to sale of goods and hence are ‘activities relating to business’.

[CCE vs. Danke Products (2009) 16 STR 576(Tri-Ahmd.)]

Maintenance and Repair services.

85.77 Cenvat credit on Repair and Maintenance of photo copier, Air conditioner, water cooler etc. is admissible.[Cadila Healthcare Ltd vs C.C.E (2010) 17 STR 134 (Tri-Ahmd) see also CCE v. DCW Ltd (2011) 22 STR 214 (Tri-Chennai)]

85.78 Credit of service tax paid on repair and maintenance services undertaken in relation to air cooler, pay loader, dumper and changing of damaged asbestos is admissible.[ CCE vs. H.E.G. Ltd. (2010) 20 STR 312 (Tri-Del)]

85.79 Cenvat credit of tax paid on services of maintenance of water coolers installed in the factory of the assessees is allowed, installation of water coolers being an essential requirement under the provisions of the Factories Act. [Rotork Control (India) Pvt.Ltd. v.C.C.E (2010) 20 STR 29 (Tri.- Chennai) see also Reliance Industries Ltd v. CCE (2010) 19 STR 823 (Tri-Mum).]

Mandap Keeper Services

85.80 Credit on mandap keeper services incurred for stockists-meet held for promoting sale of final product allowed since it is used in relation to business [Jaypee Rewa Plant v CCE (2009) 16 STR 707 (Tri. Del.); See also H.E.G Ltd vs CCE 2010 (17) STR 178 (Tri-Del)]

Manpower Recruitment or Supply services

85.81 Credit of service tax paid on manpower supply services used for operation and maintenance of power plant set up by manufacturers for generating electricity (not excisable) which is used to produce excisable goods is admissible. [Sanghi Industries Ltd. vs. CCE (2009) 13 STR 167 (Tri-Ahmd.)]

Mobile Phone Services

85.82 Credit of service tax paid on mobile phones was held allowable where mobile phones were used in “activities relating to business”. [Grasim Industries vs. CCE 11 STR 168 (Tr. – Del.); CCE vs. Axiom Impex International Ltd. (2009) 16 STR 309 (Tri-Mumbai)]

85.83 Credit of service tax on mobile phones used by staff of output service provider is admissible. [CST vs. STIC Travels Pvt. Ltd. (2007) 8 STR 495 (Tri- Del)See also CCE vs. Excel Corp Care Ltd. (2008) 12 STR 436 (Guj.)].

85.84 Service tax paid on cell phone bills of Individuals (presumably employees) would be allowable subject to verification that phones are being used for attending calls of the appellant’s customers. [Wiptech Peripherals Pvt. Ltd. vs. CCE (2008) 12 STR 716 (Tri-Ahmd.)]

85.85 Credit of service tax paid on mobile phones which are standing in the name of the company and are used by the employees in relation to work cannot be denied only on the ground that the same has been incidentally used for personal work. [CCE vs. Conzerv Systems (Pvt.) Ltd. (2009) 13 STR 638 (Tri-Bang.); See also CCE vs. Brakes India Ltd. (2009) 13 STR 684 (Tri-Chennai); CCE vs. Steelcast Ltd. (2009) 13 STR 696 (Tri-Ahmd); CCE v. Stanzen Toyotetsu India (P) Ltd. (2009) 13 STR 289 (Tri.- Bang.); CCE v T. G. Kirloskar Automotive (P) Ltd. (2009) 14 STR 743 (Tri. – Bang); CCE v. Beekay Engg. & Castings Ltd. (2009) 16 STR 709 (Tri. – Del.) - in this case it was also observed that there is no specific provision in Cenvat Credit Rules that mobile phone should be used exclusively in relation to the manufacturing process in business activities.]

85.86 Credit of service tax paid in respect of Mobile phones provided to its employees for official purposes i.e. in relation to manufacture of excisable goods cannot be disallowed on the ground that phones are not installed in the factory premises [CCE vs. Showa Engineering Ltd. (2009) 14 STR 840 (Tri. – Che.) See also ITC Ltd. vs. CC & E (2009) 14 STR 847 (Tri. – Che.) CCE & C v. Ultratech Cement Ltd. (2009) 16 STR 702 (Tri. – Mum.) Jaypee Rewa Plant v. CCE (2009) 16 STR 707 (Tri. – Del.)]

85.87 Credit of service tax paid on mobile phones supplied to employees during the financial year 2006-07 is allowable under the Cenvat Credit Rules, 2004. Further the Board Circular No. 59/8/2003, dated 20.06.03 issued under the erstwhile Service tax Credit Rules, 2002 which clarified that credit on mobile phones is not allowable would not apply to Cenvat credit Rules, 2004 in absence of a provision like the erstwhile rule 3(6) which specifically provided that credit in respect of services in relation to telephones shall be allowable only if such telephone connections are installed in the premises from where output services are provided. [CCE vs. Ultratech Cement (2010) 20 STR 589 (Bom.)]

85.88 Credit of service tax paid on mobile phones which are standing in the name of the company and are used by the employees in relation to business purpose cannot be denied as the department failed to produce enough evidence that the mobile phones are not used for business purposes. [Sidel India Pvt. Ltd. vs. CCE (2010) 18 STR 273 (Tri. – Mum.)]

