2024 (11) TMI 401 - AT - Service Tax

Service tax demand confirmed in respect of the Goods Transport Agency (GTA) service rendered by the appellant on reverse charge basis - Assessee billed service tax on the GTA service in respect of 12 RA bills / invoices raised by them on the service recipient - appellant submits that the demand of service tax on this category from them is not sustainable as they are not the persons liable to pay tax on this activity. They contend that in respect of GTA service, service tax under reverse charge mechanism is liable to be charged at the hands of the service recipient - HELD THAT - The appellant has negated the allegation against them that they have collected service tax under the category of GTA service. Further, we observe that the charge in the show cause notice is that the appellant has billed the service tax amount in the 12 RA bills / invoices raised by them. However, there is no evidence adduced by the Revenue to substantiate the allegation that the appellant has actually 'collected' service tax. On the contrary, the appellant has submitted evidence to the effect that the service tax amount mentioned in the said bills / invoices are not collected, by producing the ledger accounts and also the Payment Advices, w.r.t. these 12 RA bills / invoices. We observe that the demand of service tax cannot be confirmed on the basis of a single invoice without verification of all the invoices that too when this single invoice relied upon, belies the allegation of the Revenue. In this regard, we derive support from the judgment in the case of M/s. R.S. Ispat Pvt. Ltd. and Shri Radhe Shyam Agarwal, Director M/s. R.S. Ispat Pvt. Ltd. 2024 (9) TMI 176 - CESTAT KOLKATA . Since, the appellant is not the person liable to pay service tax under the category of GTA service and the evidence submitted by the appellant indicates that they have not collected service tax on this service and the appellant claims that the service recipient has already paid service tax on this category, we hold that the demand of service tax of Rs. 9.03 crores confirmed under the category of GTA service from the appellant, is not legally sustainable. Reimbursable expenditure - demand pertains to procurement of HSD by the appellant in the case of exigency in terms of Clause 5.10 of the contract dated 14.05.2012 wherein such expenses of procurement are liable to be reimbursed by the service recipient - HELD THAT - We observe that as per Clause 5.10 of the contract dated 14.05.2012, such expenses of procurement are liable to be reimbursed by the service recipient. We observe that this demand is legally not tenable upto 14.05.2015 in terms of Section 67 of the Finance Act, 1994, in view of the Apex Court judgement in the case of Union of India Anr. Vs. M/s. Intercontinental consultants and Technocrats Pvt. Ltd 2018 (3) TMI 357 - SUPREME COURT . Thus, we observe that there is no service tax liable to be paid on these expenditure for diesel reimbursed by the service recipient upto 14.05.2015 except to the above extent, which was already paid to the exchequer. In respect of the remaining transactions upto 14.05.2015, we observe that the appellant did not collect service tax from the service recipient since the same is not legally payable. The Revenue did not come up with any other evidence, except the above cited evidence, to substantiate that the appellant collected service tax on this count upto 14.05.2015. Accordingly, we hold that the demand of service tax of Rs. 4.78 crores confirmed in the impugned order on this count for the period upto 14.05.2015 is not legally sustainable. Demand on advances - appellant submits that this is a double demand, wherein initially, when the advances were received, demands were raised on such advances, subsequently, service tax is demanded for the second time when they raised the final bill on the gross value which value is inclusive of the said advance component - HELD THAT - As per duly supported by documentary evidences, it is evident that the Revenue made out double demands on advances once on advances per se and for a second time on the total gross values of the final bills / invoices, which values include the advance amounts and the appellant has been paid the remaining amount after adjusting the said advances from the final bills / invoices. This fact of double demand is corroborative from the said 3 Annexures A3 to A5 themselves since there are separate columns therein for bill amounts as well as mobilization / work advances and tax liability is created against both the entries which liabilities are confirmed by the Ld. Adjudicating Authority. We, therefore, hold that the double demand confirmed in the impugned order is not legally sustainable. Demand of service tax on supply of materials - as submitted that no service tax is payable on material supplied wherein CST has already been paid - HELD THAT - This transaction is a pure supply of materials. However, in the impugned order, the nature of service has been indicated as Site Formation Service. In this backdrop, the appellant produced the related work order, invoice and a Chartered Accountant Certificate dated 10.03.2024, produced at the time of personal hearing. This documentary evidences submitted by the appellant reveals that material has been supplied in this transaction on which CST has been paid. Thus, we hold that no service tax is payable on this transaction involving only pure sale of materials. Accordingly, we hold that the demand confirmed in the impugned order, on this count is not sustainable. Demand on Road Works - appellant has billed service tax in respect of this activity and hence it is alleged that the appellant collected service tax on this