2018 (9) TMI 1515 - AT - Service Tax

Demand of service tax - Reversal of Cenvat Credit - Scope of SCN - Non-speaking order - main grievance of the department is that the impugned order is a non-speaking order without giving detailed findings either to support or counter the arguments of the noticee but has simply confirmed demands proposed in the notice and the statement of demand - principles of natural justice - Held that - The SCN had alleged in para 5.1 that value of goods (sold during taxable service) is to be included in the gross value of taxable service under section 67 of the Finance Act, 1994 . The same paragraph also alleges that assessees are liable to pay an amount of 5% of gross value of exempted service as per explanation 1(a) to rule 6(3) and 6(3A) of CENVAT Credit Rules, 2004 - These are the only two alleged infractions raised in the show cause notice. There is no other allegation or infraction that has been brought out in the show cause notice dated 11.6.2013 are for that matter in the statement of demand dated 23.4.2014. Non-fulfillment of Notification No. 12/2003-ST was not an allegation or charge raised in the show cause notice. True, para 4.4 of the notice dated 11.6.2013 did reproduce a portion of the Notification 12/2003-ST, however, without making any reference or connection to the facts of the case or making any allegation that the conditions of the notification have been violated by the department - further, in para 19, the adjudicating authority has made a reference to Circular No.96/7/2007-ST dated 23.8.2008 which had inter alia clarified that where spare parts are used by a service station for servicing of vehicles, service tax should be levied on the entire bill including the value of the spare parts. That however service provider is entitled to take input credit of excise duty paid on such parts or any goods used in providing service wherein value of such goods has been included in the bill. We are unable to fathom why the adjudicating authority has chosen to apply the facts of the case to the said circular dated 23.8.2008, particularly, when the said circular pertains to a period prior to the amendment introduced under Rule 2(e) of CENVAT Credit Rules, 2004 amplifying the definition of exempted service to include trading . It is evident that the order of the adjudicating authority has not addressed the allegations and concerns raised in the show cause notice but has instead veered off into other areas which have not been alleged in the notice or in the statement of demand - Thus, the adjudicating authority has not given any speaking order based on the allegations and charges proposed in the notice / statement of demand. The impugned order not having addressed the allegations in the show cause notice but having only confirmed the proposed demands on other grounds cannot be sustained - case remanded for fresh adjudication based on the allegations and charges made out in the show cause notice - Appeal allowed by way of remand.

Summary

Issues Involved:
1. Whether the activity of trading could be considered as falling under the definition of exempted service prior to 1.7.2012 and after 1.7.2012.
2. Whether goods sold during the provision of service are goods consumed or used in the course of provision of service could be excluded for the purpose of valuation of taxable service.
3. Whether the value of goods sold which are used or consumed in the course of providing taxable service could be excluded for the purpose of computing taxable value of service.
4. Whether the appellants should include the same in the value of taxable service and whether the benefit of Notification No. 12/2003-ST can be denied.
5. Whether the Commissioner was right in demanding over and above 5% / 6% payment on the value of exempted service calculated as per explanation 1(C) to CENVAT Credit Rules 6(3D) and again demanding separately 5% or 6% on the gross profit on sales.
6. Whether the amount demanded with interest can be sustained.
7. Whether the penalty under Rule 15 can be sustained.

Issue-wise Detailed Analysis:

1. Definition of Exempted Service Prior and Post 1.7.2012:
The Tribunal examined whether the activity of trading could be considered as falling under the definition of exempted service before and after 1.7.2012. The appellant argued that trading activities were covered under exempted services as per Rule 6(3) and 6(3D) of the CENVAT Credit Rules. The department, however, contended that the value of goods sold during the provision of service should be included in the gross value of taxable services under Section 67 of the Finance Act, 1994.

2. Exclusion of Goods Sold During Provision of Service:
The Tribunal analyzed whether goods sold during the provision of service are goods consumed or used in the course of provision of service and could be excluded for the purpose of valuation of taxable service. The appellant argued that they paid 5% on the difference between the sale price and the purchase price for trading activities, and no input credit was taken. The department insisted that the value of goods sold should be included in the taxable service value.

3. Valuation of Taxable Service:
The Tribunal considered whether the value of goods sold, which are used or consumed in the course of providing taxable service, could be excluded for the purpose of computing the taxable value of service. The appellant relied on Notification 12/2003-ST, which excluded the value of goods from the taxable value, asserting that they paid appropriate sales tax/VAT on the value of materials. The department argued that the appellant did not fulfill the conditions stated in the notification.

4. Inclusion in the Value of Taxable Service and Notification No. 12/2003-ST:
The Tribunal examined whether the appellants should include the value of goods sold in the value of taxable service and whether the benefit of Notification No. 12/2003-ST could be denied. The appellant contended that the value of materials sold should not be included in the taxable service value, while the department argued that the appellant did not meet the conditions for exemption under the notification.

5. Additional Payment Demands:
The Tribunal analyzed whether the Commissioner was right in demanding over and above 5% / 6% payment on the value of exempted service calculated as per explanation 1(C) to CENVAT Credit Rules 6(3D) and again demanding separately 5% or 6% on the gross profit on sales. The appellant argued that the Commissioner contradicted himself by treating the sale of parts as other than trading for the purpose of demand and as exempted service for the purpose of CENVAT Credit Rules.

6. Sustainability of Amount Demanded with Interest:
The Tribunal considered whether the amount demanded with interest could be sustained. The appellant argued that the Commissioner misunderstood the concept of sale and service and wrongly included the sale value of goods in the taxable value of service.

7. Sustainability of Penalty under Rule 15:
The Tribunal examined whether the penalty under Rule 15 could be sustained. The appellant contended that the issue was one of interpretation of law and rules, and they genuinely believed they had complied with the provisions of CENVAT Credit Rules and valuation provisions.

Conclusion:
The Tribunal found merit in the contentions of both the department and the appellant that the adjudicating authority had not addressed the allegations and concerns raised in the show cause notice but had veered into other areas not alleged in the notice. Consequently, the Tribunal remanded the case for fresh adjudication based on the allegations and charges made in the show cause notice, directing the adjudicating authority to address the points and arguments raised by both sides after giving sufficient opportunity to present their case. All appeals were allowed by way of remand.