2018 (1) TMI 1463 - Commission - Service Tax

Settlement Commission's Limits in Service Tax Disputes: Case Remanded for Detailed Adjudication

The case involved disputes regarding non-payment of Service Tax, eligibility for exemptions, classification of services, cum-tax benefit claims, ... Maintainability of application before settlement commission - contentious issue - Whether the applicant is eligible for exemption in respect of Erection, Commissioning or Installation services which is sought to be classified under the Works Contract Services in the SCN as it involved transfer of property in goods so as to deny the benefit of exemption under Notification No. 25/2012-S.T. for the period after 1-7-2012? The applicant’s contention is that Sl. No. 12 of the mega exemption Notification No. 25/2012-S.T., dated 20-6-2012 clearly excludes services provided to Government authority by way of construction, erection, commissioning, installation of canal, dam or other irrigation works and laying of Pipelines conduit for water supply or water treatment and the same are eligible for exemption which is rejected by the Commissioner on the ground that the services rendered to M/s. KBJNL, a Govt., of Karnataka undertaking fall under the category of “Works Contract Service” and as such being a declared service under Section 66E(h) of the Finance Act, 1994 is not eligible for exemption under clauses (d) & (e) of Sl. No. 12 of the Notification No. 25/2012-S.T. Held that:- The Bench is of the considered view that Settlement Commission is not the forum to decide upon contentious issues, by evaluating the evidences let in by the rival parties to the proceedings. Such an act would tantamount to the Settlement Commission adjudicating upon the notice, based on the submissions made by the rival parties to the proceedings. It is now a well settled proposition that the Settlement Commission is not an adjudicating authority. It is only an arbitration forum where a dispute is settled in the interest of both the parties within the framework of law. This principle has clearly been enunciated by the Hon’ble High Court of Bombay in the case of Amrut Ornaments [2014 (3) TMI 418 - BOMBAY HIGH COURT]. The Bench observes that the case is not one that can be settled in this Forum in view of rival claims, leading to total divergence on facts and on law, which fall under the domain of adjudicating authority. The Bench observes that the issue of analysing the facts, interpretation of legal provisions and exemption notification and consequently determining the tax liability or otherwise of services merely on the basis of claims made by the applicant vis-a-vis the counter claims made by the department cannot be decided in this forum as in an adjudication proceeding - The case on hand, the Bench observes, involves both disputed questions of fact and law. Hence, it would be more appropriate that the case is adjudicated upon by the proper adjudicating authority after appreciation of facts and evidence let in by the applicant and pass order by following the due process of law. The Bench, by virtue of the powers vested in it in terms of Section 32L of the Central Excise Act, 1944, made applicable to Service Tax matters under Section 83 of the Finance Act, 1994 rejects the case and sends the case back to the adjudicating authority for adjudication in accordance with the provisions of the law. Issues Involved:1. Non-payment of Service Tax.2. Eligibility for exemption under Notification No. 25/2012-S.T.3. Classification of services as 'Works Contract Service' or 'Commercial and Industrial Construction Service.'4. Claim of cum-tax benefit.5. Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.6. Jurisdiction of Settlement Commission to decide contentious issues.Issue-wise Detailed Analysis:1. Non-payment of Service Tax:The applicant, a partnership firm, was involved in laying Optical Fibre Cable (OFC) and underground pipelines. Based on third-party information, it was found that the applicant had received substantial amounts as contract receipts but did not pay Service Tax during 2012-13. A Show Cause Notice (SCN) dated 18-4-2016 demanded Service Tax amounting to Rs. 80,15,727/- along with interest and proposed penalties. The applicant admitted a liability of Rs. 72,19,719/- but disputed the balance amount, claiming exemptions.2. Eligibility for Exemption under Notification No. 25/2012-S.T.:The applicant argued that services related to irrigation projects and laying pipelines for water supply were exempt under Notification No. 25/2012-S.T. The jurisdictional Commissioner, however, rejected this claim, asserting that the services fell under 'Works Contract Service' involving transfer of property in goods, thus not eligible for exemption. The applicant maintained that even if the services were classified as 'Works Contract Service,' they should still be exempt under clauses (d) and (e) of Sl. No. 12 of the Notification.3. Classification of Services:The SCN classified the services as 'Works Contract Service,' while the applicant contended they were 'Commercial and Industrial Construction Service' prior to 1-7-2012 and exempt post-1-7-2012 under Notification No. 25/2012-S.T. The Commissioner argued that the services involved transfer of property in goods and were thus 'Declared Service' under Section 66E(h) of the Finance Act, 1994, making them ineligible for exemption.4. Claim of Cum-tax Benefit:The applicant claimed cum-tax benefit for services rendered to BSNL, Goa, arguing that they had not collected Service Tax despite charging it in the invoices. The Commissioner agreed to extend cum-tax benefit wherever the applicant could prove with documentary evidence that Service Tax was not collected.5. Imposition of Penalties:The SCN proposed penalties under Sections 77 and 78 of the Finance Act, 1994. The applicant argued that there was no suppression of facts with intent to evade tax and that penalties should not be imposed. The Commissioner countered that the applicant had collected Service Tax but failed to remit it on time, justifying the imposition of penalties.6. Jurisdiction of Settlement Commission:The Bench concluded that the Settlement Commission is not the appropriate forum to decide contentious issues involving disputed facts and interpretations of law. The role of the Commission is to settle disputes, not adjudicate them. The Bench cited several High Court judgments supporting this view, emphasizing that the Settlement Commission cannot substitute itself for the adjudicating authority.Findings and Decision:The Bench found that the issues involved required detailed examination and adjudication by the proper authority. The case was rejected and sent back to the adjudicating authority for a decision in accordance with the law. The adjudicating authority was instructed to proceed as if no settlement application had been filed. The Bench emphasized that the Settlement Commission is not an adjudicating body and cannot resolve complex factual and legal disputes.Order:The application was rejected, and the case was referred back to the adjudicating authority for a thorough examination and decision. The adjudicating authority was directed to handle the case as if no settlement application had been filed. Copies of the order were provided to the applicant and the jurisdictional Commissioner for implementation.