2024 (12) TMI 154 - AT - Service Tax

Eligibility of the appellant in adjusting the excess service tax paid on account of credit notes issued by them to service receiver from the facts of the contracts and other records - Section 67 of the Finance Act, 1994 - HELD THAT - It is very clear from the facts that the major part of the credit notes attributed to the reasons of quality and quantity variances of coal for which services were provided by the appellant. However, before dealing with the issue, it is imperative to find the facts conducive to the decision and the veracity and correctness of which is not disputed by either side. The appellant entered into tripartite agreement with AGPTE and the buyer i.e. State Trading Corporation, MMTC Limited etc i.e. Buyers. AGPTE and the appellant, though part of the same group, but distinct persons having incorporation in different countries. Roles and responsibilities between the appellant and AGPTE were clearly defined in the respective contracts, however they were jointly and severally responsible for delivery of coal at the TPS of the Consumers which means the appellant carried equal responsibility towards the quality and quantity of the coal being delivered at the TPS. Services provided by the appellant were subjected to service tax in respective invoices for which credit notes were issued - Credit Notes issued by the appellant were adjusted against the invoices raised by them to the Buyers for handling services and not recovered or adjusted against the coal invoices which were issued by the AGPTE. Revenue has not brought on record any evidence to plausibly demonstrate that the amounts of credit notes, in full or part, were recovered by the appellant from the AGPTE. It is very much transpiring from the working statements provided in support of the credit notes that the substantial part of the amount involved in credit notes was attributable to the quality and quantity parameters of coal. However, we find that the appellant has strongly pressed before us and which appears to be free from obvious doubts that the deterioration in terms of quality or quantity of coal which led to issuance of credit notes, were significantly and dominantly attributable to the process which started at unloading of coal from the vessel at the destination port at which point in time the role of the appellant as handling contractor began - there are force in the arguments placed by the appellant that the revenue has not brought any contrary evidences on record to demonstrate and show, without any iota of doubt, that the deviations were on account of movement of coal from load port to destination port and not after the coal came to the responsibility and custody of the appellant. Since it is established that the amounts of credit notes went into the invoices of service on which service tax was determined by the appellant, it has become immaterial and irrelevant as to whether the quality and quantity parameters were involving the goods . Shri Rahul Patel vehemently pressed the distinction between reasons attributable to sale of coal and reasons attributable to handling of coal while explaining that the reasons of credit notes, though germinating from what is known and classified as goods , is of no relevance. He explained that the reasons attributable to sale of coal must be distinguished from the reasons attributable to handling of coal - there are force in the arguments and theory explained by him that the facts of the case are clearly suggesting the reasons attributable to handling of coal and thus they shall be accepted as eligible reasons for credit notes against value of services, though they relate to the commodities. Section 67(1) laid down the machinery for determination of value of taxable service and according to which the amount which is charged for provision of service shall be the value of taxable services - the gross amount charged for determination of value of taxable services provided by the appellant to the Buyers shall be the amount of respective invoices further reduced by the credit notes and consequently the value of taxable services shall be such gross amount charged. Accordingly the amount of tax paid in respect of the amount of credit note which did not form part of the value of taxable services as per section 67(1) was liable to be adjusted against other liabilities in terms of rule 6 - the adjustment made by way of credit note to the Buyers by the appellant against the value of taxable service is factually as well legally correct and well within the framework of section 67 of the Act. It is a settled position of law that what could have been done or carried out is not the subject of taxation but the actual deeds of the parties are. There are always different options and alternatives available for doing business in commercial world, however the tax laws are designed to follow the acts and deeds actually made by the taxpayers and not what they could have alternatively carried out. There is no denial that under joint and several liability framework, the AGPTE can be held liable by the Buyers, but AGPTE has not been held liable by the Buyers in the fact of this case. Regarding another issue taken up by the adjudicating authority in impugned order that there was a single tender in response to which tripartite agreement was entered into by AGPTE and the appellant to supply coal under joint and several responsibility and thus it was a composite transaction. If the argument placed by the adjudicating authority is presumed to be correct, then the consequences, which the adjudicating authority failed to look at, will be necessarily to refund the entire amount of service tax charged and collected in respect of handling invoices - If the view of adjudicating authority is accepted, the entire levy of tax, which is otherwise discharged by the appellant, would fail and the appellant would entitle for refund of service tax and as consequence the demand for service tax on amount of credit notes would fail to survive. Since it is already decided that the reduction made by the appellant in the value of taxable service was within the framework of section 67 and consequently the tax paid on the entire invoice value being in excess of the value ought to have taxed, is eligible for adjustment under rule 6(3) against other liabilities, we are not inclined to decide the issue of composite transaction taken up by the adjudicating authority. The impugned order and the demands arising from the show cause notice are legally as well as factually incorrect and unsustainable and hence set aside - Appeal allowed.

