2018 (10) TMI 161 - AT - Service Tax

Valuation - Manpower Recruitment or Supply Agency Services - over and above the amount of wages, the appellant also collected 41% levy from the contractee and deposited the said amount with Grocery Markets and Shop Board (GMSB) - Department interpreted that 41% levy collected by the appellant should form part of the gross value, on which service tax liability is required to be discharged by the appellant - time limitation. Held that - With regard to the issue of additional 41% of levy paid to GMSB and the payment of gratuity/ex-gratia to the employees, we have perused the letter dated 19.09.2006 addressed by the appellant to the Jurisdictional Deputy Commissioner, explaining therein the entire activities undertaken by it including payment of additional levy etc. Time limitation - Held that - The department did not issue the show-cause notice within the normal period provided under Section 73(I) of the Act. Since the entire activities undertaken by the appellant were within the knowledge of the department, the charges of suppression cannot be leveled, justifying issuance of show-cause notice beyond the normal period. Thus, the proceeding initiated by the department is barred of limitation of time. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Barred by limitation - Show-cause notice period
2. Inclusion of 41% levy in gross value for service tax
3. Liability for service tax on gratuity/ex-gratia payments

Issue 1: Barred by limitation - Show-cause notice period
The appellant provided taxable services under 'Manpower Recruitment or Supply Agency Services' and deposited service tax on wages paid to employees. The department contended that the appellant should pay service tax on the 41% levy collected from the contractee and on gratuity/ex-gratia payments. The department issued a show-cause notice culminating in an order confirming a service tax demand, interest, and penalties. The appellant argued that the proceedings were time-barred as the notice was issued after the normal period. Citing the Modipon Fibre Company case, the appellant claimed the demand cannot be sustained due to the limitation.

Issue 2: Inclusion of 41% levy in gross value for service tax
The appellant collected a 41% levy from the contractee and deposited it with GMSB. The department argued that this levy should be part of the gross value for service tax liability. The appellant explained in a letter to the Deputy Commissioner that the levy was for social security and welfare benefits for workers, and the service recipient denied paying service tax on these charges. The Tribunal found that the department's proceedings were time-barred, as the appellant's activities were known to the department, and suppression charges were unjustified.

Issue 3: Liability for service tax on gratuity/ex-gratia payments
The appellant also faced a service tax demand on gratuity/ex-gratia payments made to employees. The appellant clarified in statements recorded under summon that these payments were not part of consideration for services provided. The Tribunal held that the department's failure to issue a show-cause notice within the normal period, despite knowledge of the appellant's activities, barred the proceedings. Citing the Modipon Fibre Company case, the Tribunal ruled in favor of the appellant, setting aside the impugned order due to the limitation issue.

Overall, the Tribunal allowed the appeal in favor of the appellant, concluding that the impugned order confirming the demand beyond the normal period of limitation lacked merit. The judgment highlighted the importance of timely issuance of show-cause notices and the limitations on invoking extended periods for tax liabilities.