2023 (10) TMI 886 - AT - Service Tax

Appeals Partially Allowed: Penalties Under Sections 76, 77, 78 Set Aside; No Tax Evasion Intent Found

The Tribunal partially allowed the appeals, setting aside penalties under Sections 76, 77, and 78, while confirming the duty, liability, and interest for ... Levy of service tax along with interest and penalties - sale and supply of food as well as beverages in the multiplex theatre premises - declared services or not - Constitutional validity of the provision introduced under Section 66E of the Finance Act, 1994 - vires of Rule 2C of the Service Tax (Determination of Value) Rules, 2006 - extended period of limitation. HELD THAT:- A bare reading of sub sub-section (i) and (ii) of Section 65B(44)(a) would clearly indicate that transfer of goods by way of sale etc. as well as transfer, delivery or supply of goods as explained under Clause 29A of Article 366 ‘as deemed sale’ are not services within the definition of Section 65B(44) of the Finance Act, 1994. Having gone through the definition of service, one would be tempted to find out the provisions contained in Clause 29A of Article 366 of the Constitution that explained as to what kind of transfer, delivery or supply of goods were treated as deemed sale and not subjected to Service Tax. To ensure that for both sale of food/drinks and its associated services required to be extended in a Restaurant but the payments collected by way of sales tax would go to the State Exchequers and primarily for this reason Composite activity of both sale and service were put under the category of ‘deemed to be sale’. The issue of taxability on food items has covered a checkered path and no definite reason can be attributed to it as to why the item is sometimes considered as sale of goods or service offered during supply of goods - introduction of Section 66E(i) in Finance Act, 1994 w.e.f. 1st July, 2012 read with mega exemption Notification No. 25/2012-ST dated 20th June, 2012 that exempted payment of Service Tax by Restaurants, eating joints or mess providing service in relation to food or beverages other than those having facilities of air conditioning or central air heating at any part of the establishment and subsequent Circular No. 334/3/2011 & Circular No. 173/8/2013 on Service Tax that had pin pointed on the exact nature of service offered in specific type of Restaurant, so as to cover them under Service Tax network would go to say that sale of food is completely separated from the rest of services associated with it to make the same complete and thereby the deeming provision attached to such sale is taken away without making any alteration or amendment in the Constitutional provision. There are two other legal issues raised by the Appellant that would be dealt in determining the legality of the levy of Service Tax on it. Appellant has contended that when VAT on the entire value has been discharged by the Appellant, Service Tax is not leviable - having regard to the fact that validity of payment of Service Tax on supply of food in air condition ambiance in a Restaurants being held to have assumed predominance over sale of food, Appellant is liable to pay Service Tax on the service component determined through abatement procedure. The other contention of the Appellant is that the subsequent show-cause notices issued by the jurisdictional Commissioner for the remaining period were issued wrongly under Section 73(1)A of the Finance Act, 1994 by referring to and relying on the earlier show cause notice originally issued by the DGCI which is not in conformity to the wordings available in Section 73(1A) that pre-supposes that the same Central Excise Officer is authorised to issue subsequent notice under Section 73(1A) and, therefore, the entire proceeding was initiated by an authority having no jurisdiction to issue showcause notice - It is refrained from given any finding on the issue as the Appellant was not able to substantiate that in such a circumstances the entire proceeding would be vitiated except placing reliance on the decision of the Hon'ble Supreme Court in DEEPAK AGRO FOODS VERSUS STATE OF RAJASTHAN AND OTHERS [2008 (7) TMI 553 - SUPREME COURT] where in it was observed that the said issue is required to be decided at the first instance, apart from the fact that allegation in detail is also found reflected in the subsequent show-cause notice issued on 27.09.2018 and show-cause notice dated 06.04.2016 issued by the Commissioner, which were apparently based on showcause notice dated 08.10.2014 while no indication is available in show-cause notice dated 06.04.2015 that