2019 (8) TMI 211 - AT - Service Tax

Valuation - security service and manpower supply services - inclusion of component of salary, EPF, ESI and uniform allowances etc. are not includible in the gross amount charged of assessable value - Section 67 of Finance Act - waiver of penalty - HELD THAT - It is evident from the provisions of the Acts that the contributions made towards the two Acts are in the nature of statutory contribution and required to be deducted by the appellant as immediate employer on behalf of Principal Employer - following the ratio laid down in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT these contributions cannot be treated as value of such service under Section 67 of the Act. Therefore, there is no authority provided in the law for subjecting these contributions to service tax under Section 67 of the Act. The provisions of the PF and ESI Act makes it clear that it will be the primary responsibility of the principal employer to deduct amount towards the PF and deposit the same with the Central Government. The appellant in this case claimed that it has deducted the contributions on behalf of principal employer, that is recipient of the service, for remittance to the competent authority in terms of the provisions of EPF and ESI Act. The contributions made towards PF ESI is, therefore, not required to be added for the purpose of calculation of the gross amount under Section 67 of the Act, if the same has been deposited with the Government. Thus, the contributions made towards EPF and ESI are not liable to be included for the computation of gross amount under Section 67(1) of the Act. Abatement towards deduction of wages and salaries paid to the personal employees by the appellant - HELD THAT - The same is covered by the decision of Mumbai Bench of this Tribunal in case of SECURITY GUARDS BOARD FOR GREATER BOMBAY THANE DIST. VERSUS COMMISSIONER OF CENTRAL EXCISE, THANE 2016 (12) TMI 859 - CESTAT MUMBAI , wherein it is held that wages and allowance including salary and administrative charge collected from client is excludible from the gross value of taxable service in terms of Section 67 of the Act - the appellant is entitled for the abatement towards the payment made on account of contribution towards ESI, EPF and PF and also towards wages and salaries while computing the assessable value in terms of Section 67 of the Act for the payment of service tax. Appeal by way of remand to the original adjudicating authority to re-determine the service tax required to be paid by the appellant - Matter on remand.

Summary

Issues Involved:
1. Demand of service tax and penalties under various sections of the Finance Act, 1994.
2. Inclusion of salary, wages, EPF, and ESI contributions in the assessable value.
3. Invocation of the extended period of limitation.
4. Waiver of penalties under Section 80 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Demand of Service Tax and Penalties:

The appeal was filed against an order confirming a service tax demand of ?2,15,96,474/- along with interest under Section 73(1) and Section 75 of the Finance Act, 1994. Penalties were also imposed under Sections 76, 77, and 78 of the Act. The appellant admitted collecting service tax from clients but not depositing it with the department. The appellant had partially paid ?27,43,417/- during the investigation.

2. Inclusion of Salary, Wages, EPF, and ESI Contributions:

The appellant argued that components like salary, EPF, ESI, and uniform allowances should not be included in the gross amount charged for service tax purposes, citing the decision in Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India. The Tribunal found that contributions towards EPF and ESI are statutory obligations and should not be included in the gross value for service tax under Section 67 of the Act. This was supported by the provisions of the Provident Fund Act and Employees State Insurance Act, which mandate these contributions as statutory and not part of the service value.

3. Invocation of the Extended Period of Limitation:

The appellant contended that the issue was interpretational and there was no deliberate suppression of facts, thus the extended period of limitation should not apply. The Tribunal noted that the appellant failed to deposit the collected service tax and did not cooperate during the investigation, indicating deliberate suppression. Therefore, the invocation of the extended period was justified.

4. Waiver of Penalties under Section 80:

The appellant sought waiver of penalties under Section 80, arguing that their non-compliance was due to a bona fide belief and interpretational issues. However, the Tribunal found that the appellant collected service tax but failed to deposit it, making a case for penalty waiver under Section 80 untenable. The Tribunal upheld the imposition of penalties on the re-determined service tax liability.

Conclusion:

The Tribunal set aside the impugned order and remanded the case to the original adjudicating authority to re-determine the service tax liability, excluding statutory contributions towards EPF and ESI, and wages and salaries from the assessable value under Section 67. The appellant would still be liable for interest and penalties on the re-determined service tax. The appeal was allowed by way of remand, and the decision was pronounced in open court on 02/08/2019.