2025 (2) TMI 592 - AT - Service Tax

Short payment of service tax - demand confirmed without classifying the category of the taxable service - demand of interest on deposit made without interest. Short payment of service tax - HELD THAT - The issue involved in the matter is in respect of the demand of Rs 2, 17, 314/- is not in respect of the services provided by the appellant to M/s Hindalco but is in respect of the services provided by the appellant else where - the demand is not even in respect of the consideration received from M/s Hindalco Renukoot as the appellant has paid the service tax due on the said consideration. Appellant had been issuing the invoices to M/s Hindalco for the services provided and have been receiving the gross consideration along with the service tax due against the provision of the said services. They also had been providing the services else where on which service tax was not paid. This amount has been found from the comparison of the figures in the profit and loss account of the appellant and the amount of consideration received by the appellant from M/s Hinndalco. As the return for the period October 2009 to March 2010 would have been due only in the month of April 2010 the Show Cause Notice issued for the period 2009-10 on 16.03.2011 is well within the normal period of limitation and cannot be disputed on any account. Demand of interest for the period 2008-09 - appellant has deposited the tax for the period on 12.09.2009 - HELD THAT - From the appellant has deposited the after receiving the same from the M/s Hindalco as per Voucher No 960611770 222SKS-UCOT-02-09-2009 dated 02.09.2009. The service tax has been deposited as soon as the same was received by the appellant. At the relevant time the service tax was payable on the receipt basis and not the accrual basis. Thus there are no delay in the payment of this amount to the exchequer. Hence the proceedings demanding interest in respect of this amount and consequent penalties imposed under section 76 of the Finance Act 1994 cannot be justified. Thus the demand of interest made in respect of this amount along with the penalty imposed set aside. Conclusion - The appellant has clearly suppressed the value of the gross consideration received. ii) Demand of Service Tax to the tune of Rs 2, 17 314/- along with interest (Section 75) and penalties (Section 78) imposed is upheld. ii) Demand of interest on the amount of Rs 4, 17, 179/- deposited by the appellant on 12.09.2009 is set aside along with the penalties imposed under Section 76. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the demand confirmed without classifying the category of the taxable service is justified.
• Whether the activities/jobs/services in relation to production or processing performed by the appellant are taxable under business auxiliary services or not, and whether such activities amount to manufacture in respect of the principal manufacturer.
• Whether Notification No. 08/2005 dated 01-03-2005 as claimed by the appellants is applicable in the instant case, and whether the entire exercise is not required being revenue neutral.
• Whether the appellants are entitled to threshold exemption as claimed by them.
• Whether the penalties proposed under sections 78 and 76 are justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Taxable Services

• Legal Framework and Precedents: The relevant legal framework involves the classification of services under the Finance Act, 1994, particularly under Section 65(19) which defines "business auxiliary service."
• Court's Interpretation and Reasoning: The Tribunal found that the demand was based on the difference between the gross amount received and the amount declared in the ST-3 returns, without proper classification. The Tribunal noted that the services provided were not clearly classified in the show cause notice.
• Conclusions: The Tribunal upheld the demand, finding that the appellant failed to classify the differential amount and proceeded to deposit the service tax without proper classification.

Issue 2: Taxability of Production or Processing Activities

• Legal Framework and Precedents: The definition of "business auxiliary service" under Section 65(19) includes services related to the production or processing of goods.
• Court's Interpretation and Reasoning: The Tribunal found that branding and caustic etching activities performed by the appellant did not qualify as "manufacture" and were therefore taxable under business auxiliary services.
• Conclusions: The Tribunal concluded that these activities were part of business auxiliary services and not exempt from service tax.

Issue 3: Applicability of Notification No. 08/2005

• Legal Framework and Precedents: Notification No. 08/2005 provides exemptions for certain services.
• Court's Interpretation and Reasoning: The Tribunal observed that the appellant had charged service tax on several occasions, which disqualified them from the claimed exemption.
• Conclusions: The Tribunal found that the exemption was not applicable due to the appellant's actions.

Issue 4: Entitlement to Threshold Exemption

• Legal Framework and Precedents: The threshold exemption is provided under notification no. 06/2005 S.T.
• Court's Interpretation and Reasoning: The Tribunal noted that the appellant had been charging service tax from the start, which debarred them from availing the threshold exemption.
• Conclusions: The Tribunal concluded that the appellant was not entitled to the threshold exemption.

Issue 5: Justification of Penalties under Sections 78 and 76

• Legal Framework and Precedents: Sections 78 and 76 of the Finance Act, 1994, relate to penalties for suppression and delayed payment of service tax.
• Court's Interpretation and Reasoning: The Tribunal upheld the penalties under Section 78 for suppression of taxable value but set aside the penalties under Section 76 for delayed payment, as the tax was deposited as soon as it was received.
• Conclusions: The Tribunal found the penalty under Section 78 justified but set aside the penalty under Section 76.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal emphasized the importance of proper classification of services and the conditions under which exemptions and penalties apply.
• Final Determinations on Each Issue: The demand of service tax amounting to Rs 2,17,314/- along with interest and penalties under Section 78 was upheld. The demand of interest and penalties under Section 76 for the amount deposited on 12.09.2009 was set aside.
• Verbatim Quotes of Crucial Legal Reasoning: "The appellant has clearly suppressed the value of the gross consideration received... Thus, appellant has clearly suppressed the value of taxable services provided by them with intent to evade payment of service tax and extended period of limitation has been rightly invoked against them."