2018 (6) TMI 674 - AT - Service Tax

Adjustment of service tax payable - case of Department is that the Commissioner ought not to have adjusted the service tax payable against the excise duty already paid - Held that - Though we may agree that Central excise duty cannot be adjusted against service tax, taking into consideration, the facts in a broader perspective, we strongly feel that the allegations in the Show cause notice for raising the demand lacks legal footing, and therefore the demand cannot sustain - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Adjustment of central excise duty against service tax payable.
2. Demand of service tax on installation charges.
3. Double taxation and legal footing of the demand.

Analysis:

Issue 1: Adjustment of central excise duty against service tax payable
The department argued that the Commissioner erred in adjusting central excise duty paid against service tax payable by the respondents. They contended that there are no provisions allowing such adjustment, emphasizing that service tax and excise duty are distinct under the Finance Act, 1994. The department insisted that the value of taxable service should be determined without adjusting excise duty paid. However, the respondents maintained that they had informed the department about including installation charges in the assessable value and discharging excise duty accordingly. The Commissioner's decision to adjust the amount towards service tax was upheld, considering the differential amount paid by the respondents for a specific period when service tax exceeded excise duty.

Issue 2: Demand of service tax on installation charges
The department raised a demand for service tax on the installation charges for the respondents' UPS units. They argued that the installation activity should be treated as a taxable service, distinct from manufacturing, and service tax should be levied accordingly. However, the respondents contended that the installation of UPS was merely incidental to manufacturing, akin to simple tasks like installing computers or washing machines. They cited legal precedents to support their argument that service tax cannot be imposed on activities already subjected to excise duty. The Commissioner's decision to quantify the demand for a limited period based on the nature of the activity was upheld, considering the substantial manufacturing aspect of the transactions.

Issue 3: Double taxation and legal footing of the demand
The Tribunal considered the possibility of double taxation if service tax were imposed on charges already subject to excise duty. They reviewed legal precedents indicating that when installation charges are included in the assessable value and excise duty is paid, demanding service tax separately may not be legally sustainable. The Tribunal also referenced a case involving the installation of air conditioners, where the installation was deemed incidental to the sale of the product. Ultimately, the Tribunal found that demanding service tax on a percentage of the sale value without considering the manufacturing aspect of the activity lacked legal basis. The Tribunal dismissed the department's appeal, upholding the Commissioner's decision on the limited demand period.

In conclusion, the Tribunal dismissed the department's appeal, affirming the Commissioner's decision on adjusting excise duty against service tax, quantifying the demand based on the nature of the activity, and rejecting the demand for service tax on a percentage of the sale value. The Tribunal emphasized the need to avoid double taxation and upheld the decision that the demand lacked legal footing in the broader perspective of the case.