activity - HELD THAT - This demand pertains to construction of roads. We observe that construction of roads is exempted under Notification No. 25/2012-ST. The said Notification clearly exempts the services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a road, bridge, tunnel, terminal for road transportation for use by general public. The notification speaks of only usage of the roads by general public and it does not refer to ownership of the roads. We have perused the depositions obtained by the investigating agency during the course of investigation from the personnel of the appellant as well as the service recipient and the payment advices of the service recipient. We find that Para 54 of the notice dated 18.11.2017 clearly admits to usage of the road by local villagers at different stretches. Shri Sameer Kumar Rout, Assistant General Manager (Taxation), UAIL in his statement dated 15.03.2017, in response to question no. 4, clearly admitted that the said road is used by the local villagers for years together even before setting up of the plant and before acquiring the ownership of the mines road by M/s UAIL. Thus, we find that the evidence available on record clearly indicates the usage of the said road by the inhabitants of 16 villages on either side of the road. The other objection of the Revenue is that the appellant billed service tax in respect of this activity and hence it is alleged that the appellant collected service tax on this activity. In this regard, we observe that even though the appellant billed service tax in two instances (invoice dated 28.10.2013 invoice no.1 dated 16.02.2015), fact remains, service tax is not paid to the appellant by the service recipient in these two cases as is evident from the corresponding payment adviceApart from the two instances cited none of the bills / invoices indicate billing of service tax. The payment advices in all the 12 cases indicate that service tax was not paid by the service recipient to the appellant. We thus observe that the Revenue has not brought in any evidence to substantiate the allegation that the appellant has actually collected the service tax. While this is the factual position, the Ld. Adjudicating Authority cited the above two bills / invoices for the purpose of confirmation of the demand without appreciating the difference between billing and collection and without establishing that the appellant collected service tax in those two cases. As the activity of construction of road is exempted from payment of service tax as per Notification No. 25/2012-ST, fortified by the cited case law and documentary evidence placed to the effect that no Service Tax was collected by the appellant, we hold that the demand of Rs.1.49 crores confirmed in the impugned order on this count is legally not sustainable. Confirmation of demand on Commission - appellant submits that they have sub- contracted some of the work orders to the sub- contractors on back-to-back basis, in which case the appellant paid service tax on the entire contract value; while disbursing this amount to the sub-contractors, they retained their profit margin and TDS and paid the remaining amount to the sub-contractors - HELD THAT - In the present case, from the factual details discussed on the issue, the activity would not fall under (i) to (vi) above. Coming to the entry (vii), there is nothing to indicate that the appellant is acting as Commission agent for the sub-contractor to whom the back-to- back contract has been given. The appellant is the one who is directly raising the bills for the work and receives the payment from the client. They are not performing any of the activities under (i) to (iv) specified to be the activities to be undertaken by the Commission agent . Since the work has been given on back-to-back basis, they retain a part of the margin as their profit and after deducting the TDS, they are giving the balance amount to the sub-contractor. Thus, we do not see that the profit margin retained by the appellant would fall under any of the above (i) to (vii) categories, so as to attract Service Tax payment under Business Auxiliary Service. It is to be noted that the appellant has not rendered any service to the sub-contractor, but it is the other way round. The profit margin on such back-to-back transfer of the contract is in the nature of trading the contract to make a profit. This activity is not mentioned as a taxable service under Section 65(19) of the Finance Act, 1994, under the definition of the Business Auxiliary Service. Hence, the confirmed demand is not sustainable. Therefore, we hold that this demand confirmed in the impugned order under the category of Business Auxiliary Service is not sustainable. Demand on Railway work - demand has been confirmed in the impugned order on the ground that it is a private railway line for use by UAIL - appellant submits that works related to Railways are exempted under Notification No. 25/2012-ST - HELD THAT - We observe that the Original Authority, without appreciating the fact that the Revenue itself admitted to the non-billing of service tax, confirmed this demand by citing invoice no.1 dated 03.09.2012 which is the subject matter of S. No. 1 of Annexure - A2 to the notice for the year 2012-13 in which case, the appellant submitted that service tax has been collected and paid during the normal course vide challan no. 106 dated 27.09.2012. All the connecting documents relating to this transaction i.e., invoice, payment advice challan. Thus, we hold that the demand confirmed in the impugned order is not sustainable. Erection, Commissioning and Testing Double Demand - HELD THAT - We observe that the Ld. adjudicating authority has not given any findings on