2019 (8) TMI 80 - AT - Service Tax

Valuation - security services - manpower supply services - deduction towards contribution towards EPF, ESI, salary and wages - Non-payment of service tax - in addition, appellant have collected service tax on exempted services from their clients, various educational institute, but failed to deposit the same in the government exchequer - negative list regime - deduction of contribution towards EPF, ESI, salary and wages - section 67 of FA - HELD THAT - The appellant is engaged in providing the services of manpower recruitment and supply services which has been brought into service tax net with effect from 2.7.1997 vide Section 85(68) read with 65(105)(k) of the Act - It is on record that the appellant has provided the services of manpower supply and security agency to various educational institutes and has been collected service tax during the relevant period i.e. from 2009 to Feb. 2014. The appellant has agreed to the fact that they have not deposited the service tax collected from the educational institute which was not required to be collected in terms of the exemption notification. The demand confirmed by the impugned order is required to be re-quantified after giving abatement towards the salary and wages and the contribution made towards EPF and ESI - the entire amount of the duty of service tax collected is required to be deposited with service tax, department which appears to have been done in terms of the submissions made on behalf of the appellant - penalty not justified. Appeal allowed by way of remand.

Issues Involved:

1. Whether the appellant collected service tax from educational institutes exempt from service tax.
2. Whether contributions towards EPF, ESI, salary, and wages should be deducted from the gross amount for service tax calculation.
3. Legality of the penalty imposed under Section 78 of the Finance Act.
4. Applicability of extended period of limitation.
5. Imposition of penalty on the Director of the company.

Issue-wise Detailed Analysis:

1. Collection of Service Tax from Exempt Educational Institutes:

The appellant provided services to various educational institutes and collected service tax during the period from 2009 to February 2014. The educational institutes were exempt from service tax under Notification No. 25/2012-ST dated 20.6.2012. The appellant admitted to collecting service tax from these institutes but failed to deposit the collected amount with the government. The tribunal noted that the appellant acknowledged this fact and had made partial payments towards the service tax liability during the investigation.

2. Deduction of EPF, ESI, Salary, and Wages from Gross Amount:

The appellant argued that contributions towards EPF, ESI, salary, and wages should be excluded from the gross amount for service tax calculation. The tribunal referred to the provisions of Section 67 of the Finance Act and relevant case laws, including the decision of the Hon’ble Delhi High Court in Intercontinental Consultants and Technocrats Pvt. Ltd. vs. Union of India and the Hon’ble Supreme Court's affirmation of this decision. The tribunal concluded that the contributions towards EPF, ESI, and salaries are not includible in the gross amount for service tax purposes. The tribunal cited cases such as Security Guards Board for Greater Bombay and Thane District vs. Commissioner of Central Excise, Thane, and Young Brothers Transporters and Contractors vs. CCE, Meerut-I, supporting the exclusion of these contributions from the gross amount.

3. Legality of Penalty Imposed under Section 78 of the Finance Act:

The appellant contended that the penalty under Section 78 was incorrectly imposed as the show cause notice did not invoke Section 73A of the Act. The tribunal referred to the decision of the Hon’ble Punjab & Haryana High Court in Ajay Kumar Gupta vs. CESTAT, which held that penalty under Section 78 is not applicable when service tax is collected but not chargeable. The tribunal agreed that the penalty under Section 78 was not justified in this case, as the service tax collected was not chargeable.

4. Applicability of Extended Period of Limitation:

The appellant argued that the extended period of limitation was not invocable as the issue involved the interpretation of law. The tribunal did not specifically address this argument in detail but focused on the main issues of service tax collection and penalties.

5. Imposition of Penalty on the Director of the Company:

The appellant argued that no penalty should be imposed on the Director of the company as the company itself had already suffered a penalty. The tribunal agreed with this argument, citing the decision of the Hon’ble CESTAT in Globe Rexine Pvt. Ltd. vs. CCE, which supported the non-imposition of a separate penalty on the Director when the company has already been penalized.

Conclusion:

The tribunal set aside the impugned orders and allowed the appeals by remanding the case for the limited purpose of re-computing the service tax demand after giving abatements towards salary, wages, and contributions made towards EPF and ESI. The tribunal also held that no penalties were justified under the given circumstances. The decision emphasized the need to exclude statutory contributions and salary components from the gross amount for service tax calculation and recognized the improper imposition of penalties in this case.

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