2014 (11) TMI 624 - AT - Service Tax

Indian Navy maintenance services exempt under Notification 31/2010, gross receipt tax not disqualifying.

Patel Engineering Works Versus Commissioner of Central Excise, Customs and Service Tax Visakhapatnam-I

The Tribunal ruled in favor of the appellant, allowing the exemption for maintenance and repair services provided to the Indian Navy under Notification ... Maintenance and repair service rendered to Indian Navy - Levy of tax on gross value received for the services provided by them - Discharge of liability only on a notional percentage - Penalty u/s 76 & 77 - Exemption under Notification No. 31/2010-ST dated 22.06.2010 - Held that:- Once the amount is collected and billed as service tax, it has to be paid to Government and in this case it has been rightly paid. Nevertheless just because an assessee shows some amount as service tax, collects the same and pays it to Government, if the whole activity is not liable to tax, just because he paid the tax would not render him ineligible for such exemption. Therefore we find that the decision taking a view that exemption notification benefit is not available to the appellant in respect of services rendered to Indian Navy cannot be sustained. for the balance portion of the demand, the matter has to be remanded to the original authority - Decided in favour of assessee. Issues Involved:1. Calculation of service tax liability based on gross value received.2. Eligibility for exemption under Notification No. 31/2010 for services provided to Indian Navy.3. Discharge of service tax on a portion of gross receipt affecting exemption eligibility.4. Consideration of spares used for maintenance/repair in tax liability.5. Remand for fresh adjudication on unresolved issues.Analysis:Issue 1: Calculation of service tax liability based on gross value receivedThe impugned order in this case confirmed a demand for service tax against the appellant for the period 2011-12, citing short levy due to the appellant not paying service tax on the entire gross value received for services provided. Penalties under Section 76 and Section 77 were also imposed. The learned counsel argued that the appellant's services for Indian Navy maintenance and repair were exempt under Notification No. 31/2010. The Tribunal found the decision to deny the exemption based on partial tax payment unfair, stating that paying tax on a portion of gross receipt should not render the appellant ineligible for the exemption.Issue 2: Eligibility for exemption under Notification No. 31/2010 for services provided to Indian NavyThe Tribunal held that the appellant should be eligible for the benefit of the exemption notification for services rendered to the Indian Navy, despite collecting and paying service tax on a portion of the gross receipt. The Tribunal emphasized that the mere payment of tax should not disqualify the appellant from the exemption if the entire activity is not taxable.Issue 3: Discharge of service tax on a portion of gross receipt affecting exemption eligibilityThe Tribunal found the decision denying the appellant the benefit of the exemption due to collecting service tax on a portion of the gross receipt and paying it to the government as incorrect and unfair. It was established that the appellant's payment of tax on a portion of the gross receipt should not affect their eligibility for the exemption under Notification No. 31/2010.Issue 4: Consideration of spares used for maintenance/repair in tax liabilityThe Tribunal noted that the appellant had shown the value of spares used for maintenance/repair in invoices and detailed statements. This evidence indicated eligibility for the benefit of Notification No. 12/2003. The matter was remanded for the original authority to consider this aspect based on the evidence provided by the appellant.Issue 5: Remand for fresh adjudication on unresolved issuesThe Tribunal set aside the impugned order, allowing the exemption for maintenance and repair services to the Indian Navy as per Notification No. 31/2010. The unresolved issues related to services provided to vessels not owned by the Indian Navy were remanded to the original adjudicating authority for fresh adjudication, emphasizing the importance of following principles of natural justice in the process.