TaxTMI 
TaxTMI 
2024 (1) TMI 674
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....hereon at the applicable rate from the Noticee under Section 75 of the Act read with Section 173, 174 & 142 of CGST Act on the amount of Service Tax being confirmed at (1) above; (3) I impose a penalty of Rs.5,13,91,838/- (Rupees Five Crore Thirteen Lakh Ninety-One Thousand Eight Hundred and Thirty-Eight only) upon M/s Adept, 2/148, Vishal Khand, Gomti Nagar, Lucknow under Section 78 of the Act for non-payment of due Service Tax by suppressing the value of taxable services with intent to evade the payment c of Service Tax from the department read with Section 173, 174 & 142 of CGST Act. The penalty imposed herein shall be further reduced to 25% of the demand of Service Tax confirmed herein subject to the condition that the benefit of reduced penalty shall be applicable only if the amount of such reduced penalty is also paid along with the Service Tax confirmed and the interest payable thereon within a period of 30 days of receipt of this order." 2.1 Appellant is a partnership firm, registered with registration number AAQFA8925JSD001. During the audit of the records of the Party for the F.Y. 2015-16 & 2016-17, it was observed that Appellant was engaged in Operation & Maintenance ....
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....e Taxation And Other Laws (Relaxation And Amendment Of Certain Provisions) Act, 2020 and Notification dated 30.09.2020 issued by CBIC under F. No.450/61/2020-Cus.IV(Part-1), for the reasons detailed here-in-above; b) Interest at the applicable rates, on the demand of Service Tax mentioned at Para 12(i) above, should not be demanded and recovered from them under Section 75 of the Finance Act, 1994, for the reasons detailed here-in-above; c) Penalty under Section 78(1) of the Finance Act, 1994 should not be imposed upon them, for the reasons discussed here-in-above; d) Penalty under Section 76(1) of the Finance Act, 1994 should not be imposed upon them for the reasons discussed here-in-above; 2.6 This show cause notice has been adjudicated as per the impugned order referred in para 1 above. Aggrieved Appellants have filed this appeal. 3.1 We have heard Shri Bharat B. Raichandani Advocate for the Appellant and Shri Sandeep Pandey, Authorized Representative for the Revenue. 3.2 Arguing for the Appellant learned counsel submits that: The Appellant were, inter alia, engaged in the business of providing taxable service i.e. "Operation and Maintenance of Telecom/Mobile towers". ....
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.... Non-VAT goods as per Schedule IV. Schedule IV says that the tax should be collected at the first point of sale. Thus, the dealer (manufacturer) has to pay VAT on such supply of diesel at the first point of sale. Irrespective of the fact whether VAT is payable or not, admittedly, these are goods. This was the clear stipulation, at the time of introduction of Notification No.12/2003-ST dated 20.06.2003, which stands deleted with the introduction of the negative list regime. The Appellant submits that the diesel was purchased by the Appellant in his own name, it was not purchased on behalf of the service receiver. There is an independent sale and purchase transaction. The Appellant had purchased the diesel and supplied the diesel to the service recipient Admittedly, no TDS has been deducted by the service recipient on these diesel charges. Therefore, no Service Tax can be demanded from the Appellants. Section 67 of the Finance Act, 1994 states that the value of taxable service shall be the gross amount charged by the service provider for such service provided by him. The value of taxable service rendered by a person is for service provided by him. CBEC Circular No.65/14/2003-ST d....
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....vis supply of goods. The Ld. Principal Commissioner has failed to consider. telecommunication service provider has included the cost of diesel in the value of their output service. Once this is the case, no demand of service tax can lie at the hands of the appellant. This, in as much as, the same would amount to double taxation. It is well settled law that the as held in the case of BSNL vs. Union of India - 2006 (2) S.T.R. 161, that the same value cannot be brought to tax, both as the value of goods as well as the value of services. supply of diesel is a sale of goods and hence cannot be brought under the ambit of service tax. The Appellant submits that there is no service element involved. there are two limbs of the contract viz. supply of services and supply of diesel which needs to be vivisected for levy of service tax. In support of this submission, the Appellant relies on the judgment in the case of Bharat Sanchar Nigam Limited V/s Union of India 2006 (145) STC 91 (SC). Therefore, the value of diesel is not includible in the assessable value of the operation and maintenance service. no service tax can be demanded on the value of diesel i.e. goods. If the interpretati....
