2022 (8) TMI 646 - AT - Service Tax

Appellant's Explosives Supply Not Taxable, Tribunal Rules

Sardar Trading Company Versus C.C.E. & S.T. -Rajkot

The Tribunal held that the appellant's activity of supplying explosives constituted a sale of goods and not a provision of service. As a result, the ... Nature of activity - sale or service - Non-payment of service tax - Service Tax registration not obtained - Site formation, clearance, excavation, earth moving and demolition’ services - supply and use of explosive to buyers at their side - reliability on statements of Shri Milesh D. Joshi, partner of appellant recorded under Section 14 of the Central Excise Act, 1994 - cross examination of witness not allowed - admissibility of evidences in terms of provision of Section 9D of Central Excise Act, 1944 applicable for service tax in terms of Section 83 of the Finance Act, 1944 - principles of natural justice - extended period of limitation. The appellant’s main argument is that they have not provided any service whereas they have sold the goods namely explosives to their customers on principle to principle basis, hence no services are involved. HELD THAT:- The entire activity of the appellant is sale of Explosives. It is observed that the revenue has demanded the Service Tax on the total invoice value which is of sale invoice and it is issued against sale of the explosives. No bifurcation was provided in the invoice such as sale of goods and service charge. With this undisputed fact it is clear that the appellant have raised the invoices for the entire value only for sale of goods on the total sale value. The appellant have discharged the VAT on actual sale value of goods and not even on composition scheme like Works Contract Tax (WCT). The appellant have paid the entire VAT to the State Government. They have also booked the transaction in their profit loss account as sale of goods only. Accordingly it is clear that the appellant have sold the explosives and no any additional consideration was recovered towards any service. The contention of the revenue is based on the fact that the appellant have supplied the explosives in their own vehicle and the same was delivered at site. The goods were meant for blast at the particular place where the blasting was to be carried out. Therefore, the appellant have not only supplied the explosive but also carried out the blasting. Therefore, the revenue’s contention is that the appellant have provided the service of ‘site formation, clearance, excavation, earth moving and demolition’. In this regard, it is found that since the appellant have raised the said invoice towards the supply of explosives and paid the VAT on the entire amount and no extra consideration towards the service was recovered the entire value recovered by the appellant from their client is indeed a sale value. Hence, no amount towards the service charge was recovered, therefore even if some incidental activity was carried out by the appellant, the overall transaction cannot be taken away from the transaction of sales in terms of sale or goods act. It is found from the fact on record that the “Shot Firers” are independent and technical expert to carry out the blasting, they are licensed with the Government’s Department of explosives. The revenue has not adduced any evidence to show that the “Shot Firers” were acting as an agent of the appellant. Therefore, the “Shot Firers” job was carried out not on the behalf of the appellant but on behalf of the buyer of the goods - From the affidavit of the “Shot Firers” it is abundantly clear that the “Shot Firers” are not working on behalf of the appellant whereas they were deputed by the purchaser of the explosives for carrying out the blasting and for which they were paid the required consideration. In this fact the entire basis of the revenue that the “Shot Firers” have acted on behalf of the appellant is far from truth. Hence the entire foundation of the case gets demolished. The activity undoubtedly is of sale of goods. The sale of goods does not attract Service Tax either before 01.07.2012 and subsequent thereto. Post 01.07.2012 the definition of individual service was done away, the new definition of service was introduced under Section 65B (44)(a)(i) of the Finance Act, 1944 - From the new definition of Service it can be seen that any activity carried out by a person for another for consideration and includes a declared service is defined as “service”. As per sub clause (a) (i) of section 65 (B) (44) activity of a transfer of title in goods by way of sale gift or in any manner is not included in the transfer “Service.” Thus, the appellant’s activity which is undoubtedly falling into the activity of trading is not liable to Service Tax. Without prejudice, we also find that even if it is assumed that the appellant’s activity is a composite works contract service but the facts remains, the appellant have paid VAT on the entire value, the same should be treated as a deemed sale. In terms of Section 65B(44) (a)( ii) an activity which constitutes such transfer/delivering or supply of any goods, which is deemed to be a sale within the meaning of Clause (29 A) of Article 366 of Constitution. Therefore, even if these activities considered as service but there is no dispute that the appellant have raised the sale invoice and paid the VAT in such case as per the above Section 65B (44) (a)(ii). the activity being a sale is also excluded from the definition of service, for this reason also the activity of the appellant shall not be chargeable to Service Tax. Reliability on statements - HELD THAT:- In the peculiar facts of the present case, since all the documentary evidences established that the transaction is in the nature of sale, even if the partner of the appellant stated something which suits the revenue will not help the revenue for the reason that it is clearly contrary to the documentary evidences. It is also submission of the appellant that the statements of the partner were recorded under duress and pressure - The appellant during the adjudication