2010 (5) TMI 435 - AT - Service Tax

Demand of Service Tax, interest and penalty - Dredging service dredging of river whether covered Registration obtained under Dredging service but service tax liability contended as absent in respect of dredging of river - assessee submits that they were under a bona fide belief that the activities undertaken by them did not attract levy under dredging service Held that - Appellants have no reason to entertain the bona fide belief and that they have failed to file returns relating to dredging services undertaken by them, the penalties imposed are also justified - Appellants will calculate the Service Tax liability in terms of the Order and pay the same along with the penalties

Issues Involved:
1. Taxability of dredging services for purposes other than navigation.
2. Applicability of Service Tax for services rendered prior to 16-6-2005.
3. Treatment of service charges as cum-tax value.
4. Inclusion of material value in the service charges.
5. Invocation of the extended period of limitation.
6. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act.

Detailed Analysis:

1. Taxability of Dredging Services:
The Appellants argued that dredging services for drainage and flood control should not attract Service Tax, relying on the Board's Circular dated 27-7-05 which they interpreted as limiting taxable dredging to navigational purposes. However, the Tribunal found that the definition of "dredging" under Section 65(36a) and "taxable service" under Section 65(105)(zzzb) is inclusive and not restricted to navigational purposes. The Board's Circular also clarified that the activities specified are indicative, not exhaustive. Thus, the Tribunal held that the dredging activities undertaken by the Appellants fall under taxable services.

2. Services Rendered Prior to 16-6-2005:
The Appellants contended that no Service Tax should be levied on services rendered before the levy came into effect on 16-6-2005. The Tribunal agreed, noting that during the investigation, it was claimed that about Rs. 5 crore related to pre-16-6-05 activities. Although this issue was not raised before the original authority or in the Appeal Memorandum, the Tribunal held that no demand for Service Tax on pre-16-6-05 activities is valid and remanded the matter for fresh consideration.

3. Cum-Tax Value Treatment:
The Appellants sought to treat the service charges received as cum-tax value, arguing that they had not received Service Tax from the Irrigation Department. The Tribunal found that the Appellants had raised separate bills for Service Tax and, therefore, the service charges could not be treated as cum-tax value. The Tribunal emphasized that cum-tax benefit is permissible only when the amount charged includes the Service Tax payable, which was not the case here.

4. Inclusion of Material Value:
The Appellants argued that the value of materials supplied should not be included in the service charges for Service Tax purposes. The Tribunal noted that there was no segregation of material value and no evidence of Sales Tax paid on such materials. Since this claim was raised for the first time during arguments, the Tribunal did not consider it valid.

5. Extended Period of Limitation:
The Tribunal upheld the invocation of the extended period of limitation, rejecting the Appellants' claim of bona fide belief. The Tribunal noted that the Appellants sought clarification on taxability only on 7-2-06 and received a response on 23-2-06. Despite this, they did not include dredging services in their returns or seek a Speaking Order. The Tribunal found that the Appellants' conduct justified the extended period of limitation for the period prior to October 2005.

6. Imposition of Penalties:
The Tribunal found that the penalties imposed under Sections 76, 77, and 78 of the Finance Act were justified. The Appellants failed to file returns for dredging services and did not act on the Department's clarification. The Tribunal held that the Appellants had no reason to entertain a bona fide belief and upheld the penalties.

Conclusion:
The Tribunal disposed of the Appeal by setting aside the demand for services rendered prior to 16-6-05, requiring a revision of the overall demand and penalties. The Appellants were directed to calculate their Service Tax liability and submit it to the Original Authority for verification. The Tribunal's decision emphasized the inclusive nature of the definition of dredging services and the importance of timely compliance and accurate reporting by service providers.

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