2014 (1) TMI 361 - AT - Service Tax

Demand of service tax - Security staff provided to BSNL - Invokation of extended period of limitation - Imposition of penalty - Valuation of service - Whether the services provided by the assessee can be considered as security services or these are manpower Supply Services - Held that - Ongoing through the agreement it is very clear that assessee is required to provide security guards to M/s. BSNL. Security guards also expected to be in Army Uniform while on duty. The responsibility of character etc. of the guards remains with the assessee. Assessee is expected to submit bill including their wages to M/s. BSNL and BSNL in turn paid to the assessee. The fact that the assessee is expected to disburse the amount of wages in presence of BSNL official will not made a difference on the nature of service or amount of service tax to be paid. Personal supplied are expected to work as security guard, and ensure security of articles and equipments in the building and offices. Keeping in view the agreement and the definition of the security agency as stipulated under Section 65 (79)of the Finance Act, 1994, we have no doubt that the service provided by the assessee is that of security agency - wages of security guards will form part of the assessable value as far as security agencies service is concerned. Assessee had taken the registration and also filing the returns wherein all the details were being indicated. We also note that the assessee a Retd. Army officer was not collecting any service tax form his client even on the service charges. Keeping in view peculiar facts and circumstances of the case, we find that ingredients to invoke the extended period are absent in the present case. Accordingly, we set aside the demand which is beyond the normal period of limitation. We also observe that only a part of the demand i.e. from October 2004 to March 2005 will remain within the normal period of limitation. The demand within the normal period is confirmed. We also consider the case to be fit for waiving the penalty by exercising the power under Section 80 of the Finance Act, 1944 - Decided partly in favour of Revenue.

Issues Involved:

1. Classification of Services: Security Services vs. Manpower Supply Services.
2. Valuation of Services: Inclusion of wages in assessable value.
3. Invocation of Extended Period of Limitation.
4. Applicability of Unjust Enrichment Doctrine.
5. Procedural Validity of Revenue's Appeal.

Issue-wise Detailed Analysis:

1. Classification of Services: Security Services vs. Manpower Supply Services

The primary issue was whether the services provided by the assessee were to be classified as security services or manpower supply services. The agreement between the assessee and BSNL indicated that the assessee was required to provide security guards to BSNL. The security guards were expected to be in army uniform and the responsibility of their character remained with the assessee. The Tribunal concluded that the nature of the services provided was clearly security services, as defined under Section 65(79) of the Finance Act, 1994. The Tribunal rejected the assessee's argument that he was merely supplying manpower and acting as a labor contractor. The services were classified as security services based on the agreement and statutory definition.

2. Valuation of Services: Inclusion of Wages in Assessable Value

The second issue concerned the valuation of the services for the purpose of service tax. The Tribunal referred to various judgments, notably the Kerala High Court's decision in Security Agencies Association vs. Union of India, which upheld that the gross amount, including wages paid to security guards, should form the assessable value for service tax purposes. The Tribunal dismissed the assessee's contention that wages were reimbursable expenses and should not be included in the taxable value. It was held that wages were the main element in providing the security service and thus, should be included in the assessable value.

3. Invocation of Extended Period of Limitation

The assessee contended that the extended period of limitation should not be invoked as he had been filing returns and was not collecting service tax from his client even on the service charges. The Tribunal found that the ingredients to invoke the extended period were absent in this case. Consequently, the demand beyond the normal period of limitation was set aside, confirming the demand only for the period within the normal limitation (October 2004 to March 2005).

4. Applicability of Unjust Enrichment Doctrine

In the second appeal concerning the refund claim filed by the assessee, the Tribunal upheld that the assessee was not entitled to the refund as the demand on merits included wages in the assessable value. The Tribunal also stated that the doctrine of unjust enrichment would apply, and it was the assessee's responsibility to prove that the burden of duty had not been passed on to the client. The appeal by the Revenue against the sanctioning of the refund claim was allowed.

5. Procedural Validity of Revenue's Appeal

The assessee challenged the procedural validity of the Revenue's appeal, claiming it was not filed following due process. The Tribunal reviewed the appeal papers and found that the Committee of Commissioners had examined the order and directed the filing of the appeal, indicating the application of mind. The appeal was filed by the Additional Commissioner as authorized, and thus, the assessee's contention on this aspect was rejected. The appeal was filed within the prescribed period, and the procedural validity was upheld.

Conclusion:

The Tribunal concluded by allowing the Revenue's appeal on merits, confirming the demand within the normal period of limitation, and setting aside the penalties imposed. The appeal filed by the Revenue against the sanctioning of the refund claim was also allowed. All appeals and cross-objections were disposed of in these terms.

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