the submissions made by the appellant on this demand in the entire Order-in- Original. Thus, we hold that the demand raised in the instant notice is a double demand as the demand on this issue has already been covered in the Notice dated 17.10.2016. We accordingly hold that this demand is not legally sustainable. Demand on Eastern piling - appellant submits that the amount involved in this demand pertains to lumpsum compensation paid by them on behalf of UAIL and got reimbursed later. Thus, the submission of the appellant is that this reimbursement does not relate to any activity which is liable for service tax - HELD THAT - There is no discussion with reference to this demand either in the notice or in the impugned order. The documentary evidence submitted by the appellant clearly reveal that M/s Eastern Piling Construction Pvt. Ltd., while executing a 33KV tower line and stringing work upto the mines top, encountered certain problems with the local villagers and negotiated with them for a lump sum compensation. For this purpose, the appellant paid the said amount to the said company and got the same reimbursed from UAIL. The documentary evidence submitted by the appellant in the form of two letters dated 27.08.2013 and 25.10.2013 and a Note dated 17.07.2013, indicate that the reimbursement received by the appellant was not related to any taxable service. Accordingly, we hold that service tax confirmed in the impugned order on this count is not sustainable. Hence, the demand confirmed in the impugned order on this count is set aside. Double demand on the advances received and the tax thereon - HELD THAT - We observe that these advances on which service tax has already been paid, are adjusted in the present bills. However, the investigating agency has taken into consideration the gross amount for the purpose of computation of the tax liability of the appellant which resulted in the excess demand. Detailed calculations and submissions in this regard are provided. Thus, we hold that the demand of Rs. 78.96 lakhs confirmed in the impugned order on this count is not sustainable. Confirmation of demand on Hiring of Additional dumper - as argued since the tax is to be payable by the service recipient and the same was already paid by him and since the appellant was not paid the said service tax, the demand on this count is liable to be set aside - HELD THAT - We have perused the revised invoice wherein the service tax billed earlier was excluded. The corresponding payment advice confirms the claim of the appellant that they have not collected the service tax on this bill. Thus, we observe that the related payment advice indicates that only service consideration was paid and no service tax component was paid. Since, the appellant was not paid the said service tax and the activity undertaken is not liable to service tax at the hands of the appellant, the demand is not legally sustainable on merit. We observe that the Original Authority for the purpose of confirming this demand. It is on record that this invoice was cancelled and a revised invoice was issued for which no service tax was paid by the service recipient to the appellant. This citation therefore will not be of any help to the Revenue. Accordingly, we hold that the demand confirmed in the impugned order on this count is not sustainable and hence we set aside the same. Demand on Works Contract Service - HELD THAT - We observe that the service rendered by the appellant include materials also and hence the said services are appropriately classifiable under the category of Work Contract Service . Accordingly, we hold that the appellant is eligible for the abatement 60% available to Works Contract Service . Thus, we hold that the appellant has rightly computed service tax on 40% of the value and correctly paid service tax as per the provisions relating to Works Contract Service on these three transactions. Appellant was paid service tax on 40% of the value in all these 3 cases as seen from the related payment advice. Accordingly, we hold that the demand confirmed on this count is not sustainable and hence we set aside the same. Notice issued invoking extended period of limitation - demand related to Commission received by the appellant - HELD THAT - We observe that the present notice was issued on the heels of the earlier notice dated 17.10.2016, covering the same period; the said notice has clearly gone on record that the appellant was providing exempt / non-taxable services like bauxite are transportation, reimbursable expenditure, road works etc., and yet did not question the said clearances. We also observe that three successive audits have been conducted during the relevant period, the audit teams did not question the said transactions; in fact, the audit memo dated 06.05.2016 for year 2014-15 has asked for reversal of proportionate CENVAT Credit on the ground that the appellant have provided taxable as well as exempt / non-taxable clearances. Thus, we observe that notice cannot be issued again by invoking extended period of limitation, as held in the case of Nizam Sugar Factory 2006 (4) TMI 127 - SUPREME COURT . Accordingly, we hold that the confirmed demand in respect of extended period, is not sustainable and hence, we set aside the same on the ground of limitation. Confirmation of CENVAT credit demand on inputs and input services - demand has been confirmed in the impugned order on the ground that the appellant had taken excess credit in certain cases and in some other cases availed credit without any supporting documents / proper duty paid documents - HELD THAT - he Audit Officers called for various documents from the appellant including CENVAT Credit Documents, statement of credit