Outdoor Catering Services

85.89 Allowing the credit of service tax paid on outdoor catering for providing canteen facilities to employees in factory premises the Tribunal held as follows:

(i) The meaning assigned to “input service” is divided in two parts. The first part giving the specific meaning and the second part gives the inclusive meaning of the same. In the second part, an inclusive meaning is given to “input service”, which otherwise would not have been covered in the main first part.

(ii) The expression “such as” contained in the phrase “activities ‘relating to’ the business such as accounting, auditing, financing, ………..” means that the stipulated activities that follow the said expression in the definition are only illustrations and not limitations.

(iii) The expression “relating to” occurring in the above phrase is to be given a wide construction.

(iv) Canteen facility although not specifically stated in the list of activities in the definition of “input service” is an “activity relating to the business” of the appellants.

(v) Canteen facility is beneficial for the workers as they are served food at concessional rates and it is they who are engaged in the business of the appellants which is nothing but manufacture of goods. Hence the manufacturer can be said to be using the canteen facility indirectly for manufacture of goods.

(vi) The following facts fortify that canteen expenditure is an ‘activity relating to business’. (a) maintenance of a canteen is a statutory requirement u/s. 46 of the Factories Act, 1948; (b) the appellants have paid fringe benefit tax [which is a tax on business expenditure] on canteen related expenses under the Income Tax Act; (c) credit of service tax paid on repairs and maintenance of residential colonies provided to employees is allowed. [Manikgarh Cement v. CCE (2008) 9 STR 554 (T)]; (d) credit on mobile phones are allowed [CBEC Circular No. 97 dated 23.8.2007]; (e) expenditure on restoration of buildings and residential quarters as well as expenditure on maintenance of transit quarters for accommodating outstation employees have been held to be business expenditure under the Income-tax Act, 1961.

[Victor Gaskets India Ltd. v. CCE (2008) 10 STR 369 (Tri. – Mumbai) See also Indian Card Clothing Co. Ltd. v. CCE (2008) 11 STR 175 (Tri. – Mum); CCE vs. GTC Industries Ltd. (2008) 12 STR 468 (Tri-LB) relied upon in Thiru Arooran Sugars Ltd. vs. CCE (2009) 16 STR 404 (Tri-Chennai);GKN Sinter Metals Ltd. vs. CCE (2009) 16 STR 615 (Tri-Mumbai) see also CCE vs. Ferromatic Milacron India Ltd. (2009) 21 STR 8 (Tri-Guj.)]

85.90 Where the Factories Act stipulates that any Company employing more than 250 workers have to maintain the canteen facility and also provides punishment for violation of the stipulation the Tribunal held that availing outdoor catering services for provision of canteen to employees would be considered as integrally connected to the manufacture of the finished excisable goods and accordingly entitled to Cenvat credit. [Samsung Electronics (I) Pvt. Ltd v. CCE (2011) 22 STR 200 (Tri-Del)]

85.91 Cenvat credit of service tax paid on outdoor catering services availed by the various assessee – manufacturers for providing canteen facilities to their employees would not be admissible for the following reasons:

(i) credit of duty / tax in respect of inputs or input services is permitted only when the same is used “in, or in relation to manufacture of excisable goods”.

(ii) Cenvat credit would not be available merely on the basis that the value of input / input services is included in the value of finished excisable goods;

(iii) Use of the input service must be integrally connected with the manufacture of the final product. The input service must have nexus with the process of manufacture. It has to be necessarily established that the input service is used in or in relation to the manufacture of the final product. One of the relevant test to determine the availability of credit would be – “can the final product emerge without the use of the input service in question?” Since Outdoor Catering is not integrally connected with the manufacture of final product it is not an “input service”.

[CCE vs. Sundaram Brake Linings (2010) 19 STR 172 (Tri-Chennai), departing from CCE v. GTC Industries Ltd (2008) 12 STR 468 (Tri-LB) in view of the Supreme Court decision in Maruti Suzuki Ltd. vs. CCE (2009) 240 ELT 641 (SC)]

Rent – a – cab services

85.92 Rent-a-cab services availed for transportation of employees to factory premises is an “input service” since -

(a) it may be considered as being used indirectly in relation to manufacture of goods; or

(b) as part of business activity for promoting the business since any facility given to the employees will result in greater efficiency and promotion of business.

Accordingly, service tax paid on rent-a-cab scheme services would be entitled to cenvat credit. [CCE. v. Cable Corporation of India Ltd. (2008) 12 STR 598 (Tri. – Mumbai); See also CCE v. Hindustan Zinc Ltd. (2009) 16 STR 704 (Tri. – Bang.); CCE v. Beekay Engg. & Castings Ltd. (2009) 16 STR 709 (Tri. – Del.);T.G.Kirloskar Automotive Pvt Ltd. vs. CCE 2010(17) STR 359 (Tri-Bang)].

85.93 Credit of Service tax paid on rent-a-cab services used for transporting its employees to factory and back and on outdoor catering services used for providing food to the employees in factory is admissible since they are activities relating to the business and they are part of cost of production. [Bell Ceramics Ltd. vs. CCE (2011) 21 STR 417 (Tri-Bang.) relying on Coca Cola India Pvt. Ltd. vs. CCE (2009) 15 STR 657 (Bom.)]


