2017 (4) TMI 1085 - AT - Service Tax

Liability of service tax - fee collected for testing and certifying seeds at the request of the persons in terms of Section 9 of the said Act - Revenue held a view that the appellants are liable to service tax in terms of Section 65 (108) of the FA, 1994 under the category of Technical Inspection and Certifying Agency Service - appellants contended that they are a statutory authority, performing a statutory function and there is no service element to be taxed under the category of technical inspection and certification - Held that - the appellants have taken the inspection or examination of seeds in various stages starting from cultivation, harvesting, grading and quality checking in order to arrive at the decision whether the seeds meet the pre-set standards. Thereafter, due certification is given. We find that the activities of the appellant are covered by technical inspection and certification service. The appellant s liability to service tax is to be upheld - demand confirmed pursuant to SCN dated 22/10/2010 shall be restricted to the normal period and the penalties imposed u/s 76 and 78 are set aside - appeal disposed off - decided partly in favor of appellant.

Summary

Issues Involved:
1. Liability of the appellant to pay service tax on the fee collected for testing and certifying seeds.
2. Entitlement of the appellant for refund of service tax amounting to ?2,88,60,509/-.
3. Confirmation of service tax demand of ?93,14,970/- for the period January 2009 to February 2010.
4. Invocation of extended period for demand and imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Liability of the appellant to pay service tax:
The central issue revolves around whether the appellant, a statutory agency created under the Seeds Act, 1966, is liable to pay service tax on fees collected for testing and certifying seeds. The Revenue contends that the appellant's activities fall under the category of "Technical Inspection and Certification Agency Service" as per Section 65 (108) of the Finance Act, 1994. The appellant argued that they are performing statutory functions and the fees collected are in the nature of compulsory levy, not a service provided for consideration. However, the tribunal found that the activities of the appellant, which include testing and certification of seeds, fall under the taxable category of technical inspection and certification service. The tribunal noted that the process involves various stages such as cultivation, harvesting, grading, and quality checking, culminating in certification. Thus, the service tax liability of the appellant under this category was upheld.

2. Entitlement for refund of service tax:
The appellant sought a refund of ?2,88,60,509/- paid on 10/03/2009, claiming it was paid under coercion. The tribunal noted that the amount was paid after an enquiry by the Department and there were no adjudication proceedings resulting in a demand by a competent officer. Since the service tax liability was upheld, the tribunal found no reason to interfere with the orders of the lower authorities rejecting the refund claim.

3. Confirmation of service tax demand for January 2009 to February 2010:
The appellant challenged the confirmation of service tax demand of ?93,14,970/- for the period January 2009 to February 2010. The tribunal reiterated its earlier finding that the appellant's activities are taxable. However, the tribunal noted that the show cause notice dated 22/10/2010 invoked an extended period of limitation, which was not legally sustainable. The tribunal found that the Department was aware of the appellant's activities and had earlier directed them to pay service tax for a different period. Hence, the demand should be restricted to the normal period only.

4. Invocation of extended period and imposition of penalties:
The tribunal found no justification for invoking the extended period for demand, given the earlier enquiries and the appellant's compliance in paying service tax for the past period. The tribunal also noted the appellant's bonafide belief regarding non-liability to service tax based on contradictory stands taken by the Department. Consequently, the penalties imposed under Sections 76 and 78 of the Finance Act, 1994, were set aside.

Conclusion:
The tribunal concluded that the appellant's liability to service tax is upheld. However, the demand confirmed pursuant to the show cause notice dated 22/10/2010 shall be restricted to the normal period, and the penalties imposed under Sections 76 and 78 are set aside. The appeals were disposed of accordingly.