TaxTMI 
TaxTMI 
2024 (12) TMI 741
X X X X Extracts X X X X
X X X X Extracts X X X X
....h interest under Section 75 of the Finance Act, 1994, ii. I also confirm the demand of Service Tax to the tune of Rs.8,76,770/- (Rs. Eight Lakhs Seventy Six Thousand Seven Hundred and Seventy Only) not paid or short paid by the party during 2012-13 from them under proviso to Section 73 of the Finance Act, 1994 along with interest under Section 75 of the Finance Act, 1994; iii. I also impose penalty of Rs.42,58,748/ (Rs. Forty two Lacs Fifty Eight thousand Seven Hundred Forty Eight only) under Section 78 of the Finance Act, 1994 upon them for contravention of the provisions under proviso to Section 73 of the Finance Act, 1944." 2.1 Appellant is engaged in providing taxable services under the category of Security Agency, Interior Decorators, Cleaning Service and Outdoor Catering services. 2.2 On re-conciliation of the figures of gross receipts against the services rendered appearing in balance sheet for the period 2008-09 to 2011-12 with the gross receipts of services shown in ST-3 returns for the concern period audit observed discrepancy. Therefore, matter was taken up for further inquiry/investigation. 2.3 Scrutiny of the records of the appellant revealed that appellants wer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....On the same lines they have short paid service tax to the tune of Rs.8,66,770/-. 2.8 Another show cause notice dated 13.05.2014 was issued to the appellant asking them to show cause as to why:- i. "the amount of Service Tax not paid /short paid by them to the tune of Rs.8,76,770/- (Rs. Eight Lakhs Seventy Six Thousand Seven Hundred and Seventy Only) should not be demanded and recovered from them under proviso to Section 73 of the Finance Act. 1994 along with interest under Section 75 of the Finance Act, 1994, ii. penalty under Section 78 of the Finance Act. 1994 should not be imposed upon them for contravention of the provisions under proviso to Section 73 of the Finance Act, 1944." 2.9 Both the show cause notices were adjudicated as per the Order-in-Original referred in para-1 above. 2.10 Aggrieved appellant have filed appeal before the Commissioner (Appeals), which has been dismissed by the impugned order. 2.11 Aggrieved appellant have filed this appeal. 3.1 We have heard Shri Atul Gupta learned Counsel appearing for the appellant and Shri A.K. Choudhary learned Authorized Representative appearing for the revenue. 3.2 Arguing for the appellant learned Counsel submits th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the orders of the lower authorities. 4.1 We have considered the impugned orders along with the submissions made in appeal and during the course of argument. 4.2 For holding against the appellant, impugned order records as follows:- "3. I have considered the records of the case and submissions made by the appellant. The dispute involved has three limbs, (i) whether service tax was payable on consideration claimed to be received for supply of grass, plants, pesticides, other materials, etc., (ii) whether receipts shown as 'miscellaneous income' were liable to be included in taxable value for levy of service tax and (iii) whether certain receipts were for taxable cleaning service. I proceed to deal with the three limbs of the dispute in the same sequential order. (a) A major portion of the demand determined is under interior decorator's service. The terms "interior decorator" has been defined under the erstwhile section 65(59) of the Act as "interior decorator means any person engaged whether directly or indirectly, in the business of providing by way of advice, consultancy technical assistance or in any other manner, services related to planning design or beauti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted 06.08.2011 for site: 'Mahagun PARK INN HOTEL' at CBD Sahadra, Delhi, placed by Ms. Mahagun Hotel Pvt Ltd.,- is for "Landscape work on pathways", scope of work lays down that work "including of any material & accessories required to make the work complete in all respects payment terms indicate "upto 25% of contract value may be paid as mobilization advance 5% of contract value shall be deducted from each running bill as Security Deposit which shall be released at the end", provides for "Liquidated Damages at the rate of 1,25% of Contract Value per week of delay", stipulates that "the entire onus of safety lies with you (the appellant)", stipulates that "all materials shall be supplied by the contractor (the appellant)", all statutory liabilities" rests on the appellant, that the "contractor (the appellant) shall not sublet or assign this contract or any part thereof"; (iv) work order dated 13.12.2007 for site: 'paint manufacturing factory at Ranjangao, Pune placed by M/s, Jotun India Pvt Ltd., is for "execution of landscaping", scope of work includes "uploading storage and movement of items for landscaping at the site, payment terms indicate "25% of the basic orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acter of services rendered to escape service tax liability on whole of consideration. The application