2018 (9) TMI 390 - AT - Service Tax

Service tax collected but not paid - Business Auxiliary Service - process of mechanical treatment of Oily Sludge - whether the said service amounts to manufacture or is classified as Business Auxiliary Service? - Held that - The appellants have put forth various arguments to support their stand including that the value of taxable service worked out in the SCN namely ₹ 15,76,81,173/- is wrong and that the correct figure should be ₹ 12,30,97,874/-. They have also now sought benefit of Notification No.8/2005-ST. In the event, on the quantum of tax liability, the interests of justice would be best served by remanding the matter to the adjudicating authority for de novo consideration - matter on remand. Penalty - Held that - The elements of suppression, fraud etc. cannot be alleged against the appellant and hence imposition of penalties under Section 78 as well as Section 77 is unjustified - penalty set aside. Appeal allowed in part and part matter on remand.

Issues:
1. Service tax liability on processing of oily sludge for refineries.
2. Applicability of Business Auxiliary Service category.
3. Interpretation of Notification No.08/2005 for exemption.
4. Dispute over the value of taxable services and service tax calculation.
5. Disagreement on the payment of tax liability and penalties.
6. Consideration of arguments and submissions for de novo adjudication.

Service Tax Liability on Processing of Oily Sludge:
The appellants were involved in processing oily sludge to obtain crude oil for refineries. The investigation revealed that they collected processing charges inclusive of service tax but failed to remit it. The services provided were deemed as falling under 'Business Auxiliary Service,' necessitating a service tax payment of ?1,89,90,583 for the period from October 2004 to March 2009. The impugned order confirmed this demand, along with interest and penalties under relevant sections of the Finance Act, 1994.

Applicability of Business Auxiliary Service Category:
The appellants argued that the mechanical treatment of oily sludge was an integral part of manufacturing petrol and petroleum oils, which are excisable goods. They contended that as a manufacturing activity, it should not be categorized under 'Business Auxiliary Services.' They cited Notification No.08/2005, which exempts taxable service production for clients if certain conditions are met, including the use of raw materials supplied by the client and the return of goods to the client for further manufacturing.

Interpretation of Notification No.08/2005 for Exemption:
The appellants highlighted that they produced crude oil using raw material supplied by clients and returned the goods for further manufacturing, making them eligible for exemption under Notification No.08/2005. They emphasized that the clients paid excise duty, justifying their exemption from service tax.

Dispute Over Value of Taxable Services and Service Tax Calculation:
The appellants contested the department's calculation of taxable services at ?15,76,81,173 and the corresponding service tax of ?1,89,90,583. They provided a detailed table showing their service income, service tax collection, remittances, and disputed amounts. They argued that their net liability should be ?1,23,29,064, which they had already paid and even remitted a higher amount to the government.

Disagreement on Payment of Tax Liability and Penalties:
The department contended that the appellants did not raise the benefit of Notification No.08/2005 during adjudication and questioned the discrepancy in the amount paid by the appellants. The appellants asserted that their arguments were presented in detail during the adjudication stage but were not considered by the authorities.

Consideration of Arguments and Submissions for De Novo Adjudication:
After hearing both sides, the Tribunal found that the appellants did not dispute a tax liability of ?1,23,29,064. However, discrepancies in the demanded amount and the appellants' calculations warranted a remand for de novo consideration. The Tribunal also set aside penalties imposed under Sections 78 and 77, citing the absence of suppression or fraud by the appellants. The de novo adjudication was ordered to address the quantum of tax liability and interest, allowing the appellants to present additional arguments and evidence.

This detailed summary provides a comprehensive analysis of the judgment, covering all the issues involved and the Tribunal's decision on each aspect of the case.

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