Summary

Issues Involved:

1. Eligibility of the appellant to adjust excess service tax paid due to credit notes issued for handling services.
2. Determination of the taxable value of services under Section 67 of the Finance Act, 1994.
3. Distinction between reasons attributable to the sale of coal and handling of coal.
4. Impact of composite transactions on service tax liability.

Detailed Analysis:

1. Eligibility of the Appellant to Adjust Excess Service Tax:

The core issue revolves around whether the appellant, a service provider, can adjust the excess service tax paid on handling services due to credit notes issued for quality and quantity adjustments of coal. The appellant argued that the credit notes were issued in compliance with the tripartite agreements and statutory provisions, reflecting adjustments for variations in coal quality and quantity. The tribunal found that the appellant was justified in issuing credit notes for adjustments related to the handling of coal, as these adjustments were made against the service invoices and not against the coal invoices issued by AGPTE. The tribunal concluded that the appellant's actions were consistent with the statutory framework and contractual obligations, thereby allowing the adjustment of service tax paid.

2. Determination of the Taxable Value of Services:

The tribunal examined the provisions of Section 67 of the Finance Act, 1994, which defines the "gross amount charged" for taxable services. It was established that the value of taxable services should be determined by considering any adjustments made through credit notes. The tribunal affirmed that the "gross amount charged" includes deductions made via credit notes, thereby reducing the taxable value of services. The tribunal referenced judicial precedents, such as CCE v. Kepco Plant Service & Engineering Company Limited, which supported the view that the adjusted amount, after accounting for credit notes, is the correct taxable value. Consequently, the tribunal held that the appellant correctly adjusted the service tax based on the reduced invoice amount.

3. Distinction Between Reasons Attributable to the Sale of Coal and Handling of Coal:

The appellant contended that the reasons for issuing credit notes were primarily related to the handling of coal, not its sale. The tribunal agreed, noting that the deviations in coal quality and quantity were attributable to the handling process, which began at the destination port. The tribunal emphasized that the handling services were distinct from the sale of coal, and the adjustments made through credit notes were related to the service provided by the appellant. The tribunal found that the revenue failed to provide evidence to demonstrate that the deviations were caused before the coal came under the appellant's responsibility, thus supporting the appellant's position.

4. Impact of Composite Transactions on Service Tax Liability:

The adjudicating authority suggested that the transaction was composite, involving both the sale of coal and its handling, which could affect the applicability of service tax. The tribunal, however, clarified that even if the transaction was composite, the handling services were still subject to service tax as per the agreements. The tribunal noted that the revenue's argument, if accepted, would necessitate a refund of the entire service tax paid on handling services, as the transaction would be considered a sale of goods. Nonetheless, the tribunal focused on the actual deeds of the parties, rather than hypothetical alternatives, and upheld the appellant's right to adjust the service tax based on the reduced service value.

Conclusion:

The tribunal set aside the impugned order, allowing the appeal with consequential relief. It concluded that the appellant's adjustments through credit notes were legally and factually justified, aligning with Section 67 of the Finance Act, 1994. The tribunal emphasized the importance of distinguishing between service-related adjustments and those related to the sale of goods, thereby affirming the appellant's eligibility for service tax adjustment.