of extended period of limitation and penal provisions gets sufficient support in the facts of the case. On consideration of the material available on record, appellants submissions and relevant statutory provisions, I uphold the original order as far as it relates to determination of service tax demand of Rs.27,65,633/- + Rs.8,76,770/- for interior decoratores service (landscaping) and imposition of equal penalty for the act of non-payment of such tax amount. (b) The original authority has determined service tax liability of Rs.5,91,994/- on account of difference in the value of service shown in the balance sheet and in the ST-3 returns. The appellant has canvassed that the books of account were maintained on accrual basis and the taxable value declared in the ST-3 returns was on receipt basis. The appellant has made a theoretical submission. I have already held that the appellant created a subterfuge or camouflage of sale of material to obfuscate true declaration of taxable value. It would be incumbent on the appellant to demonstrate with cogent documentary evidence in the give....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under Section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials. Provided that the said exemption shall apply only in such cases where - (a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or (b) where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials." Perhaps there had been some representation from Punjab Color Lab Association, Jalandhar and thereafter, clarification was sought by certain photographic associations whether the value of materials consumed during the provision of service by the service provider for rendering the service is also excludable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pression "sold" in the Notification would not include "deemed sale" of goods and material consumed by the service provider while generating and providing service, unless an assessee has discharged burden of proof adducing evidence showing value of goods and material actually sold and satisfied the conditions of Notification. However, the Larger Bench opined that value of taxable service of photography depends on the facts and circumstances of each case as the Finance Act does not intend taxation of goods and materials sold in the course of providing all the taxable services. 12. There is no dispute to the proposition that the Notification does not override the statutory provision and hence, it is required to be seen as to whether the conclusion drawn by the Tribunal that term 'sold' appearing in Notification has to be interpreted using the definition of 'sale' in the Central Excise Act, 1944 and not as per the meaning of "deemed sale" under Article 366(29A)(b) of the Constitution, is correct or not. 13. From the aforesaid discussion, it would emerge that the crux of the substantial question of law No. 1 which has arisen for consideration is : "whether for the purposes of servi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... earlier, the stand of the appellants is that under sub-clause (b) of Clause (29A) of Article 366 of the Constitution, in execution of works contract, the tax which is paid on the sale or purchase of goods should be on the transfer of property in goods only. The photograph is completed through developing and printing process by using the consumables and chemicals, which are the essential ingredients without which the photography cannot be completed. Therefore, when value of photography paper upon which an image is printed and certain consumables and material with which the photography is done, can be separated from the photography service then both the elements cannot be remixed for the purposes of service tax particularly when the VAT is levied on the material, consumables and chemicals which are used in the photography service. 15. However, it needs to be examined whether Article 366(29A)(b) of the Constitution is attracted in the present case, for which, it is to be necessarily seen whether the photography service is a works contract. 16. This aspect of the matter has been considered by a three-Judge Bench of the Apex Court in Civil Appeal No. 1145/2006 (State of Karnataka,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....boldened by certain observations made by two-member Bench in the case of C.K. Jidheesh v. Union of India, wherein the Court has remarked that the observations in ACC Ltd. were merely obiter. In Jidheesh, however, the Court did not notice that this very argument had been rejected earlier in Bharat Sanchar Nigam Ltd. v. Union of India (2006) 3 SCC 1. Following discussion in Bharat Sanchar is amply demonstrative of the same : "46. This conclusion was doubted in Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593 saying : "The conclusion arrived at in Rainbow Colour Lab case (2000) 2 SCC 385, in our opinion, runs counter to the express provision contained in Article 366(29A) as also of the Constitution Bench decision of this Court in Builders Assn., of India v. Union of India - (1989) 2 SCC 645. 