2013 (3) TMI 354 - Commissioner - Service Tax

Valuation - Classification of services - Re-imbursement expenses - inclusion in the gross value - Extended Period of Limitation - Held that - appellant received was service charges for the services such as supervision, management and execution of cable laying and associated works which has been rightly classified by the appellants themselves under consulting engineer service and had paid appropriate service tax. Handling and transporting the materials is not at all a part of such consulting engineering services. Similarly it is seen that LAA had held that the appellant is liable to pay service tax under Erection, Commissioning and Installation service . This is beyond the scope of the SCN as there was no proposal in the SCN agitating the classification of the taxable services rendered and had not discussed as for what reasons the activities of the appellant cannot be considered as alleged in the SCN i.e. handling charges. - the lower adjudicating authority had traversed beyond the scope of the show cause notice and on that score alone the impugned order could be set aside. Regarding reimbursement of expenses - The appellant submitted that the handling and transportation charges paid to the appellant by BSNL has got no connection with the services rendered by the appellant to BSNL. These amounts are paid by BSNL for the specific purpose of handling and transporting the materials from BSNL to the site of work. - held that - concur with the appellant that as they are rendering services in the category of consulting engineering services, handling and transporting the materials is not at all a part of such consulting engineering services. Regarding extended period of limitation - held that - the appellant is a government enterprise and there cannot exist any intention to evade the service tax liability as claimed by them and hold that the entire Show Cause Notice is time-barred and hence the demand is not maintainable. - Decision of Hon ble Supreme Court in the case of Collector v. Chemphar Drugs (1989 (2) TMI 116 - SUPREME COURT OF INDIA) followed - Demand and penalty set aside - Decided in favor of assessee.

Summary

Issues:
1. Liability to pay service tax on charges received for handling and transportation of materials.
2. Invocability of the extended period for the demand.

Analysis:

Issue 1: Liability to Pay Service Tax on Handling and Transportation Charges
- The appellant, a government undertaking, was providing services to BSNL and received charges for handling and transporting materials for project execution. The lower authority classified these charges under "Erection, Commission, and Installation services," leading to a service tax demand.
- The appellant contended that these charges were reimbursement expenses not subject to service tax, citing circulars and letters supporting their claim.
- The appellate authority examined the nature of services provided by the appellant and the specific handling and transportation charges. It was established that these charges were distinct from the services rendered and were reimbursed for specific activities not falling under taxable services.
- The agreement between the appellant and BSNL clarified the purpose of these charges, further supporting the argument that they were not part of the taxable services provided by the appellant.
- The appellate authority agreed with the appellant's position, concluding that the handling and transportation charges were not taxable services. The impugned order classifying these charges under a taxable category was deemed unsustainable.

Issue 2: Invocability of the Extended Period
- The show cause notice (SCN) was issued invoking the extended period, alleging non-disclosure of handling charges received from BSNL in the ST-3 Returns for the period from 2003-2004 to 2006-2007.
- The appellant argued that they believed these charges were not taxable and hence were not included in the returns, emphasizing that there was no intention to evade payment of service tax.
- Citing a Supreme Court decision, the appellant contended that beyond a six-month period, something more than mere inaction or failure was required to establish evasion of tax.
- The appellate authority concurred with the appellant, holding that the invocation of the extended period was not maintainable in this case due to the absence of deliberate evasion and the appellant's genuine belief regarding the taxability of the charges.
- Considering the appellant's status as a government enterprise, the authority concluded that there was no intention to evade service tax liability, further supporting the decision that the demand was time-barred.
- Consequently, the appellate authority set aside the impugned order-in-original, allowing the appeal based on the merits and the limitation aspects of the demand.

In conclusion, the appellate authority ruled in favor of the appellant, determining that the demand for service tax on handling and transportation charges was not sustainable and that the invocation of the extended period for the demand was unjustified. The appeal was allowed, setting aside the impugned order-in-original.