availment, item-wise and document-wise. The CENTRAL EXCISE AND SERVICE TAX AUDIT MANUAL 2015 CESTAM-2015 provides the documents to be verified by the auditors in the areas like CENVAT Credit and the auditors are bound to examine each and every aspect / record / document in relation to CENVAT Credit, Provision of services, payment of service tax, valuation, exemptions, taxable /non-taxable services etc. of the assessees. Having regard to the above position and the evidence cited by the appellant, accounts of the appellant company were audited upto the period 2014-15. We, therefore, hold that the demand under this head for the years 2013-14 and 2014-15 are liable to be set aside on time bar front and accordingly we set aside the same. Demand raised on the ground that there is misreporting of credit availment under input services instead of under inputs and vice versa - HELD THAT - Since the appellant has already produced documents evidencing availment of credit of Rs. 25,71,907/- as against the availment of credit of Rs. 27,63,848/-, as accepted by the Department in the said Annexure and since the same are available with the department, the appellant is required to produce documentary evidence in respect of the balance credit of Rs. 1,91,941/- only. The appellant submitted that they have the documentary evidence for availment of this balance CENVAT Credit of Rs. 1,91,941/- also. Accordingly, we remand the matter back to the adjudicating authority for the purpose of verification of documents w.r.t availment of CENVAT credit. Invoking extended period of limitation cannot be invoked to demand service tax and CENVAT credit - HELD THAT - We hold that the Revenue was well aware of the issues on which demand was raised in the present proceedings much before issuance of the present notice. When the facts are in the knowledge of Revenue through audit of the accounts of the appellant as well as through the proceedings of other notice dated 17.10.2016, issued under the extended period, suppression of facts with intention to evade the tax cannot be alleged and extended period of limitation cannot be invoked. Thus, we hold that the extended period of limitation cannot be invoked to demand service tax and CENVAT credit in this case. Accordingly, we hold that in the case of all the confirmed demands discussed above, the extended period provisions could not have been invoked. Hence, we hold that the following demands in respect of the extended period i.e., upto to the year 2014-15 are not legally sustainable on account of the time bar and set aside. Appellant has charged and collected service tax from the recipient but failed to pay such tax so realised to the Govt exchequer - Even though the appellant billed service tax in some of the bills initially, the appellant is not liable to pay service tax, as the service recipient has finally not paid the service tax amount to them, as evidenced by the RA bills / invoices raised for final payment / payment advices issued by the service recipient. However, we make it clear that in any of the cases where the appellant has billed service tax in the bills and collected it from the service recipient and not paid the same to the exchequer during the normal period i.e., 2015-16, the appellant is liable to pay the amount of service tax collected by them to the exchequer, even if the activity is held as not liable to service tax in this order, as per the provisions of Section 73A of the Finance Act, 1994. We have already held that the demands for the period prior to 2015-16 are not sustainable on merit as well as on limitation. Thus, the above said verification needs to be done only for the demands confirmed in the impugned order for the Financial year 2015-16, which is the demand pertains to the normal period of limitation. Revenue is directed to conduct the verification on this aspect and complete the verification within three months from the date of receipt of this order. The appellant should cooperate and produce the relevant documents for verification. Personal penalty on MD under Section 78A of the Finance Act, 1994 - Most of the demands pertain to settled issues like free supplies, reimbursable expenditure, road works, railway works and services liable to tax under RCM by the service recipient like Bauxite Ore Transportation. In addition, there are double demands on the advances, demand of service tax on supply of material, demand on lump sum compensation paid to villagers, commission, etc. These demands are set aside on limitation front too. In this backdrop, it may not be fair to impute mala fide intention on the part of Shri Ravichandra. Having regard to this position, we set aside the penalty of Rs. 1,00,000/- imposed on Shri M. V. Ravichandra, Managing Director of M/s K.V. Mohanarao Co. Pvt. Ltd. Original Authority also imposed a penalty of Rs.1 Lakh on Shri T. Srinivasa Rao, GPA Holder and Authorized signatory of M/s K. V. Mohanarao Co. Pvt. Ltd. - As we have set aside almost all the demands on merit. Most of the demands pertain to settled issues like free supplies, reimbursable expenditure, road works, railway works and services liable to tax under RCM by the service recipient like Bauxite Ore Transportation. In addition, there are double demands on the advances, demand of service tax on supply of free material, demand on lump sum compensation paid to villagers, commission, etc. These demands are set aside on limitation front too. In this backdrop, it may not be fair to impute mala fide intention on the part of Shri T. Srinivasa Rao. Having regard to this position, we set aside the penalty of Rs. 1,00,000/- imposed on Shri T. Srinivasa Rao, GPA Holder and Authorized signatory of M/s K. V. Mohana Rao Co. Pvt. Ltd.