47. We agree. After the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of Clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore, in 2005, C.K. Jidheesh v. Union of India - (2005) 8 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley-I was directly overcome". It then went on to say that all the sub-clauses of Article 366(29A) serve to bring transactions where essential ingredients of a 'sale' as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase or sale for the purposes of levy of sales tax. 66. It then clarified that Gannon Dunkerley-I survived the Forty-sixth Constitutional Amendment in two respects. First, with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29A) operate and second, the dominant nature test would be confined to a composite transaction not covered by Article 366(29A). In other words, in Bharat Sanchar, this Court reiterated what was stated by this Court in Associated Cement that dominant nature test has no application to a composite transaction covered by the clauses of Article 366(29A). Leaving no ambiguity, it said that after the Forty-s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ose tax of the nature referred to in sub-clauses (b), (c) and (d) of Clause (29A) of Article 366 would be subject to restrictions and conditions in regard to the system of levy, rates and other incidents of tax contained in the said law; (iv) while enacting law imposing a tax on sale or purchase of goods under Entry 54 of the State List read with Article 366(29A)(b), it is permissible for the State legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of the inter-State trade or commerce under Section 3 of the Central Sales Tax Act or outside under Section 4 of the Central Sales Tax Act or sale in the course of import or export under Section 5 of the Central Sales Tax Act; and (v) measure for the levy of tax contemplated by Article 366(29A)(b) is the value of the goods involved in the execution of a works contract. Though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. Since, the taxable event is the transfer of property in goods involved in the execution of a works contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eping in mind the aforesaid principle of law, the obvious conclusion would be that Entry 25 of Schedule VI to the Act which makes that part of processing and supplying of photographs, photo prints and photo negatives, which have "goods" component exigible to sales tax is constitutionally valid. Mr. Patil and Mr. Salman Khurshid, Learned Senior Counsel who argued for these assessees/respondents, made vehement plea to the effect that the processing of photographs etc. was essentially a service, wherein the cost of paper, chemical or other material used in processing and developing photographs, photo prints etc. was negligible. This argument, however, is founded on dominant intention theory which has been repeatedly rejected by this Court as no more valid in view of 46th Amendment to the Constitution. 23. It was also argued that photograph service can be exigible to sales tax only when the same is classifiable as Works Contract. For being classified as Works Contract the transaction under consideration has to be a composite transaction involving both goods and services. If a transaction involves only service i.e. work and labour then the same cannot be treated as Works Contract. It ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng given to the term "works contract" in Gannon Dunkerley-I (supra) no longer survives at present. It has been observed in the said case that even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. It has been further held that once the characteristics or elements of works contract are satisfied in a contract, then irrespective of additional obligations, such contract would be covered by the term "works contract" because nothing in Article 366(29A)(b) limits the term "works contract" to contract for labour and service only." 17. The view expressed by the Apex Court in Bharat Sanchar Nigam Limited's case (supra) that after the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....component therein can be granted". The question was whether maintenance and repair service can be treated as service under "works contract" for service tax purposes. The Appellate Tribunal by majority view, upheld the demand, inter alia, on the ground that 'maintenance and repair service' being a specific service is to be treated as service under "works contract" for service tax purposes. On appeal, the Apex Court set aside the said majority view of the Special Bench of the Tribunal and held that Section 67 of the Finance Act clarifies that costs of parts or other material, if any, sold (deemed sale) to customer while providing maintenance or repair service is excluded from service tax subject to furnishing adequate and satisfactory proof by the assessee and this position has been further clarified in Notification dated 20-6-2003 and C.B.E. & C. Circular dated 7-4-2004. It was held that component of gross turnover in respect of which assessee had paid taxes under local Act with which it has registered as works contractor is excluded from