Technical testing and analysis services

85.94 Technical testing and analysis services availed by a manufacturer of medicaments for trial manufacture and R&D conducted in respect of drugs which did not reach the stage of commercial production or the market is to be considered as ‘input service’ since they were part of manufacturing process and business activity and accordingly cenvat credit is admissible. [Cadila Healthcare Ltd vs C.C.E 2010(17) STR 134 (Tri-Ahmd)]

Telephones Services

85.95 Credit not deniable in absence of allegation that landline Telephones installed in the residence of staff was not used in relation to business activity. [H.E.G Ltd vs CCE (2010) 17 STR 178 (Tri-Del) see also CCE vs. Andhra Pradesh Paper Mills Ltd. (2011) 22 STR 126 (Tri. – Bang.); CCE v. DCW Ltd (2011) 22 STR 214 (Tri-Chennai)]

85.96 Cenvat Credit on telephone services in respect of telephone installed at General Manager’s residence and Guest house are not allowed in absence of evidence that these services are in relation to manufacturing business. [Monnet Ispat & Energy Ltd. vs. CCE (2010) 19 STR 417 (Tri. – Del.)]

85.97 Telephone is used by the appellant for the day to day business operation and hence cenvat credit of service tax paid on the same is allowed. [CCE vs. Fourrts (I) Laboratories Pvt. Ltd. (2010) 19 STR 86 (Tri. – Che.)]

Tour operator services

85.98 Credit of service tax paid on Tour operator services used for picking up and dropping the staff of the assessee to the factory being services in relation to business activities is admissible. [CCE vs. Hyderabad Industries Ltd. (2010) 20 STR 704 (Tri-Chennai)]

Others

85.99 In this case the Tribunal held as follows:

(i) Cement and steel used in construction of a jetty of a port does not fall within the definition of term ‘inputs’ as defined under Rule 2(k) of the Cenvat Credit Rules, 2004 since it cannot be said that they are “used for providing” port services and accordingly credit of duty paid on cement and steel is inadmissible.

(ii) Mobile phone services, Custom house agent’s services, Surveyor’s services and rent-a-cab services availed for hiring cars for port officers are “used for providing output services” and credit of service tax paid on these services is admissible.

(iii) Credit of service tax paid on club house fees meant for recreation of workers being not directly connected with rendering of port services would be inadmissible.

(iv) Credit of duty paid on air—conditioners being capital goods falling with the definition of term capital goods is fully admissible.

[Mundra Port & Special Economic Zone Ltd. vs. CCE (2009) 13 STR 178 (Tri-Ahmd.)]

85.100 The appellants (an Indian Company) were agents appointed by BBC U.K. in India for marketing of time slots, collection of broadcasting charges and remitting the amounts to BBC U.K. in consideration for a commission. They obtained service tax registration under ‘Broadcasting agency services’ and paid service tax on the broadcasting charges collected by them on behalf of BBC U.K. They also obtained registration under ‘business auxiliary services’ and paid service tax on the commission received by them. They utilised the credit of service tax paid by them under business auxiliary services for paying service tax under broadcasting agency services on the ground that the business auxiliary services is an input service for BBC U.K. and they are paying service tax under ‘Broadcasting agency services’ on behalf of BBC U.K. However, the Tribunal dismissing this contention held that

(i) the appellants being agents in India appointed by BBC U.K. would be covered within the definition of Broadcasting agency and appellants would be considered as service providers and hence the service tax paid by them is not on behalf of BBC U.K. but on their own behalf.

(ii) Since the broadcasting charges collected by them as well as commission earned by them are their output services liable for service tax credit of service tax paid under the category of business auxiliary services cannot be utilized for making payment in respect of service tax under broad casting services.

[BBC World (I) Pvt. Ltd. vs. CST (2009) 14 STR 152 (Tri-Del.)]

85.101 Where the assessee sold machineries ex-factory and also charged the customer for erection and commissioning at the customer’s site, the Tribunal allowed credit in respect of service tax paid on erection, commissioning and installation services availed by the assessee from third party contractors on the following grounds:

(i) The process of erection and commissioning is incidental to manufacture and hence is in continuation of the manufacturing activity which can be said to be complete only upon erection and commissioning. Hence, the said service is used in relation to manufacture.

(ii) The stand of the Revenue that the credit would not be allowed since the service is provided at the buyer’s premises is incorrect since the credit rules do not require the service to be rendered at the factory for the purpose of eligibility to credit.

(iii) Once the entire transaction of manufacture, erection and supply is considered as a single transaction and excise duty paid on whole transaction value, services rendered in the completion of this whole transaction has to be treated to have been rendered in or in relation to the manufacture.

(iv) The above services cannot be said to be provided to the buyer of machinery, since the responsibility for erection and commissioning is with the manufacturer and the agency was nominated by them for erection and commissioning.

[CCE v. Alidhara Textool Engineers Pvt. Ltd. (2009) 14 STR 305 (Tri- Ahmd.)]

Note : It is to be noted that the period involved in the present case was 30.12.2002 – 7.6.2005. However, it is to be noted that erection and commission services were introduced into the service tax levy only from 1.7.2003. Hence prior to 1.7.2003 how service tax was levied is not clear. Further, prior to 10.9.2004, manufacturers were not eligible for credit of service tax paid by them against the excise duty.

85.102 Where the premise viz., Secondary Switching Area (SSA) of the appellant received capital goods from its Central Stores Department (CSD), although not under cover of an invoice, as a “first stage dealer” the Tribunal allowed credit holding that -

(i) the CSD is strictly speaking not a first-stage dealer since it does sell goods for a consideration;

(ii) the appellant had satisfied the substantive conditions of the goods being -

(a) duty paid; and

(b) used for output services.