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....o case for demand of interest or penalty. 3.3 Arguing for the Revenue, leaned authorized representative reiterated the findings recorded in the impugned order. 4.1 We have considered the impugned order along with the submissions made in the appeal and during the course of arguments. 4.2 For confirming the demand of service tax with interest and penalties, impugned order records the findings as follows: "6.2 The period in dispute in the instant case in Financial Year 2015-16 and 2016-17. The issue in brief is that the Noticee, M/s Adept, Gomti Nagar, Lucknow, a partnership firm, registered with the department under the provisions of service tax entered into an agreement with their service recipient, M/s VION Networks Limited for providing "Diesel Filling Services" for generators installed at telecom towers. During audit of the records of the Noticee for the F.Y. 2015-16 and 2016-17, it was noticed by the Department / Audit Team that the Noticee was paying service tax on the service charges received in lieu of providing aforesaid output services of operation & maintenance. The Noticee was also paying service tax on the income accrued against service charges for diesel filling bu....
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....from the Noticee 6.3. The Noticee has contested the demand of service tax during the material period. The main contention is that cost of diesel is not the part of service and the same is paid on the actual basis. The Noticee's contention is that the responsibility of supply of diesel is separate from the Diesel Filling Services and cost of diesel does not form part of the service provided. Supply of Diesel has no relation with output service of operation and maintenance provided by the Noticee and it is a distinct supply. The Noticee also contended that TDS under the provisions of Income Tax Act, 1961 has been deducted by the service recipient on the services of contractual nature like O&M and diesel filling but no TDS under Income Tax Act, 1961 has been deducted on cost of diesel paid / reimbursed which proves that the cost of diesel is not the part of service agreement. The Noticee has also contested the demand of service tax stating that there is no provision for inclusion of value of material (diesel) to the value of taxable service under Section 67 ibid and value of the material / diesel supplied by the Noticee cannot form part of the gross amount charged by the Noticee....
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.... of the Service Tax, alleged to have been short paid? (ii) Whether, the Noticee are liable for payment of interest, in terms of Section 75 of the Act, on the Service Tax, alleged not to have been paid? (iv) Whether the Noticee are liable for penal action under section 78(1) of the Finance Act, 1994 for willful suppression of facts with intent to evade payment of Service Tax? (v) Whether the Noticee are liable for penal action under section 76(1) of the Finance Act, 1994 and whether penalties under Section 76 & Section 78 of the Finance Act, 1994 are imposable simultaneously? I take up these issues one by one as under:- 6.5. first set out to consider the issue listed at paragraph 6.4 () above relating to the demand of Service Tax of Rs.5,13,91,838/- I note that basically, the Party is under obligation for operation and maintenance of telecom/ mobile towers for M/s. VIOM Networks Ltd. (herein after referred to as VNL). It was observed as a result of scrutiny of the documents of the Party that the Party had entered into agreement with the service recipient namely VNL. The scope of work included to undertake all general maintenance activities as specified in the said agreement includ....
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....y has contested that the firm is registered with the Service Tax department having Service Tax Registration No. AAQFA8925SD001. They are providing services of operation and maintenance of telecom towers. They received and paid Service Tax on service charges for operation and maintenance of tower. They have also stated that they have also supplied diesel to be filled in the DG Sets at different telecom tower sites which is an independent activity of service of operation and maintenance. They neither received nor paid Service Tax on supply of diesel as it has no relation to the output service provided by them. The supply of diesel is a distinct activity, as diesel is not used for providing operation and maintenance service. 6.10. They have also contended that as per provisions of Section 67 of the Finance Act, 1994, the value of taxable service shall be gross amount charged by the service provider for the services provided by him. They have also strongly submitted that the term "gross amount" cannot be constituted to mean whatever amount is billed would become the value of taxable service. The department has overlooked the fact that a person can be service provider as well as trad....
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....nance services to be performed by service provider including but not limited to supervision, telecom assistance and technical guidance related to the Passive Telecom Infrastructure under this agreement in accordance with SOW. Scope of work The scope of services going to be followed is a non-comprehensive. In this model, service provider has to undertake all the general maintenance activity as specified in responsibility matrix and service schedules including supervision/liasioning with the OEM'S for breakdown maintenance, corrective maintenance, preventive maintenance, routine checks of all Passive Infrastructure equipments at site, ensure uninterrupted power either from utility provider (EB) or from back up DG set, safety & security of all equipment at sites, ensure environment condition specified, liasioning with various government and statutory agencies. The service provider has to ensure more than 99.98% uptime per site of all infrastructure equipments maintained on monthly basis. (Note: The total permissible downtime is be less than 8.64 minutes per site per month considering 30 days a month). Service Provider shall ensure round the clock monitoring (if circle requi....
