2013 (11) TMI 1304 - AT - Service Tax

Valuation - Suppression of service tax - Mining services - Expenditure for doing mining services not included in bills raised - Held that - service recipient provided certain material to the service provider to do construction activity. Such material was of no use to the service provider except for using in the construction done for the service recipient. In this case the minerals received back from the service recipient is sold by the applicant for profit and such back to back agreements can act as vehicles for undervaluation. The applicants have not placed any material when Revenue has made an allegation that value of services billed was much less than the cost of services provided and the back to back agreements entered into between the parties was used for suppressing value of services. However, we note that the demand is made for the entire expenditure incurred ignoring the fact that part of the expenditure incurred is realized through bills raised for mining services and service tax on such amounts are already paid - Following decision of CCE Hyderabad Vs Vijay Leasing Company 2010 (12) TMI 782 - CESTAT, BANGALORE - Partial stay granted.

Issues:
1. Undervaluation of services provided by the applicant.
2. Tax liability prior to 01-06-2007 for services rendered.
3. Discrepancy in ST-3 returns filed by the applicant.
4. Financial hardship faced by the applicant.

Analysis:

Issue 1: Undervaluation of services provided by the applicant:
The Revenue alleged that the applicant suppressed the value of services rendered to the license holders, resulting in short payment of service tax. The Revenue pointed out that the applicant's expenditure for mining services was substantial, yet the bills raised did not cover these expenses, indicating undervaluation. The adjudication resulted in confirmation of service tax amounts under 'Site Formation Service' and 'Mining Service,' along with penalties and denial of Cenvat credit. The applicant argued that service tax should be based on consideration received, not on expenditure incurred, citing the Finance Act 1994. The Tribunal found suppression of service value and disagreed with the applicant's interpretation of Section 67, noting that the back-to-back agreements could facilitate undervaluation.

Issue 2: Tax liability prior to 01-06-2007 for services rendered:
The Revenue contended that even before mining services became taxable, certain activities fell under taxable 'Site Formation' services, which the applicant had not paid service tax for. The applicant argued that their mining contract could not be split into separate contracts for 'site formation' and 'mining,' and service tax could not be charged before 01-06-2007. The Tribunal considered the definition of Site Formation and upheld the Revenue's stance that consideration was received through goods sold back at lower prices, warranting service tax payment pre-2007.

Issue 3: Discrepancy in ST-3 returns filed by the applicant:
The Revenue observed that the ST-3 returns filed by the applicant did not cover the full value of debit notes raised to clients. The applicant provided a reconciliation statement showing compliance with Service Tax Rules, 1994, which require tax payment only on receipt of consideration for services rendered. The Tribunal acknowledged the reconciliation but noted that the demand was based on the audited accounts and contracts between the parties, emphasizing the discrepancy in service value realization.

Issue 4: Financial hardship faced by the applicant:
The applicant highlighted financial difficulties due to inability to conduct mining operations, resulting in losses as per the balance sheet. The Revenue countered that losses were offset by billing services below cost and the sale of a ship. The Tribunal noted the financial hardship plea but emphasized the Revenue's argument regarding billing practices and the sale of assets.

In conclusion, the Tribunal found merit in the Revenue's allegations of undervaluation and upheld the service tax demands. However, considering the financial hardships faced by the applicant, a pre-deposit amount was ordered, with the waiver of the balance dues pending appeal.

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