Hence the substantive benefit of cenvat credit should not be denied on a technical ground of non-registration of the CSD as a first stage dealer. [BSNL v. CCE (2009) 14 STR 699 (Tri.-Chennai)]

85.103 Cenvat credit of service tax paid on amounts paid to Airport Authority for allowing the appellants to park their aircraft, used for the business purposes, in the airport, is allowable in absence of evidence that the aircraft had not been used for business purposes. [Force Motors Ltd. vs. CCE (2009) 13 STR 692 (Tri-Mumbai)].

85.104 Cenvat credit of service tax paid on canteen services, transportation and group insurance health policy for the employees/workers in factory are allowable being “activity related to business”. [Stanzen Toyotetsu India Pvt. Ltd. vs. CCE, (2009) 14 STR 316 (Tri- Bang.)]

85.105 On facts, the Tribunal held that service tax paid on rent-a-cab services, repair and maintenance services for vehicles, cellular telephone services and photography services are used directly / indirectly in relation to manufacture of final product and cenvat credit thereon is allowable.[CCE vs. J.K.Cement Works (2009) 14 STR 538 (Tri-Del.)]

85.106 Credit of service tax paid on insurance premium, repair of vehicles, AMC charges on telecom and courier charges being availed in relation to manufacture of final products is admissible.[CCE vs. CCL Products (India) Ltd. (2009) 16 STR 305 (Tri-Bang.)]

85.107 Credit of service tax paid on -

(a) repair and maintenance services received for staff colony;

(b) gardening services;

(c) security services in wind farms;

(d) maintenance of swimming pools; and

(e) civil works undertaken at auditorium and shopping complex is inadmissible since the same does not have any nexus with the manufacturing of finished goods.[CCE vs. Grasim Industries (2011) 21 STR 378 (Tri-Chennai)]

85.108 Where the appellant had availed credit of service tax paid on services received prior to 1.1.2005 from non-resident service provider, the Tribunal held that the assessee cannot be asked to reverse the credit on the ground that appellant was not liable to pay service tax during the said period under the reverse charge mechanism since these was a revenue neutral situation.[Rajratan Global Wires Ltd. vs. CCE (2011) 21 STR 383 (Tri-Del.)]

85.109 (i) Credit of service tax paid on bank charges, courier and clearing charges, professional service charges, computer maintenance, clearing charges and insurance charges is admissible since the same are being incurred in relation to manufacture of final product i.e. the business of the assessee.

(ii) credit of service tax paid on rental charges for premises which are used for manufacturing of goods is admissible.

(iii) credit of service tax paid on repair and maintenance of vehicles which are used for shifting of semi-finished goods from one premises to another for next level of production is admissible.

[Jeans Knit P. Ltd. vs. CCE (2011) 21 STR 460 (Tri-Bang.)]

85.110 Where the appellant being 100% EOU were availing services for transporting goods from the factory to airport, loading them to the aircraft and making all documentation for the transportation by air the Tribunal held that such services were availed by the appellant till the goods are loaded into the aircraft for export and not thereafter. Therefore, the place of removal in such cases would be the airport and accordingly, credit of service tax paid on such services for facilitating export of goods from the place of removal (i.e. airport) would be admissible. [Fine Care Bio-systems vs. CCE (2010) 20 STR 193 (Tri. – Ahmd)].

85.111 The Tribunal held as follows :

(i) Credit of tax paid on invoices in the name of the ‘pure agent’ of the assessee is allowable.

(ii) Credit of tax paid by the appellant, a manufacturer and exporter of silk fabrics, on CHA services and servicing of cars is admissible.

(iii) Credit of tax paid by Bangalore Head Office of the appellant on input invoices addressed to it, but services in respect of which was for Mysore factory is admissible.

(iv) Credit of tax paid on inputs used for manufacture of goods sold to SEZ is admissible.

[CCE v. Chamundi Textiles (Silk Mills) Ltd. (2010) 20 STR 219 (Tri.- Bang.)].

85.112 Cenvat credit on (i) Vehicle maintenance; (ii) Transportation, installation and maintenance of coolers; (iii) Marketing and publicity services and (iv) Calibration services and Systems maintenance services are allowed on ground that these are ‘activities relating to the business’ of the appellant. [Hindustan Coca Cola Beverages P. Ltd. vs. CCE & ST (2010) 19 STR 356 (Tri. – Bang.)]

85.113 Cenvat Credit of tax paid on ‘shifting of household goods of employees’ is not allowed since it not in any way connected with the appellant’s business activity. [Hindustan Coca Cola Beverages P. Ltd. vs. CCE & ST (2010) 19 STR 356 (Tri. – Bang.)]

85.114 The assessee manufactured & sold ‘rebar coils’ from their factory and from its Branch Sales Offices (BSOs) and paid excise duty on such sales. It had appointed C&F agents to receive, stock & sell the products at its BSOs. On specific requests from its customers, in a few cases, the C&F agents did cutting, bending & straightening before selling the goods and charged the assessee certain processing charges. The assessee took credit of the tax paid on such charges. The department denied the credit contending that the process of cutting, bending etc. does not amount to manufacture and hence the service is not ‘used in relation to manufacture’. The Tribunal dismissed the contention and held that cenvat credit is allowable since the said service is an ‘activity relating to business’ of the assessee which is an independent limb available to the assessee to claim credit. [Rashtriya Ispat Nigam Ltd v. CCE [2010 (19) S.T.R. 389 (Tri – Bang) relying on Coca Cola India Pvt. Ltd. V. CCE (2009) 15 STR 657 (Bom.)].