Summary

Issues Involved:

1. Confiscation of machinery and related penalties.
2. Service tax demand on various services and free supply materials.
3. CENVAT Credit demands on capital goods, inputs, and input services.
4. Imposition of penalties on individuals and companies.
5. Limitation and invocation of extended period for demands.

Detailed Analysis:

1. Confiscation of Machinery and Related Penalties:

The appeals challenged the confiscation of 48 old and used machineries and imposition of redemption fine and penalties. The confiscation stemmed from a Novation Agreement, where capital goods were transferred without physical removal. The Tribunal held that Rule 3(5A)(a) of the CENVAT Credit Rules, which requires reversal of credit on removal of capital goods, was not applicable as there was no physical removal. The confiscation and penalties were set aside as the capital goods were not removed from their original location.

2. Service Tax Demand on Various Services and Free Supply Materials:

The Tribunal addressed multiple service tax demands:

- Free Supply Materials: The demand of Rs. 5.91 crores on materials supplied free of cost was set aside, referencing the Supreme Court's decision in Bhayana Builders, which held that free supplies should not be included in the assessable value.

- Bauxite Ore Transportation: The demand of Rs. 9.03 crores was dismissed as the service recipient was liable under the reverse charge mechanism, and evidence showed the recipient had paid the tax.

- Reimbursable Expenditure: The demand of Rs. 4.78 crores was not sustainable for the period before 14.05.2015, as per the Supreme Court's decision in Intercontinental Consultants, which excluded reimbursable expenses from the taxable value.

- Advances: The Tribunal found double demands on advances, where tax was charged on both the advance and the final bill value, and set aside the demand of Rs. 10.68 crores.

- Road Works and Railway Works: The demands were set aside as these services were exempt under Notification No. 25/2012-ST, and the roads were used by the general public.

- Commission: The demand of Rs. 1.15 crores was dismissed as it was already taxed under the main contract value, preventing double taxation.

3. CENVAT Credit Demands on Capital Goods, Inputs, and Input Services:

- Capital Goods: The demand of Rs. 3.22 crores included a double demand of Rs. 1.36 crores, which was set aside. The remaining Rs. 1.86 crores was upheld as it was paid before the notice.

- Inputs and Input Services: The demand of Rs. 69.07 lakhs was contested on limitation and merits. The Tribunal set aside demands for 2013-14 and 2014-15 on limitation, and remanded the demand for 2015-16 for verification.

4. Imposition of Penalties on Individuals and Companies:

Penalties imposed on individuals and companies were set aside due to lack of evidence of mala fide intent and the setting aside of underlying demands. The penalties on Shri M. V. Ravichandra and Shri T. Srinivasa Rao were also set aside, as no evidence of intent to evade tax was found.

5. Limitation and Invocation of Extended Period for Demands:

The Tribunal held that the extended period of limitation was not applicable as the Revenue was aware of the facts through audits and previous notices. The demands for periods up to 2014-15 were set aside on limitation grounds.

Conclusion:

The Tribunal set aside most demands and penalties on merit and limitation grounds, remanding some issues for verification. The appellants were entitled to consequential relief as per the order.