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....rovider. Further it is required hat diesel filling team will be rotated periodically and no diesel filling team will be in one cluster for more than 06 months. VNL has right to test the quality of diesel at any point in time. If required any external agency can be engaged by VNL to carry out the test on behalf of VNL. Quality of Diesel will be as per the specifications of Bureau of Indian Standards ("BIS"). Service provider has to provide daily diesel filling report site-wise in the mutually agreed format signed SPR of previous month should also be submitted with the current cycle invoices. Fortnightly diesel filling-debit notes w.r.t. fund provided for diesel filling and actual consumed at Site (as per the fix matrix provided by the VNL) need to be settled by the service vendor. Measurement for the fuel will be based on number of DG running hours taken from TOC. Till such time the TOC becomes fully operational, existing practice will continue i.e., HMR and GCU readings should be submitted along with FMC report showing EB start and end alarms, duration of EB availability, DG start and end alarms, duration of DG run hours, to calculate DG running hours SFC to be considered as ....
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....case the provision of service is for consideration of money, it be the gross amount charged by the service provider for such service provided or to be provided by him. The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. It further provides that- 'consideration" includes. (i) any amount that is payable for the taxable services provided or to be provided; (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed; 6.18. Further, Rule 5 of Service Tax (Determination of Value) Rules, 2006 provides for inclusion and exclusion from the value of certain expenditure or cost. The said rule reads as under: (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of chargi....
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....he Finance Act, 1994 read with Rule 5 Service Tax (Determination of Value) Rules, 2006 reproduced above, that the consideration includes any amount of expenditure or cost incurred by the service provider (may be reimbursable) charged, in the course of providing a taxable service. The conditions prescribed for exclusion of certain expenditure or cost has to satisfy the conditions prescribed in Rule 5 ibid. I observe from the facts involved in the present case that the Party is not acting as a pure agent of the service recipient for diesel filing in as much as no third Party is involved in the transaction. I also take note from the Profit & Loss A/c of the Party that the amount charged by the Party as a cost of diesel from the service recipient is much higher than the cost incurred by them. Thus, the Party has recovered for the diesel more than the expenditure incurred by them to procure such goods. I am, therefore, more than satisfied that it is not case of the Party that they were acting as pure agent while recovering the amount of diesel from the service recipient. 6.20. Another argument advanced by the Party for exclusion of the cost of diesel recovered by them from the service....
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.... of a C & F Agent. The dispute was regarding transportation cost for which a separate agreement was there. It was held by Hon'ble Tribunal that the said transportation cost is not in relation to activity of C& F Agent. However, in the instant case the consumption of diesel in DG sets installed as Passive Infrastructure elements at operation sites is essentially in relation to operation and maintenance of telecom towers. Thus, the said case law is not applicable in the said facts and circumstances of the present case. 6.23. I have also examined the decision of Hon'ble Tribunal in the case of Rolex Logistics Pvt. Ltd. 2009 (13) S.T.R. 147 (T) relied upon by the Party in their defense. In the said case Hon'ble Tribunal has held that any expenditure incurred on behalf of service recipient and reimbursed by the service recipient shall not form part of the taxable value. However in the instant case, that is not the issue that the Party incurred the expenditure on behalf of service recipient rather the expenditure on diesel by the Party was on account of diesel consumed during the course of providing the service of operation and maintenance of telecom towers including diese....
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....d the terms of agreement tribunal held as follow: "16. Section 67 of the Act deals with valuation of taxable services for charging service tax. Sub-section (1) and Explanation (a) are reproduced below: SECTION 67 (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) ----- (3) ----- (4) ----- Explanation. - For the purposes of this section, (a) "consideration" includes (i) any amount that is payable for the taxable services provided or to be provided; (b) ----- (c) ----- " 17. Service (Determination o....
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....he contract will be reviewed after three months and can be extended upto one year after mutual discussion and understanding based on performance. 1. The service provider shall provide round the clock (24x7) a) Operation b) Maintenance (Preventive and breakdown) c) Ensuring a more than 99.95% uptime to the equipment for BTS cell sites 2. Site Inventory may consist of accessories/ equipment as follows: a) ----- b) ----- c) ----- d) ----- e) ----- f) ----- g) ----- h) ----- i) ----- j) ----- 3. In addition, following would also form part of scope of work/ service a) ----- b) ----- c) ----- d) ----- e) ----- f) ----- g) ----- h) ----- i) ----- j) ----- k) ----- l) Diesel filling, cleaning of DG sets and keep the record of fuel average and DG hrs. m) Service provider will fill the diesel as per the laid down process. They will ensure that the DG should have the adequate diesel all the time. They will also keep track of site wise diesel consumption and no. of hours DG ST/51074/2014 with running through monthly MIS. Diesel to be procured from Bharti authorised filling stations. n) ----- 23. The process for filling diesel has also been pr....