85.115 CENVAT credit of service tax paid on repair / maintenance, insurance, surveys, technical inspection certification services and manpower recruitment services all relating to vessels, viz., tugs and barges which were used for the purpose of transporting raw materials and final products from / to ships anchored at sea to/from the appellant’s factory was disallowed by the Tribunal on the ground that none of the above mentioned services would be considered as input services since the quintessential requirements of “input service” laid down in the main part of the definition have not been established by the appellant i.e. a nexus between the services in question and manufacture / clearance of excisable goods by the appellant.[Vikram Ispat vs. CCE (2010) 19 STR 52 (Tri. – Mumbai)]

85.116 Rent-a-cab, air travel and servicing of motor vehicle services were considered as activities relating to business and cenvat credit of service tax paid on those services were allowed [Dr. Reddy’s Lab. Ltd. vs. CCE (2010) 19 STR 71 (Tri. – Bang.)]

85.117 Cenvat credit of service tax paid on mediclaim policy, Security services, vehicle insurance, Car rentals, Pest control activities are allowed on the ground that the said services are all related to the business activity of the appellant. [Hindustan Coca Cola Beverages P. Ltd. vs. CCE (2010) 19 STR 93 (Tri. – Bang.)]

85.118 The assessee, a pharmaceutical company, was held eligible to take Cenvat credit of duty paid on Industrial washing machines used for washing of employees’ uniforms since they are ‘capital goods’ being -

(i) goods falling under chapter 84; and

(ii) used in the factory of manufacturer to provide clean uniforms to employees which is a mandatory requirement under the Drugs and Cosmetics Act.

[CCE vs Micro Labs Ltd 2010 (18) STR 771 (Tri-Bang.)]

85.119 Cenvat credit is admissible in respect of -

(a) Security services availed by the assessee for ensuring safety of goods stored in godown.

(b) Pest control services availed to ensure clean and healthy environment in the factory premises. being ‘activities relating to business’.

[CCE vs Hindustan Coca-Cola Beverages Pvt Ltd. 2010 (18) STR 500 (Tri Bang.)]

85.120 Where the assessee removes inputs as such it was held that Rule 3(5) of Cenvat Credit Rules, 2004 only requires him to reverse the amount of the Cenvat credit availed on such “inputs” or “capital goods” but not the credit of service tax availed by him on GTA services which were used for transporting the said goods into his factory. [CCE vs. Punjab Steels (2011) 21 STR 5 (P&H) see also A.R. Casting (P) Ltd v. CCE 2010(19) S.T.R. 384 (Tri-Del)]

Refund of Cenvat credit

85.121 Where the decision of the Tribunal, ordering refund of unutilized Cenvat credit to the assessee who had surrendered its registration due to the closure of the company was challenged, the High Court held that claim for refund cannot be rejected relying on r. 5 of Cenvat Credit Rules, 2002 when the assesee company has been closed and the assesee has opted out of the Modvat scheme. [Union of India vs. Slovak India Trading Co. Pvt. Ltd. (2008) 10 STR 101 (Kar.)]

85.122 Refund can be claimed in respect of unutilised cenvat credit on input services used in the manufacture of excisable goods exported even if they are otherwise ‘exempt’ or subject to ‘nil’ rate of duty..[Noble Grain India Pvt Ltd vs C.C.E 2010 (17) STR 128 (Tri-Del)]

Availment of Credit

85.123 Where the assessee took full credit based on the supplier’s invoice but subsequently received discounts from the supplier which effectively reduced the invoice price, the Tribunal held that, the assessee was not required to reverse proportionate credit on receipt of discounts unless the supplier had obtained a refund of duty from the Government. [Kedia Electricals Ltd. vs. CCE (2008) 11 STR 197 (Tri. - Bang.)].

85.124 Once the service tax has been paid by the supplier of services credit cannot be denied to the receiver by contending that service tax was not required to be paid by the supplier on the said service. [Maersk India Pvt. Ltd. vs. CCE (2008) 12 STR 150 (Tri-Mumbai); See also H.E.G Ltd vs CCE 2010 (17) STR 178 (Tri-Del); CCE v. Carborandum Universal Ltd. (2009) 16 STR 181 (Tri- Chennai)]

85.125 In this case the Tribunal held that:

(i) Where the appellants had paid the service tax as a recipient of the service they were entitled to take/avail the credit of the same. Such credit can be availed/taken for tax paid even before the appellant become registered as an output service provider since the tax is paid as a “deemed” output service provider.

(ii) Where there is no dispute as regards the fact that services have been received and payment of tax on the services so received denial of credit was not justifiable on the ground of non production of original invoice.

(iii) Where the service tax had been wrongly paid as a recipient of service under consulting engineers services instead of intellectual property right services at the instance of the department the availment of credit cannot be denied.

(iv) Credit of tax paid as an a recipient of services even before registering as an output service provider was available to be set off against output tax liability arising post registration.

[Jindal Steel & Power Ltd. vs. CCE (2009) 14 STR 68 (Tri-Del)]

85.126 Where the appellant initially claimed abatement (67%) on construction services and also availed the cenvat credit on input services [violating the condition in notification no. 1/2006 dated 1.3.2006] but subsequently reversed the cenvat credit on being pointed out, it was held that the appellant being entitled to the benefit of abatement, no penalty is imposable. [CST vs. Amola Holdings Pvt. Ltd Pvt. Ltd. (2009) 16 STR 46 (Tri. – Ahmd.)].