disputed the statement and submitted that the said statement may not be used in proceeding. In this position we are of the clear view that even the version of the statement of the partner being contrary to the documentary evidences. It was incumbent on the Adjudicating Authority to cross examine the witness Shri Milesh Joshi partner in terms of Section 9D of the Central Excise Act. Violation of principles of natural justice - HELD THAT:- By not allowing Examination and Cross Examination of witness u/s 9D of Central Excise Act 1944, the adjudicating authority has destroyed case of Revenue. The entire case of Revenue has been vitiated in these proceedings, making the Service Tax demand unsustainable for violation of the Principles of Natural Justice. Except statements of Partner shri Milesh D. Joshi (witnesse), there is nothing on record to establish case of Revenue. Thus, when Adjudicating Authority has neither examined partner Milesh Joshi u/s 9D ibid nor allowed his cross examination, then, all such statements need not be considered as valid evidences and consequently, Service Tax demands based thereon deserves to be dropped in facts of the cases. This Hon'ble Tribunal at Ahmedabad in case of M/S. SAKEEN ALLOYS PVT. LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE AHMEDABAD [2013 (7) TMI 535 - CESTAT AHMEDABAD] Affirmed in COMMISSIONER OF CENTRAL EXCISE VERSUS SAAKEEN ALLOYS PVT. LTD. [2014 (5) TMI 606 - GUJARAT HIGH COURT] and Maintained in COMMISSIONER VERSUS SAAKEEN ALLOYS PVT. LTD. [2015 (10) TMI 558 - SC ORDER] has held that there needs to be positive evidence for establishing the evasion, and that confessional statement in absence of any cogent positive evidence cannot make the foundation for levying the excise duty on the ground of evasion of tax - From the above settled law viz-a-viz the facts of the present case, the statement in the present case has no evidentiary value, hence the same is discharged. Thus, it is beyond any doubt that the appellant have carried out the activity of sale of goods. Hence, the same will not fall under the category of any service. The service Tax demand, interest and penalties not sustainable on this ground. The appellant have raised other issues such as limitation etc - appeal allowed. Issues Involved:1. Whether the activity of the appellant for supply of explosives is a sale or provision of service.2. Whether the appellant is liable to pay Service Tax on the said activity.3. Validity of reliance on statements recorded under Section 14 of the Central Excise Act, 1994.4. Applicability of VAT and its implications on the transaction.5. Admissibility of evidence and compliance with Section 9D of the Central Excise Act, 1944.6. Whether the demand is barred by limitation.7. Imposition of penalties.Detailed Analysis:1. Nature of Activity (Sale or Service):The appellant argued that their activity was purely the sale of explosives, governed by the Explosive Rules, 2008, and involved no service provision. They issued invoices with applicable VAT paid on the entire value, indicating a sale transaction. The appellant transported and delivered explosives to buyers, who independently engaged licensed 'shot-firers' for blasting operations. The Tribunal examined various documents, including licenses, purchase and sales invoices, VAT registration, and returns, which confirmed that the entire activity was indeed a sale of explosives with VAT paid on the full value. The Tribunal concluded that no service was involved, and the appellant's activity was purely a sale of goods.2. Liability to Pay Service Tax:The revenue contended that the appellant provided the taxable service of 'site formation, clearance, excavation, earth moving, and demolition.' However, the Tribunal found that the appellant had raised invoices only for the sale of explosives and had not charged any additional consideration for services. The Tribunal held that since the entire value represented the sale of goods, no service was involved, and thus, the appellant was not liable to pay Service Tax.3. Validity of Statements:The appellant contended that the statements of their partner, recorded under duress and without proper understanding of English, were not reliable. The Tribunal noted that the statements were exculpatory and contradicted by documentary evidence. The Tribunal emphasized the necessity of cross-examining the witness as per Section 9D of the Central Excise Act, 1944, which was not done. Consequently, the statements were deemed inadmissible.4. Applicability of VAT:The appellant paid VAT on the entire transaction value, indicating a sale of goods. The Tribunal confirmed that the entire activity was subject to VAT, reinforcing that it was a sale and not a service. The VAT returns and payments further substantiated this position.5. Admissibility of Evidence and Compliance with Section 9D:The Tribunal highlighted the mandatory requirement of cross-examining witnesses under Section 9D of the Central Excise Act, 1944, to admit their statements as evidence. The failure to comply with this provision rendered the statements inadmissible. The Tribunal cited several judgments supporting this view, including those from the Hon'ble Supreme Court and High Courts.6. Limitation:The appellant argued that the demand was barred by limitation, as there was no deliberate attempt to evade Service Tax. The Tribunal did not address this issue in detail, as the primary ground of decision was the nature of the activity being a sale.7. Imposition of Penalties:The appellant contended that there was no willful action to evade Service Tax, and similar entities were not subjected to such demands. The Tribunal, having concluded that the activity was a sale and not a service, found the imposition of penalties unsustainable.Conclusion:The Tribunal set aside the impugned orders, concluding that the appellant's activity was purely a sale of goods and not a provision of service. Consequently, the demand for Service Tax, interest, and penalties were not sustainable. The appeals were allowed with consequential relief.