service tax. 19. In view of the law laid down by the Apex Court in M/s. Pro. Lab's case (supra), it can be safely held that photography service,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of other two demands the only difference which is observed between the value of taxable services as per ST-3 returns and the figures in the Financial Accounts has been explained by the appellant to be for the reason that the books of account was maintained on accrual basis whereas service tax was paid on receipt basis. Commissioner (Appeals) have in absence of any evidence to substantiate the same held that in favour of the demands, in any case if service tax has been paid on the entire value then their cannot be demand for service tax second time. Appellant can establish the same by way of production of the said documents before the Original Authority. 4.5 From 2011 the introduction of Point of Taxation Rules,2011 service tax was required to be paid on accrual basis only and not on the basis of receipt. If appellant have followed such practice in the present case even if entire tax was paid and the same would have been paid after the due date with certain delay. For the period of delay in making payment of tax, they would be liable to the interest; the same should be worked out and recovered from them. In case of Steel Authority of India Limited [2019 (366) E.L.T. 769 (S.C.)] Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase of short-levy or non-levy of the goods removed by the assessee calling for recovery under Section 11A of the Act, hence, this was not a case for charging of interest under Section 11AB of the Act. Learned counsel appearing on behalf of the assessee submitted that this case is squarely covered by the judgement of three learned Judges of this Court in the case of M.R.F. Limited v. Collector of Central Excise, Madras, reported in 1997 (92) E.L.T. 309. 7. We find no merit in the submissions advanced on behalf of the assessee. The controversy arising in this civil appeal is squarely covered by the judgement of this Court in the case of Commissioner of Central Excise, Pune v. SKF India Limited, reported in 2009 (239) E.L.T. 385. We quote hereinbelow relevant observations made in the case of SKF India Limited [supra], which reads as follows : "9. Section 11A puts the cases of non-levy or short levy, non-payment or short payment or erroneous refund of duty in two categories. One in which the non-payment or short payment etc. of duty is for a reason other than deceit; the default is due to oversight or some mistake and it is not intentional. The second in which the non-payment or s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ifferential duty by the assessee at the time of issuance of supplementary invoices to the customers demanding the balance of the revised prices clearly falls under the provision of sub-section (2B) of section 11A of the Act. 12. The Bombay High Court, Aurangabad Bench, in its decision in The Commissioner of Central Excise, Aurangabad v. M/s Rucha Engineering Pvt. Ltd., (First Appeal No. 42 of 2007) that was relied upon by the Tribunal for dismissing the Revenue's appeal took the view that there would be no application of Section 11A(2B) or section 11AB where differential duty was paid by the assessee as soon as it came to learn about the upward revision of prices of goods sold earlier. In M/s. Rucha Engineering the High Court observed as follows : 'It is evident that the Section (11AB) comes into play if the duty paid/levied is short. Both, the Commissioner (Appeals) and the CESTAT have observed that the Assessee paid the duty on its own accord immediately when the revised rates became known to them from their customers. The differential duty was due at that time i.e. when the revised rates applicable with retrospective effect were learnt by the Assessee, which was much after ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (2) to sub-section 2(B) is reiterated in Section 11AB of the Act, which deals with interest on delayed payment of duty. From the Scheme of Section 11A(2B) and Section 11AB of the Act, it becomes clear that interest is levied for loss of revenue on any count. In the present case, one fact remains undisputed, namely, accrual of price differential. What does differential price signify? It signifies that value, which is the function of the price, on the date of removal/clearance of the goods was not correct. That, it was understated. Therefore, the price indicated by the supplementary invoice is directly relatable to the value of the goods on the date of clearance, hence, enhanced duty. This enhanced duty is on the corrected value of the goods on the date of removal. When the differential duty is paid after the date of clearance, it indicates short-payment/short-levy on the date of removal, hence, interest which is for loss of revenue, becomes leviable under Section 11AB of the Act. In our view, with the entire change in the Scheme of recovery of duty under the Act, particularly after insertion of Act 14 of 2001 and Act 32 of 2003, the judgement of this Court in the case of M.R.F. Lim....