85.127 There is no time limit for taking cenvat credit. [Pierlite India Pvt. Ltd. vs. CCE (2010) 17 STR 237 (Tri-Ahmd.) relying on M/s. Coromandel Fertilizers Ltd. vs. CCE (2009) 239 ELT 99 (Tri-Bang.)]

85.128 Denial of credit of service tax paid on input service on the ground that the services were not received within the factory premises of the assessee is not sustainable. [CCE vs. Ultratech Cement Ltd. (2010) 20 STR 683 (Tri-Mumbai)]

85.129 Transfer of capital goods by the appellant to a job worker does not warrant any reversal of cenvat credit availed on said capital goods since the goods processed by the job-worker are received from the job-worker for further use in manufacture and the appellant always had option to avail the credit on capital goods as and when he receives back the Capital Goods [Rule 4(5)] thus, resulting in revenue neutrality. Further, service tax paid on telephone and security services of by job-workers would not be available for credit by the appellant. [Zenith Machine Tools Pvt. Ltd. vs. CCE ( 2010) 20 STR 554 (Tri. – Bang.)].

85.130 Cenvat Credit cannot be denied by questioning the assessment of service provider since it is beyond the jurisdiction of the authorities in-charge of the service recipient. [Hindustan Coca Cola Beverages Pvt. Ltd. vs. CCE (2010) 19 STR 280 (Tri-Del.)]

85.131 Penalty u/s 76 & 77 is not attracted for wrong availment of Cenvat credit. Further penalty under rule 15(4) of the credit Rules can be imposed only if Cenvat credit is taken wrongly by reason of fraud, collusion etc., with an intent to evade payment of service tax. [Sudhakar Polymers Ltd vs CCE 2010 (18) STR 635 (Tri-Bang.)]

85.132 Cenvat credit of service tax paid on input services is not conditional upon actual payment of tax/duty by the supplier and can be taken when the assessee has paid for the value and service tax. [Lason India Pvt. Ltd vs CST 2010 (18) STR 626 ( Tri-Chennai)]

85.133 The appellant manufacturer availing SSI exemption is allowed to avail the credit of input services since the exemption notification does not provide for bar on taking credit on input services as in the case of input goods. [Vallabh Vidyanagar Concrete Factory vs. CCE & C (2010) 18 STR 271 (Tri. – Ahmd.)]


Utilisation of cenvat credit

85.134 Where a manufacturer of goods who does not provide any output service, but is liable to pay service tax on Goods Transport Agency services as payer of freight, such goods transport agency services shall be deemed to be “output service” as per the Explanation to section 2(p) until 19.4.2006 and accordingly credit of service tax paid on any input service and/or credit of duty paid on any input or capital goods can be validly utilised for discharging service tax on such goods transport agency services. [R. R. D. Tex Pvt. Ltd. vs. CCE (2007) 8 STR 186 (Tri. – Chennai) relying on CCE v. Nahar Industrial Enterprises Ltd. (2007) 7 STR 26 (Tri-Del.); See also Andhra Pradesh Paper Mills Ltd. vs. CCE (2007) 8 STR 166 (Tri. – Bang.); CCE v. Visaka Industries Ltd. (2007) 82 RLT 559 (CESTAT – Mum.); Ambattur Petrochem Ltd. & Ors. v. CCE (2007) 82 RLT 922 (CESTAT – Del.); Soundararaja Mills Ltd. ‘E’ Mills vs. CCE (2008) 9 STR 183 (Tri. – Chennai); Bhushan Power & Steel Ltd. vs. CCE (2008) 10 STR 18 (Tri-Kolkata); CCE vs. Flowserve Microfinish Valves Pvt. Ltd. (2008) 10 STR 21; Nagammai Cotton Mills (P) Ltd. vs. CCE (2008) 10 STR 77 (Tri-Chennai) (Tri-Bang); CCE vs. Gupta Steel (2008) 12 STR 101 (Guj.); Scan Synthetics Ltd. vs. CCE (2008) 12 STR 766 (Tri. – Del.); CCE vs. Arvind Fashions Ltd. (2009) 13 STR 544 (Tri-Bang.); Mahindra Ugine Steel Co. Ltd. vs. CCE (2008) 12 STR 159 (Tri-Mumbai.) (These cases pertain to period prior to 19.4.2006)]

85.135 Where the appellants were engaged in manufacture of goods the Tribunal held that they were not entitled to treat the goods transport agency services obtained by them as an output service and utilise the balance in cenvat credit account for payment of service tax on goods transport agency services taking recourse to the erstwhile Explanation to section 2(p) of the Cenvat Credit Rules, 2004. [Alstom Projects India Ltd. vs. CCE (2008) 12 STR 23 (Tri-Chennai).

85.136 Cenvat credit in respect of basic excise duty can be utilised for payment of education cess under rule 3(7) of the Cenvat Credit Rules, 2004. [Sun Pharmaceutical Industries vs. CCE (2008) 11 STR 93 (Tri. – Del.)].

85.137 Service tax payable on the goods transport agency services by a service recipient can be paid by way of debit to cenvat credit account since GTA is deemed to be an output service [Selvakumar Spinners Pvt. Ltd. v. CCE (2009) 16 STR 406 (Tri. – Chen)].

