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2020 (2) TMI 1051
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....y and interest for the period 1 April, 2011 to 31 June, 2012. 3. Service Tax Appeal No. 50131 of 2015 has been filed to assail the order dated 30 September, 2014 passed by the Commissioner confirming the demand of Rs. 79,26,946/- towards service tax with penalty and interest for the period 1 July, 2012 to 31 March, 2013. 4. The reasoning and findings recorded by the Commissioner in all the aforesaid three impugned orders are identical and, therefore, all the three appeals are being decided by this common order. 5. Two issues arise for consideration in these three appeals. The first is with regard to the demand of service tax on deposits made in favour of the Appellant by the members of the consortium. The second is with regard to the demand of service tax on the difference in the rate charged by the Appellant from the members of the consortium and non-members for providing 'Cargo Handling Services', since the case of the Department is that a lesser rate has been charged from the members of the consortium. 6. The Appellant is engaged in rendering "Cargo Handling Services" defined under section 65(23) of the Finance Act, 1994 ^the Act. It is a taxable service under sectio....
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....ould not be used by other persons without the prior written permission of Railway Administration. Applications were, therefore, submitted to the Railway Administration for approving the members of the consortium as co-users of the siding and approval was granted by the Railways. 9. The Appellant also signed Indemnity Bonds with the Railway Administration to bind itself for the faithful performance of the terms and conditions of the siding agreement entered into between the Appellant and the Co-users and one such Indemnity Bond dated 14 October, 2008 between the Appellant and the Railway Administration in connection with a co-user M/s Bhagwati Power & Steel Private Limited ^Bhagwati Power is reproduced below: INDEMNITY BOND "We M/s Vimla Infrastructure (India)Pvt Ltd. having our registered office at Nehru Nagar, Dhamatri Road, Raipur (CG) hereinafter referred to as the "Owner" which expression shall include our heirs, successors and assigns to furnish this Indemnity Bond in favour of the President of India acting through the Chief Commercial Manager, South East Central Railway Bilaspur, hereinafter referred to as Railway Administration. 2. Whereas the Railway....
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....bmit your bills Rake Wise very next day after transporting of Raw Material. Payment shall be released as per agreed terms and our Plant's weighment machine weight shall be final. After 7 days of receiving the payment against the invoices raised, No other claim shall be entertained by the either party. 4 TAX TDS will be deducted from your bills as per Income Tax Act 5 SERVICE TAX We will pay Service Tax as per Govt. rules, subject to submission of cenvatable documents. 6 OTHER 1) Your company will follow all the rules, terms and conditions imposed by SECR authorities relevant to railway siding from time to time. 2) Take care of any other requirements/formalities of Railways, which may be required and ensure evacuation of rake in perfect manner from the Railway siding 3) Your company shall arrange tools and tackles being used for aforesaid work at your own cost. 4) You will be held solely responsible for any accident of your men, machine, tools and tackles etc., during execution of the job awarded to you. 7 STATUTORY COMPLAINCE Your company will comply and take care of all laws of....
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....on basis. Thus it is clear that the Noticee have long term commercial interest with the said members of the consortium as well as the equity holders and the prices charged by the Noticee (as shown in their Bills) to the said customers are not the sole consideration against the cargo handling services provided by Noticee during the period year 2007-08 to 2010-11. Further, the money value of the cost of services, the Railway dues, maintenance etc., is required to be included in the price shown in the Bills raised to the said related customers (members of the consortium as well as equity holders)." 13. The Show Cause Notice also deals with another aspect, namely, that the Appellant had charged more amount from independent customers for providing 'Cargo Handling Services' than from the members of the consortium. Thus, the amount charged from the members was not the gross amount charged. Rule 4 of the Service Tax (Determination of Value) Rules, 2006 ^2006 Rules was, therefore, required to be invoked to ascertain the correct taxable value. 14. The Appellant filed replies to the aforesaid three Show Cause Notices and denied the allegations contained in the Show Cause Notices. It poi....
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....by undervaluing the taxable value in the ST-3 Returns. Service tax on the differential amount was, therefore, required to be paid by the Appellant. 16. Shri B L Narasimhan, learned Counsel appearing for the Appellant has made the following submissions: (i) The amount collected by the Appellant from the consortium members is in fact an interest free refundable security deposit and is not towards any advance for a service. It is, therefore, not taxable. Elaborating this submission, learned Counsel pointed out that the object of the consortium was to construct a railway siding for the use of the consortium members for which the members pooled their resources to the extent of Rs. 15,31,01,000/- at the time of joining the consortium. This amount was refundable and even as per the balancesheet of the Appellant for the relevant periods, the amount collected by the Appellant as deposit has been shown as current liability, which fact clearly demonstrates that the amount received by the Appellant was refundable; (ii) Apart from using the Security deposit for construction of the siding, the refundable security deposit could be utilised, in terms of the Indemnity Bond, to ....
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....ent by the Senior Division Commercial Manager to the Chief Commercial Manager which requires the said officer to realise the outstanding amount of M/s Baldev Alloys from the Appellant; and (iv) The words used in agreement are "assumed sum" and not "security deposit". 18. The submissions advanced by learned Counsel for the Appellant and the learned Authorised Representative of the Department have been considered. 19. As noted above, the Appellant is engaged in rendering 'Cargo Handling Services'. In order to establish a private siding to serve the customers, the Appellant claims to have collected interest free refundable amount from the members of the consortium. For this purpose, the Appellant entered into an agreement with the Railways to construct a siding at Silyari as per the terms and conditions set forth in the agreement. In terms of the aforesaid agreement dated 19 March, 2007, the siding cannot be utilised by any person without the prior written permission of the Railway Administration. Applications were, therefore, submitted to the Railway Administration for approving the members of the consortium as co-users of the siding and approval was granted by the Rai....
