2020 (9) TMI 939 - AT - Service Tax

Recovery of tax dues - rendering of erection, commissioning or installation service - wrongly availled CENVAT Credit - services provided from outside India to the appellant - reverse charge mechanism - period April 2009 and March 2012. Demand of ₹ 17,55,58,713 has been confirmed to be due from the appellant company as tax on services procured from outside India for execution of the contract with M/s Oil and Natural Gas Corporation Ltd. - HELD THAT - The appellant is not provider of service from outside India but an assessee within the meaning of Finance Act, 1994, the correctness of taxability, under challenge by the appellant company, must be decided in terms of section 66A of Finance Act, 1994 read with Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 - It is contended on behalf of the appellant company that the substantial portion of the demand, relating to charter of a vessel, is not leviable as the vessel was not operational for the entire period in India. Undisputedly, as pointed out by Mr Mondal, evidence of such is not available; nevertheless, it would appear that the contention arising from the delivery, and the handing over, having occurred outside the country was not considered before crystalizing the demand. Furthermore, it is claimed that two other taxable activities would, in terms of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, not be leviable to tax as these were performance-based and to be taxed accordingly. These appear to be pleadings made for the first time ever. Naturally, these need to be attended to before the appellate jurisdiction can decide on the correctness, or otherwise, thereof. Imposition of various penalties - HELD THAT - The adjudicating authority itself appears to have been uncertain of the provision under which tax levy arose; attribution of more certainty to the appellant company does not appear to be equitable. In such circumstances, it is difficult to conclude, with absolute sureness, that intent to evade taxes was manifest in the actions of the appellant company. No evidence to the contrary is adduced in the show cause notice. The site of the revamp, far beyond the territorial waters, may well have given rise to misconceptions about taxability at the place at which service was rendered. Errors in computation of demand has been admitted to in the crystalization of revised demand. Towards the liability in the second notice, ₹ 17,55,26,556 has been deposited before issue of show cause notice on account of tax and ₹ 11,79,54,465 on account of interest - in terms of section 73(3) of Finance Act, 1994, with no dues apparently pending, there is no scope for imposition of penalty under section 78 of Finance Act, 1994. We, therefore, set aside the penalties imposed on the appellant company. Appeal of Revenue against the restricted penalty is, thus, infructuous and is dismissed. The claim of the appellant to lower tax liability on output service, owing to eligibility for abating of material cost from the taxable value of services, must be responded to. Likewise, the appellant must be given an opportunity to validate claim for availment of CENVAT credit of ₹ 2,88,93,108. The claim of the appellant company to exclude the value of supply of tangible goods service , survey and exploration of mineral, oil and gas service and technical inspection and certification service , for the reasons specified in the appeal, needs to be scrutinized. Remand is warranted for the purpose. With the finding that service provided under contract to M/s Oil and Natural Gas Corporation Ltd is liable to tax from M/s Sarku Engineering Services as also on the services procured from outside India to the extent permissible, and in accordance with Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 we direct that the matter revert to the original authority for fresh quantification net of the exclusions, to the extent available to them, after affording opportunity to assessee for exercise of option to claim abatement of value of material used for rendering output service and to furnish data in support of the several claims recorded - Appeal allowed by way of remand.

Issues Involved:
1. Tax liability under section 66A of Finance Act, 1994.
2. Wrongful availment of CENVAT credit.
3. Classification of services rendered.
4. Application of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
5. Penalties under sections 70, 77, and 78 of Finance Act, 1994.
6. Taxability of services procured from outside India.
7. Remand for fresh quantification and validation of claims.

Detailed Analysis:

1. Tax Liability under Section 66A of Finance Act, 1994:
The appellant argued that the tax liability should be on the recipient (ONGC) as the service was provided from outside India and the project office in India did not constitute a business or fixed establishment. The Tribunal rejected this argument, citing that the appellant had a project office in Mumbai and was registered under Service Tax Rules, 1994. The Tribunal emphasized that the legislative intent of section 66A was to close tax loopholes and that the appellant, by acknowledging the show cause notice and participating in proceedings, forfeited any claim to extra-territorial exemption.

2. Wrongful Availment of CENVAT Credit:
The initial demand of ?2,88,93,108 for wrongful availment of CENVAT credit was dropped by the adjudicating authority but not allowed for adjustment towards dues. The Tribunal directed that the appellant must be given an opportunity to validate their claim for this credit.

3. Classification of Services Rendered:
The appellant contended that the service provided was wrongly classified. The adjudicating authority confirmed the demand under 'works contract service' instead of 'erection, commissioning or installation service'. The Tribunal noted that both services were taxable and that the appellant had raised the issue of 'works contract service' before the adjudicating authority, thus nullifying the claim of lack of opportunity to counter the classification.

4. Application of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:
The appellant objected to being compelled to discharge tax liability under the composition scheme. The Tribunal agreed that the appellant should not be precluded from availing a more favorable computation and directed the original authority to allow the appellant to opt for abatement of material cost from the taxable value of services.

5. Penalties under Sections 70, 77, and 78 of Finance Act, 1994:
The Tribunal set aside the penalties imposed under section 78, noting that the adjudicating authority itself was uncertain of the tax provision under which the levy arose. The Tribunal found no evidence of intent to evade taxes and concluded that the penalties were unwarranted. The appeal of Revenue against the restricted penalty was dismissed as infructuous.

6. Taxability of Services Procured from Outside India:
The appellant argued that services procured from outside India were not specified in the notice and that some services were performed entirely outside India. The Tribunal directed that these claims need to be scrutinized and considered before finalizing the demand.

7. Remand for Fresh Quantification and Validation of Claims:
The Tribunal directed the matter to revert to the original authority for fresh quantification, allowing the appellant to validate claims for abatement of material cost and CENVAT credit. The appellant was entitled to set off the consequent liability against tax and interest paid before the notice and eligible CENVAT credit.

Conclusion:
The appeal was allowed by way of remand for fresh quantification and validation of claims, with all penalties except for section 78 set aside. The Tribunal directed the original authority to re-compute the tax liability net of exclusions and allow the appellant to exercise options for abatement and validate CENVAT credit claims.

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