2025 (3) TMI 966 - AT - Service Tax

CESTAT allows appeal on service tax recovery, holds material costs exempt under Notification 12/2003 for container repair services

M/s. Bay Container Terminal Pvt Ltd. Versus Commissioner of GST and Central Excise, Chennai North Commissionerate

CESTAT Chennai allowed the appeal regarding service tax recovery on differential value from reconciliation of Trial Balance and ST-3 Returns for 2010-11 ... Recovery of service tax on account of differential value arising out of reconciliation of the Trial Balance and ST-3 Returns for the period 2010-11 and 2011-12 under proviso to Section 73(1) read with Section 73(2) of the Finance Act, 1994 - value shown in the invoices towards material cost are to be included for the payment of Service Tax or not - entitlement for exemption under Notification No. 12/2003 dated 01.07.2003 for the materials used in providing 'Repair and Maintenance Service' for sea containers - Extended period of limitation. Value shown in the invoices towards material cost are to be included for the payment of Service Tax or not - HELD THAT:- This Tribunal had, after appreciation of the facts therein, which are similar to the facts of the present appeal, allowed the appeal in the appellants’ favour, in the case of M/S. BAY CONTAINER TERMINAL PVT. LTD. VERSUS CCE, & ST, CHENNAI [2018 (4) TMI 1035 - CESTAT CHENNAI] where it was held that 'Hon’ble Supreme Court in Jain Brothers [2012 (7) TMI 935 - SUPREME COURT], state that the cost of goods supplied during repair cannot be added to the value of the taxable service in view of the said exemption'. Subsequently also, the appellants had preferred Service Tax Appeal No.40992/2013 being aggrieved by OIO No.02/ST/COMMR/2013 dated 15.03.2013 passed by the Commissioner of Central Excise, Tirunelveli confirming the demand of service tax made on the allegation of non-addition of the cost incurred by the appellant for replacement/repairs undertaken by them of damaged parts of the containers used in international transportation, in the taxable value - This appeal too was decided in the appellants’ favour by placing reliance upon M/S. BAY CONTAINER TERMINAL PVT. LTD., VERSUS THE COMMISSIONER OF G.S.T. & CENTRAL EXCISE [2019 (3) TMI 2081 - CESTAT CHENNAI]. Service tax demand on the basis of reconciliation of the Trial Balance and ST-3 returns - HELD THAT:- The Adjudicating Authority has not furnished any reason for non-acceptance of the appellant’s reconciliation statement as well as the certificate of the Chartered Accountant that the appellant has relied upon and adduced as evidence for discharge of its tax liabilities with respect to the bills issued from Mumbai office apart from stating that the appellant has not produced evidence to substantiate their claim. The Adjudicating Authority has not recorded any categorical finding as to what exactly are the documents which he desired to see for his satisfaction - the non acceptance of CA certificate and reconciliation statement incorrect, when the demand was only premised on difference noticed during audit upon comparison of their trial balance with the ST-3 returns and that too on material cost, which in any event ought to be excluded in terms of the notification benefit claimed by the appellant - the non-acceptance of the CA Certificate without stating any reason for rejection or controverting it in any manner, is incorrect and untenable and the benefit thereof ought to be extended to the appellants. Extended period of limitation - HELD THAT:- The allegations of mala fides are often more easily made than proved, and the very seriousness of such allegations demand proof of a high order of credibility.” In such circumstances, the Department could not have invoked the extended period of limitation and the Appellants succeed in their appeal on this count also. Entitlement to the benefit of the notification 12/2003 ibid - HELD THAT:- The appellant was entitled to the exemption under Notification No. 12/2003, as the invoices provided sufficient documentary proof of the materials used in the repair services. Conclusion - i) The appellant was entitled to the exemption under Notification No. 12/2003, as the invoices provided sufficient documentary proof of the materials used in the repair services. ii) The demand for service tax based on reconciliation discrepancies was unjustified, as the appellant had provided sufficient evidence of tax payment at the Mumbai branch. iii) The extended period of limitation was not applicable, as there was no evidence of wilful suppression or misstatement by the appellant. The penalties imposed under Section 78 of the Finance Act, 1994 were also found to be unjustified. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:Whether the appellant was entitled to the exemption under Notification No. 12/2003 dated 01.07.2003 for the materials used in providing 'Repair and Maintenance Service' for sea containers.Whether the demand for service tax based on the reconciliation of the Trial Balance and ST-3 returns was justified, particularly in light of the appellant's claim that service tax was paid at their Mumbai branch.Whether the extended period of limitation could be invoked in issuing the Show Cause Notice for the service tax demand.Whether the penalties imposed under Section 78 of the Finance Act, 1994 were justified.ISSUE-WISE DETAILED ANALYSIS1. Exemption under Notification No. 12/2003The relevant legal framework involves Notification No. 12/2003, which exempts the value of goods and materials sold by the service provider to the recipient of service from service tax, provided there is documentary proof indicating the value of the said goods and materials. The Court noted that the appellant had previously succeeded in similar claims for exemption in past cases, where the Tribunal had allowed the exemption based on invoices indicating separate charges for materials and services.The Court examined the appellant's invoices, which detailed the container numbers, labor amounts, and material amounts separately, supporting the claim for exemption. The Court also referenced the Supreme Court's decision in Jain Brothers, which clarified that the cost of goods supplied during repair cannot be added to the taxable service value when the exemption applies.The Court found that the adjudicating authority's reliance on the decision in Safety Retreading Company (P) Ltd, which was later reversed by the Supreme Court, was misplaced. Consequently, the denial of the exemption was deemed untenable.2. Reconciliation of Trial Balance and ST-3 ReturnsThe appellant contended that the service tax had been paid at the Mumbai branch for services rendered to specific clients, supported by a Chartered Accountant's certificate. The Court noted that the adjudicating authority failed to provide reasons for rejecting the appellant's reconciliation statement and the CA certificate. The Court emphasized that such summary rejection without evidence or specific reasons is arbitrary and incorrect.The Court referenced past decisions where similar demands based on reconciliation discrepancies were dropped, highlighting that double taxation should be avoided when service tax has already been paid centrally.3. Extended Period of LimitationThe Court examined whether the extended period of limitation was applicable, which requires evidence of wilful suppression or misstatement of facts with intent to evade tax. The Court found no evidence of such conduct by the appellant, who had regularly filed ST-3 returns and had a bona fide belief in the applicability of the exemption. The Court cited the Supreme Court's decision in Uniworth Textiles Ltd, emphasizing the burden of proof for mala fide actions lies with the accuser.The Court concluded that the extended period of limitation was not applicable, and the demand was barred by limitation.SIGNIFICANT HOLDINGSThe Court held that the appellant was entitled to the exemption under Notification No. 12/2003, as the invoices provided sufficient documentary proof of the materials used in the repair services. The Court found the adjudicating authority's rejection of the exemption claim to be incorrect, particularly in light of the Supreme Court's clarification in Jain Brothers and the reversal of the decision in Safety Retreading Company (P) Ltd.The Court determined that the demand for service tax based on reconciliation discrepancies was unjustified, as the appellant had provided sufficient evidence of tax payment at the Mumbai branch. The adjudicating authority's failure to specify the required documents for verification was deemed arbitrary.The Court concluded that the extended period of limitation was not applicable, as there was no evidence of wilful suppression or misstatement by the appellant. The penalties imposed under Section 78 of the Finance Act, 1994 were also found to be unjustified.The final determination was to set aside the order in original, allowing the appeal in favor of the appellant on both merits and the plea of limitation, with consequential reliefs in law.