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.... The said Indemnity Bond in connection with a co-user Bhagwati Power refers to the agreement entered into with the Appellant by Bhagwati Power for receipt and dispatch of the rail traffic from the siding. The Indemnity Bond provides that the Appellant undertakes and binds itself for the total and faithful performance of the terms and conditions of the siding agreement entered between the siding owner and the Railway Administration. The Appellant also agreed to indemnify the Railway Administration unconditionally against all proceedings, claims, demands, expenses, loses and liabilities of the co-user of the siding. Bhagwati Power also affirmed that the Indemnity Bond shall remain valid and subsisting even after the completion of the transaction by the co-user and that the Railway Administration would be entitled to seek its enforcement at any time in case of any eventuality enumerated in the Bond during the period of transaction. 21. Thus, if a co-user was to make any default in payment to the Railway Administration in regard to tollage liabilities such as freight, demurrage charges, siding charges and other charges accruing due to use of railway siding by the co-user, the same w....
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.... that Gopal Sponge joins the Appellant as a member of a consortium and that Gopal Sponge will invest a sum of Rs. 50 Lakhs for construction of the proposed railway siding at Silyari. The assumed sum can be invested either at once or in part, but would be interest free. 26. According to the Appellant, this amount has been deposited as a refundable interest free security. According to the Department, this amount has been deposited as an advance for making payment of freight, demurrage and other charges to the Railways, and therefore, would be a taxable service. 27. The MOU clearly mentions that Gopal Sponge will invest a sum of Rs. 50 lakhs for construction of the proposed railway siding at Silyari and that the said sum would be interest free. The issue, therefore, is whether this amount of Rs. 50 lakhs should be treated as interest free refundable security or as an advance made by the co-user of the siding for payment of freight charges, demurrage charges or other charges to the Railways. The irresistible conclusion that follows from a reading of the MOU is that the amount has been deposited by Gopal Sponge with the Appellant for construction of the proposed Railway Siding and....
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....1.03.2011 43000000 7500000 108601000 Total RECD./Refunded/Balance 131101000 22500000 108601000 Total Security Deposit As On- 31.03.2012 6000000 8000000 106601000 Total Security Deposit As On- 31.03.2013 0 5000000 101601000 Total Security Deposit As On- 31.03.2014 0 25500000 76101000 Total Security Deposit As On- 31.03.2015 0 42500000 33601000 Total Security Deposit As On- 31.03.2016 300000 4101000 29800000 Total Security Deposit As On- 31.03.2017 0 0 29800000 Total Security Deposit As On- 31.03.2018 5500000 0 35300000 Total RECD./REFUNDED/BALANCE 142901000 107601000 35300000 30. Learned Counsel for the Appellant submitted that against the security amount of Rs. 14.29 crores that was deposited, an amount of Rs. 10.76 crores was refunded and the balance amount of security at the end of the Financial Year 2018 is Rs. 3.53 crores. Learned Counsel, on instructions from the Appellant, has also stated that the only amount paid to the Railways to indemnify a co-user is Rs. 28,56,000/- and in no other case the Appellant was called u....
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....notional interest arising from such deposit. 34. In United Breweries Limited vs. State of Andhra Pradesh (1997) 3 SCC 530, the Supreme Court observed as follows: "25. It, however, cannot be said that the moneys lying with the company for a long time as security deposit from its customers would automatically become sale proceeds in the hands of the company by efflux of time. The Customers may lose all claims to the deposit amount by operation of law. The company may take the unclaimed deposits to its profit and loss account by treating them as trading receipts. That, however, will not convert the deposits which were not received initially as price into sale proceeds of the tins in which the biscuits were supplied or the bottles in which the beer was sold." 35. In Murli Realtors Private Limited Others. Vs Commissioner of Cental Excise, Pune-III 2015(37) STR 618 (Tri.-Mumbai), a Division Bench of the Mumbai Tribunal made the following observations with regard to the security deposit towards the renting of immovable property and the observations are as follow: "6.1 Section 67 of the Act, reproduced in para 4.1 above, clearly provides that only the consideration ....
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....maintenance charges. As per the agreement with the flat owners, the said amount is liable to be refunded to them within the period of Six months from the date of termination of the said agreement. The Adjudicating Authority observed that the genuineness of the said term is very much doubted inasmuch as the appellant had not produced any evidence to show that the said IFMS was ever refunded to anyone. We really fail to understand the said reasoning of the Adjudicating Authority. The amount is refundable in case of termination of the ownership agreement and if no such termination has taken place till date, the amount would not be refunded. As long as the provisions for refund of the said amount in the agreement itself is there, it has to be considered that the said amount is refundable and was towards security deposits and was not for the purpose of providing any services, so as to levy tax on the same." 37. It is, therefore, clear from the aforesaid decisions that a security deposit for any length of time would not automatically became a sale proceed in the hands of the company and that there is no provision in service tax law for taxing notional interest on a security deposit. ....