it was issued U/s 73(1A) of the Finance Act, 1994. Time limitation - Appellants has urged limitation as a ground for non-sustenance of the allegations raised in the show cause notice - HELD THAT:- Having regard to the submissions and points urged by the Appellant before the Adjudicating Authority which would go clearly to justify non-payment of Service Tax for the past period was not intended for tax evasion as after introduction of Section 66E(i) of the Finance Act, 1994, representation had been filed not only by Multiplex Association of India but by the Appellant himself in its individual capacity on 26.03.2013 before the CBEC seeking clarification as regards to applicability of Service Tax on food and beverages sold by the Appellants and the same representation remained unanswered till Appellant received the show-cause notice for the period October, 2015 onwards (para - 1.11 and para - 1.12) of the Order-in-Original). Therefore, the charge of suppression of fact with intention to evade payment of tax cannot be fastened against the Appellant even though it was diligently pursuing the matter before a wrong forum like CBEC and not before the concerned Commissionerate - extended period cannot be invoked. Penalties - HELD THAT:- No penalty against CFO Mr. Upen Shah could be made out from the order of the Commissioner since it is not found from the said order about the exact nature of allegation concerning his involvement or his personal knowledge about the same as could be noticed from his order, besides the fact that they were waiting for the CBEC response to their query on taxability of sale of food made by them - Penalties against the Appellants company under Section 75 & 76 could also not stand for the reason aforesaid. Appeal allowed in part. Issues Involved:1. Levy and confirmation of Service Tax demand with interest and penalties on the sale and supply of food and beverages in multiplex theatre premises.2. Constitutional validity of Section 66E of the Finance Act, 1994 vis-à-vis Rule 2C of the Service Tax (Determination of Value) Rules, 2006.3. Applicability of VAT and Service Tax on the same transaction.4. Jurisdictional validity of subsequent show-cause notices.5. Limitation and suppression of facts with the intent to evade tax.Summary:1. Levy and Confirmation of Service Tax:The Appellants, engaged in operating cinema multiplexes and selling food and beverages, were issued show-cause cum-demand notices for Service Tax under Section 66E(i) of the Finance Act, 1994. The Commissioner confirmed the duty, interest, and penalties for the periods in question, which were contested in these appeals.2. Constitutional Validity:The definition of 'service' under Section 65B(44) of the Finance Act, 1994, excludes activities deemed as 'sale' under Article 366(29A) of the Constitution. The Tribunal examined whether Section 66E(i) of the Finance Act, 1994, contradicts Article 366(29A)(f). The Tribunal noted that the constitutional provision treats the supply of food as 'deemed sale,' thus questioning the validity of imposing Service Tax under Section 66E(i).3. Applicability of VAT and Service Tax:The Tribunal acknowledged that VAT and Service Tax are mutually exclusive. The Appellant paid VAT on the entire transaction amount, believing it to be a sale of goods. However, the Tribunal found that the service component in an air-conditioned restaurant setting could still be taxed under Service Tax, as per the Finance Act and related notifications.4. Jurisdictional Validity:The Appellant argued that subsequent show-cause notices were improperly issued under Section 73(1A) by different authorities. The Tribunal refrained from ruling on this issue due to insufficient substantiation by the Appellant and the detailed allegations in the subsequent notices.5. Limitation and Suppression of Facts:The Tribunal found no intent to evade tax by the Appellant, as they were awaiting clarification from CBEC. The Tribunal held that the charge of suppression of facts with intent to evade tax could not be sustained, and penalties against the Appellant and the CFO, Mr. Upen Shah, were set aside.Order:1. Appeal in ST/86675/2018 partially allowed, setting aside penalties under Sections 76, 77, and 78, confirming duty, liability, and interest for the normal period.2. Appeal in ST/86671/2018 allowed, setting aside the personal penalty on Mr. Upen Shah.3. Appeal in ST/86106/2019 partially allowed, setting aside penalties under Sections 76 and 77, confirming duty, liability, and interest for the normal period.Consequential relief shall follow.Order pronounced in the open court on 18.10.2023.