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....lows: 33. Payment process for Diesel: Service provider shall raise the bill based on the average consumption rate which is predefined by Bharti and PIU reading or actual consumption whichever less however before releasing payment Bharti signatory authority must match the LPH MIS report with the petro card statement in case petro card system is running in circle (hour meter reading shall be multiplied with the average hourly consumptions of the DG (to be defined by concerned Bharti technical member, depending on the shared/non shared) to calculate the amount.)" 25. Management, Maintenance or Repair Service has been defined to mean any service provided by any person under a contract or an agreement. A perusal of the aforesaid agreement between M/s Bharti Infratel Limited and M/s Ganpati Associates indicates that the scope of work to be performed includes electrical operation and management of BTS sites, diesel filling, general site maintenance and electricity bill collection and payment. In regard to filling of diesel, the fees to be paid to the appellant is Rs.500/- per site per month for diesel filling at DHQ sites (District Headquarters) and Rs.750/- per site per month for di....
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.... to be provided by the service provider. It is, therefore, clear that only such amount is subject to service tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax. 28. Section 67 of the Act was considered and explained by the Supreme Court in Intercontinental Consultants. The Appellant therein was providing consulting engineering services. It received payment not only for the services provided by it but was also reimbursed for the expenses incurred by it on air travel, hotel stay, etc. It paid service tax on the amount received by it for services rendered to its clients but did not pay any service tax in respect of expenses incurred by it which were reimbursed by the clients. A show cause notice was issued to it to explain why service tax should not be charged on the gross value including reimbursable and out of pocket expenses. The provisions of Rule 5(1) of the Rules were resorted to for this purpose. A Writ Petition was filed challenging the vires of Rule 5 as being unconstitutional as well as ultra vires the provisions of Section 66 and 67 of the Act. The High C....
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....purpose of calculating the service tax. It is for this reason that the Supreme Court observed that the expression "such" occurring in Section 67 of the Act assumes importance. It is in this context that the Supreme Court in paragraph 26 observed that the authority has to find what is the gross amount charged for providing "such" taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing "such taxable service." This according to the Supreme Court is the plain meaning attached to Section 67 either prior to its amendment on 1 May, 2006 or after this amendment and if this be so, then Rule 5 went much beyond the mandate of Section 67. The Supreme Court, therefore, held that the value of material which is supplied free by the service recipient cannot be treated as "gross amount charged" as that is not a "consideration" for rendering the service. In fact, in regard to free supply of diesel and explosives, the Supreme Court specifically observed that they would not warrant inclusion while arriving at the gross amount charged on the service tax to be paid. 29. It will ....
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....unt charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined" 13. A plain meaning of the expression 'the gross amount charged by the service provider for such service provided or to be provided by him' would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the 'gross amount' simply, because of the reason that no price is charged by the assessee/service ....
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....rges' inclusive of certain other payments would make it clear that the purpose is to include other modes of payments, in whatever form received; be it through cheque, credit card, deduction from account etc. It is in that hue, the provisions mentions that any form of payment by issue of credit notes or debit notes and book adjustment is also to be included. Therefore, the words 'in any form of payment' are by means of issue of credit notes or debit notes and book adjustment. With the supply of free goods/materials by the service recipient, no case is made out that any credit notes or debit notes were issued or any book adjustments were made. Likewise, the words, 'any amount credited or debited, as the case may be', to any account whether called 'suspense account or by any other name, in the books of accounts of a person liable to pay service tax' would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the se....
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....value of diesel. The valuation of taxable service for charging service tax could only be the gross amount charged for providing such "taxable services" which in the present case is the filing of diesel and any other amount cannot be a part of the valuation as it cannot be an amount for such "taxable services". The Department cannot go beyond the contract value and arrive at the value of taxable service merely because of the use of the word "gross" in Section 67 of the Act. The use of the word "charged" makes it clear that it refers to the amount billed by the service provider to the service recipient and, therefore, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining value on which service tax is payable as was observed by the Supreme Court in Bhayana Builders. The cost of free supply of goods provided by the service recipients to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. It has no nexus with the taxable services for which value is sought to be determined. 31. Even if diesel is c....