85.138 Unutilized balance of service tax credit as on 10.9.2004 earned under the Service tax Credit Rules, 2002 can also be utilised towards payment of excise duty (and not only service tax) by virtue of the transitional provision envisaged under Rule 11 of the Cenvat Credit Rules, 2004. [Uttam (Bharat) Electricals (P) Ltd.vs. CCE (2010) 17 STR 240 (Tri-Del.)]

85.139 Rule 6(3)(c) – pre 1.4.2008: The appellant, a telephone service provider, provided taxable services (such as basic telephone connection) as well as exempt services (such as interconnection services to other telephone operators) and took credit of entire duty / tax paid (including duty paid on capital goods) on input services (including input services specified in rule 6(5) of the Cenvat Credit Rules, 2004). The department alleged excess utilisation of credit and restricted the credit to 20% of the output tax payable under the erstwhile rule 6(3)(c) of the Cenvat Credit Rules, 2004. The Tribunal held–

(i) the expression ‘exempted services’ covers not only the services taxable under Section 66 of the Act, which are fully exempt from service tax by some exemption notification issued under Section 93, but also those services which are not taxable under Section 66 of the Act. Hence interconnectivity services provided to other telephone operators is an exempt service even if it is otherwise not taxable and hence the appellant was providing taxable and exempt services thus attracting Rule 6(3)(c).

(ii) Rule 6(3)(c) of the Cenvat Credit Rules, 2004 i.e. restriction of 20% would not be attracted in case of credit availed on capital goods and input services mentioned in Rule 6(5).

(iii) If during certain months, the credit utilisation for payment of service tax was less than the 20% ceiling specified in Rule 6(3)(c) of Cenvat Credit Rules, 2002, the unutilised credit of those months can be adjusted against utilization in excess of the 20% ceiling, in other months.

[Idea Cellular Ltd. v. CCE (2009) 16 STR 712 (Tri. – Del.) See also Vijayanand Roadlines Ltd. vs. CCE (2007) 80 RLT 831 (CESTAT-Ban.)]


Rule 6(3)

85.140 Where the assessee provided taxable services as well as was engaged in trading activity, and availed Cenvat Credit on input services used for taxable services as well as trading activity, the Tribunal held that –

(i) Trading activity is nothing but purchase and sales and cannot be called a service and therefore it cannot be considered as exempted service.

(ii) Rule 6(2) and 6(3) of the Cenvat Credit Rules, 2004 only deal with a situation where service provider is providing taxable and exempted ‘services’. Since trading activity is not an exempted service rule 6 cannot be applied to such a situation.

(iii) The only obvious solution which would be legally correct appears to be to ensure that once in quarter or once in six months, the quantum of input service tax credit attributed to trading activity according to standard accounting principles is deducted and the balance only availed for the purpose of payment of service tax of output service. This proposition is not against the law in view of the fact that there are several decisions of various High Courts and also of the Tribunal wherein a view has been taken that subsequent reversal of credit amounts to non-availment of credit.

[Orion Appliances Ltd. vs. CST (2010) 19 STR 205 (Tri-Ahmd.)]

Reversal of credit and re-credit thereof

85.141 Recredit of wrongly reversed credit is admissible. [CCE & C v. Radha Krishna Synthetics Pvt. Ltd. (2007) 8 STR 190 (Tri. – Ahmd.)]

85.142 Where the respondent had voluntarily reversed the amount of credit at the instance of the department the Tribunal held that the Original reversal is a kind of deposit of disputed amount which needs to be confirmed by a formal order. As no further actions were initiated against the reversed amount the appellant was eligible to re-credit the amount of cenvat or refund. [CCE vs. Intricast Pvt. Ltd. (2008) 11 STR 107 (Tri-Mumbai)].

Transfer of Cenvat credit
85.143 Where the appellants transferred their factory from one place to another, the input credit can be allowed to be transferred to the new place without actual physical transfer of the inputs. [CCE vs. Smithkline Beecham Consumer Healthcare Ltd. (2008) 11 STR 446 (Tri-Chennai)]

85.144 Unutilised Cenvat credit on inputs and capital goods of a company which was merged with the appellant company is available to the appellant and no prior permission from the Deputy Commissioner was required under rule 10 of the Cenvat Credit Rules, 2004. [Kiran Pondy Chems Ltd. vs. CCE (2011) 22 STR 119 (Tri. – Che.)]


Denial of credit on account of procedural lapses

85.145 Prior to 16.6.2005, credit in respect of service tax paid on Goods Transport Agency services can be availed on the basis of TR-6 challans if no document was prescribed for taking credit especially when the service tax was paid and the assessee is otherwise entitled to credit. [CCE vs. Essel Pro-Pack Ltd. (2007) 8 STR 609 (Tri. – Mumbai); See also Gaurav Krishna Ispat (I) Pvt. Ltd. vs. CCE (2009) 13 STR 629 (Tri-Del.); CCE v. Shree Sidhbali Steel Ltd. (2009) 13 STR 284 (Tri. – Del.)]

85.146 Credit taken on the basis of the photocopy of the invoices is inadmissible. [CCE vs. Vandana Energy & Steel Pvt. Ltd. (2008) 9 STR 31 (Tri. - Del.)].

85.147 Cenvat credit on inputs cannot be denied merely on the ground of non-mentioning of registration number in the invoice where the receipt and consumption of goods and discharge of duty liability thereon is not in dispute. [Agarwal Industries vs. CCE (2008) 12 STR 223 (Tri-Del.)]

