2017 (3) TMI 790 - AT - Service Tax

PSU - the appellant was required to execute various services to BALCO for its captive power plant at its Korba Aluminum Complex, since they did not have facilities for transportation, handling and storage of coal etc - Business Auxiliary Services - cost of transportation - whether the cost of transportation was to be included for purposes of payment of service tax under Business Auxiliary Service ? - Held that - the activity of crushing of coal cannot be covered within any of the sub-clauses of BAS until its amendment w.e.f 16.06.2005. After the said amendment, the activity can be brought within the term of processing and hence, liable to Service Tax under BAS. Consequently, there can be no demand for Service Tax prior to this date. Transportation of coal - consideration received from BALCO - whether comes under BAS or not? - Held that - In the definition of BAS, any service provided to a client in relation to the Business Auxiliary Service is covered within the definition. If the crushing of coal is considered as the activity covered under BAS, transportation of coal for such purpose would also be included since it is intimately connected with crushing. In any case, the contract for activity includes both. Hence, we find no basis to exclude ₹ 30/- from payment of service tax. Time limitation - The appellant has claimed that the Show Cause Notice is time barred. Since, the same has been issued more than one year from the date in which the appellant intimated the audit party - Held that - date of knowledge was of no significance - the SCN is not time barred. Penalty - Held that - The levy of Service Tax under BAS has seen repeated amendments to enlarge the scope of this service. Hence, we consider this to be a fit case to waive the penalties imposed in the impugned order under Section 80 of the Finance Act, 1994 - penalty set aside. The original adjudicating authority is directed to re-quantify the demand w.e.f. 16.06.2005 - appeal allowed in part and part matter on remand.

Summary

Issues:
1. Interpretation of the agreement between the appellant and BALCO regarding services provided.
2. Applicability of Service Tax on the consideration received by the appellant.
3. Time bar for issuing the Show Cause Notice (SCN).

Analysis:

Interpretation of Agreement:
The appellant, a PSU engaged in electricity generation and consultancy services, entered an agreement with BALCO for various services, including coal transportation, crushing, water supply, and infrastructure services. The dispute arose regarding the consideration received by the appellant for these services, specifically the transportation of coal within the factory premises. The appellant claimed that this cost should not be included for service tax under "Business Auxiliary Service" (BAS).

Applicability of Service Tax:
The appellant argued that the crushing of coal does not fall under the scope of BAS during the period in question. They contended that BAS, as defined in Section 65(19), did not cover processing of goods until an amendment in 2005. The Tribunal analyzed the agreement and relevant laws to determine the tax liability. It was concluded that crushing of coal could not be taxed under BAS before the 2005 amendment. However, the transportation cost was deemed integral to the service provided and thus subject to service tax.

Time Bar for SCN:
The appellant claimed the SCN was time-barred, citing their communication with the audit party regarding the exclusion of a specific amount from the consideration. The Tribunal examined relevant case laws and held that the suppression of facts could extend the time limit for issuing the SCN. As the activity became taxable post the 2005 amendment, penalties were waived, but the service tax liability from that date was upheld.

In conclusion, the impugned order was modified, directing the re-quantification of the demand from the effective date of the 2005 amendment. The Tribunal emphasized the evolving nature of tax laws and the need for accurate interpretation of agreements to determine tax liabilities accurately.