2024 (1) TMI 451 - AT - Service Tax

Service tax upheld on lease rental income from earth station equipment under Section 78 with penalties confirmed

CESTAT Allahabad upheld service tax demand on appellant for lease rental income from earth station equipment under Supply of Tangible Goods Services ... Invocation of Extended period of limitation - suppression of facts or not - supply of the tangible goods services - it is alleged that appellant had knowingly evaded payment of the service tax on rental income/ lease income of earth station and related equipment - CENVAT credit of input services for providing their output service namely the 'Business Auxiliary Services' - input services or not - HELD THAT:- In terms of the definition as per Section 65 (105) (zzzzj) of the Finance Act, 1994, the taxable service is in respect of supply of goods for use by one person to another person without transferring the ownership, control and possession of the goods to the other person. Before proceeding further in the matter what is necessary is to take the note of the appellant and the parties involved in the transactions undertaken by the appellant. It is the submission of the appellant M/s SICC has a unit “Sahara India TV Network (SITV)”, engaged in broadcasting “Sahara” channel on TV. SICC earns income by way of sale of time slots for advertisement on this channel. Appellant has been outsourced all the activities by SICC relating to distribution i.e., for broadcasting its channel through network of cable operators. The instant agreement fulfils the condition of taxable service by way of supply of tangible goods including machinery, equipment and appliances for use (earth station and related equipment in the instant case), without transferring right of possession and effective control of such machinery, equipment and appliances. The registration certificate of the utility van, which was a part of the equipment leased out, was registered in the name of appellant on 29.12.2008 and remains under their control, as shown in the fitness certificate issued by the Transport Department of Uttar Pradesh on 26.06.2014 - there are no merits in the submissions of the appellant that they entered into agreement with the lessee, whereby the effective ownership control and possession was also transferred to the lessee. From the terms of agreement and stipulations, the assets were made available to the lessee for use without transferring the effective control and possession over the said assets to the lessee and hence the service tax under the category of “Supply of Tangible Goods Services” has been rightly demanded from them. Appellant has during the entire period of dispute not paid applicable service tax on such activity i.e. lease rent, carried out by them was not deposited to the government exchequer, with the intent to evade payment of the service tax. They have also not incorporated the details of the incomes earned on this account in their ST-3 returns thus suppressed the facts from the department. These fact come to the knowledge of the department only at the time of visit/search of the of the premises of the appellant and after making investigations in this respect. Thus appellant have had deliberately suppressed the facts from the department with the intent to escape the service tax payments. Thus, the proviso to Section 73 (1) of the said Act for invoking the extended period of time was found to be applicable in the instant issue along with the penalty under Section 78 of the said Act for suppressing the facts. CENVAT Credit - input services or not - HELD THAT:- Appellant was fully aware of taxability of such transactions and have thorough out taken the CENVAT Credit in respect of these inputs services. The act of taking the credit respect of these input without payment of service tax on the output services clearly show the intention of the party to evade payment of service tax in respect of the lease amount recovered by them from SICC by suppressing the facts of lease from the department - these output services are taxable under the category of “Supply of Tangible Goods Services” it is held that CENVAT Credit in respect of these four input services namely, Space Segment Charges, Training Service & Installation, Freight & Cartage, Vehicle Maintenance, Insurance Charges and Internal Audit fee will be admissible to the appellant. However are not in position to admit the claim of the appellant towards “Chartered Flight hiring” as admissible credit. Nothing has been stated by the appellant as to how this service was used for providing the output services provided by them - the impugned order upheld to the extent of denying the credit to the tune of Rs 16,80,000/- in respect of these services. Invocation of extended period of limitation - HELD THAT:- The same is invokable in the present case as the appellant was suppressing the facts with intent to evade payment of service tax. Interest - HELD THAT:- Issue in respect of interest has been settled by the Bombay High Court in case of COMMISSIONER OF CENTRAL EXCISE & CUSTOMS,, AURANGABAD. VERSUS M/S PADMASHRI VV PATIL SAHAKARI SAKHAR KARKHANA LTD. [2007 (7) TMI 6 - BOMBAY HIGH COURT] wherein it has been held that we are unable to agree with the proposition that interest u/s. 11AB is also not chargeable in case the short duty or unpaid duty is deposited with the Government before issuance of show cause notice. Penalties - HELD THAT:- As it is held that appellant to be guilty of suppression with intent to evade payment of tax, penalty under Section 78 needs to be imposed mandatorily - While upholding the penalties imposed under Section 78, the amounts confirmed earlier upheld - there are no merits in the submissions made by the appellant in respect of the penalties imposed upon them under Section 77 (1)(a) & (2) of Finance Act, 1994. Appeal allowed in part. Issues Involved:1. Whether the leasing out of earth station and related equipment qualifies as taxable service under 'Supply of Tangible Goods Services.'2. Whether the demand of service tax amounting to Rs. 9,00,01,588/- is recoverable along with interest.3. Whether the CENVAT credit of Rs. 2,27,05,076/- is disallowable and recoverable along with interest.4. Whether penalties under Section 78 and Rule 15(3) of the CCR, 2004, are imposable.5. Whether penalties under Section 77(1)(a) and Section 77(2) of the Finance Act, 1994, are imposable.Summary:1. Leasing Out Earth Station and Related Equipment to M/S SICCL:The Tribunal examined the agreement between the appellant and M/s SICCL, noting that the appellant retained ownership and control over the leased assets. The agreement clauses indicated that the lessee did not have exclusive control or possession, fulfilling the definition of 'Supply of Tangible Goods Services' under Section 65(105)(zzzzj) of the Finance Act, 1994. The appellant's contention that they transferred the right to use was rejected based on the agreement's terms and the Supreme Court's criteria in Bharat Sanchar Nigam Ltd. and other cases.2. Demand of Service Tax:The demand of Rs. 9,00,01,588/- for the period 2009-10 to 2013-14 was upheld. The Tribunal found that the appellant evaded service tax by not disclosing the income from leasing in their ST-3 returns and suppressing facts from the department. The extended period of limitation under Section 73(1) was invoked due to deliberate suppression of facts.3. CENVAT Credit:The Tribunal disallowed the CENVAT credit of Rs. 2,27,05,076/- availed on input services, finding no nexus with the output service provided. However, credit for Space Segment Charges, Training Service & Installation, Freight & Cartage, Vehicle Maintenance, Insurance Charges, and Internal Audit fee was allowed, except for Chartered Flight hiring charges amounting to Rs. 16,80,000/-.4. Penalties under Section 78 and Rule 15(3):Penalties under Section 78 were upheld due to the appellant's suppression of facts with intent to evade tax. The Tribunal emphasized that penalty under Section 78 is mandatory in cases of fraud, collusion, or suppression of facts. The penalty was limited to the amounts confirmed in the order.5. Penalties under Section 77(1)(a) and Section 77(2):The Tribunal found no merits in the appellant's submissions against the penalties imposed under Section 77(1)(a) and 77(2) and upheld the penalties.Conclusion:The appeal was partly allowed, confirming the demand for service tax and disallowing part of the CENVAT credit while upholding the penalties imposed.