85.148 Where the assessee availed Cenvat credit in respect of services availed at premises not mentioned in the Registration Certificate [but which were subsequently endorsed in the Registration Certificate], the Tribunal held that the credit is not deniable. [Raaj Khosla & Co. Pvt. Ltd. vs. CST (2008) 12 STR 627 (Tri. – Del.)].

85.149 Credit of service tax availed on the basis of TR-6 challans cannot be denied since no document was prescribed for taking credit during the relevant point of time especially when the payment of service tax has not been denied. [Centaur Phamaceuticals P. Ltd. vs. CCE. (2009) 13 STR 171 (Tri. – Mumbai)].

67.1 Credit cannot be denied merely on failure to comply with the procedural requirements of mentioning the registration number of the Head office as Input service distributors [ISD] on the invoice especially when the rules for ISD were being implemented. [CCE vs. Jindal Photo Ltd. (2009) 14 STR 812 (Tri-Ahmd.)]

85.150 Credit availed on the basis of debit notes is inadmissible since u/r. 9(1) of the Cenvat Credit Rules, 2004, Cenvat Credit can be availed only on the basis of an invoice, supplementary invoice, challan or bill of entry. [Godrej Consumer Products Ltd. vs. CCE (2010) 20 STR 609 (Tri-Del.)]

85.151 Where the appellant had availed credit on the basis of invoices which were not in the name of their factory but in the name of head office the Tribunal held that in absence of any dispute about the receipt of services by the factory to whom credit has been passed the omission of the name of the factory in the invoice becomes a curable defect and is condonable. Hence credit is admissible. [Modern Petrofils vs. CCE (2010) 20 STR 627 (Tri-Ahmd.) relying on CCE vs. DNH Spinners (2009) 16 STR 418 (Tribunal)]

85.152 Where the appellant has centralised registration (centralized billing/ centralized accounting system) credit cannot be denied even if invoices of input services are issued in the name and address of its branches especially when the appellant has been discharging the entire service tax liability from its registered premises and has also made the payment from its registered premises for the value of input services received by its branch offices. [Manipal Advertising Services Pvt. Ltd. vs. CCE (2010) 19 STR 506 (Tri-Bang.)]

85.153 The assessee availed taxable services from service providers who were not registered and invoices raised by them did not bear any registration number. However, the service providers registered themselves subsequently and assessee paid service tax on the supplementary invoices issued by them. It was held that credit cannot be denied on the basis that at the time of receipt of input services, the service providers were not registered where there was no dispute that the input services were received and used for providing output services. [Secure Meters Ltd. vs CCE 2010 (18) STR 490 (Tri-Del.)]

Interest

85.154 Interest would be payable only if wrongly taken credit is utilised and not where the credit remains unutilised. [C.C.E vs. Jagatjit Industries Ltd 2010 (17) STR 137 (Tri-Del) See also Ganta Ramanaiah Naidu vs CCE 2010 (18) STR 10 (Tri-Bang.)]

85.155 Where the assessee had reversed the entire credit taken before utilising the same the High Court held that no interest would be payable for taking credit in terms of rule 14 of the Cenvat credit Rules, 2004 read with section 11AB of the Central Excise Act, 1944 since –

(a) if amount credited in Cenvat account but is not utilised in making payment of excise duty on final products there would be no consequences since neither the assessee gets any advantage nor the revenue suffers any loss since it does not amount to improper or non-payment of duty.

(b) if credit is reversed before utilisation it amounts to not taking credit [CCE vs. Bombay Dyeing and Manufacturing Company Ltd. (2007) 215 ELT 3 SC)]. Once credit is reversed before its utilization it does not amount to taking credit. Accordingly Rule 14 of the Cenvat Credit Rule read with Section 11AB would not be attracted.

[CCE vs. Asoka Metal Decor (P) Ltd. (2011) 21 STR 469 (All.)]

Input Service Distributor

85.156 Where the Head office of the assessee company paid for certain input services consumed in unit ‘A’ it was held that the Head Office can validly distribute the credit on such services even to unit ‘B’ in absence of a specific prohibition in rule 7 of the Cenvat Credit Rules, 2004 [ECOF Industries Pvt. Ltd. vs. CCE (2010) 17 STR 515 (Tri-Bang.)].

85.157 Where the appellant, a manufacturer, had availed the credit of tax paid by its depot at Jaipur against the tax liability of its manufacturing unit at Kolkata, the Tribunal held that in absence of registration of its Jaipur depot as an input service distributor the credit of service tax availed on services received by Jaipur depot could not be set-off against the tax liability of unit at Kolkata. [Khaitan Electricals Ltd v. CCE (2011) 21 STR 184 (Tri-Kolkata)]

85.158 The registration of an input service distributor (ISD) was made mandatory w.e.f. 16.6.05 under Notification no. 27/05 dated 7.6.05 which provided that the ISD shall make an application for registration within 30 days from the date of commencement of business or 16.6.05 whichever is later. Thus, where an existing entity made an application for registration on 13.7.05 i.e. within 30 days from 16.6.05 and got its registration on 18.7.05, the Tribunal allowed the distribution of credit vide invoice dated 1.7.05 (i.e. prior to the date of its registration). [CC & CE vs. Grasim Industries (2010) 20 STR 513 (Tri. – Del.)]