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TMI Blog2024 (12) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... providing handling services from the destination port till the delivery at TPS which included inter alia stevedoring, unloading, port handling, transportation etc. Invoices for sale of coal were raised by the AGPTE whereas the invoices for the handling services were raised by the Appellant on the basis of the gross quantities, though the final price payable to the appellant was contingent on the reconciliation of the actual quantity and quality of coal delivered. Adjustments, reflected in credit notes issued by the Appellant, were made to account for variations in quality, such as calorific value, moisture content, and ash and sulphur content, as these impacted the coal's utility for the Consumers. Since the appellant had discharged the service tax on the basis of gross quantities involved in the invoices of handling services, tax on the amounts involved in the credit notes were adjusted upon finalisation of the price actually payable to the appellant by carrying out the determination by the Buyers as per the terms and conditions of the agreement. 1.2 During the service tax audit, objections were raised concerning the credit notes issued for these adjustments, leading to a show-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the show-cause notice and impugned Order is that the reduction made through credit notes pertains to the value of goods, which should not be included in the taxable value of services provided by the Appellant. However, this argument misconstrues the statutory framework under Section 67 of the Finance Act, 1994, and Rule 6(3). The law does not consider the reasons for adjustments in determining taxable service value, but instead focuses on the final determination of the consideration for the services rendered. In this case, the adjustments related to the quality and quantity of goods merely influenced the final agreed price but did not alter the nature of the service provided by the Appellant, which is the subject of taxation under the service tax regime. 2.4 He also submits that emphasis by revenue on "goods value" fails to acknowledge the contractual reality that the adjusted amount, regardless of its relationship to the value of goods, represents the true consideration for services rendered by the Appellant. The reduced amount, determined through the contractual reconciliation process, constitutes the "gross amount charged" for the services and is subject to service tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as per Section 67 of the Finance Act, the "gross amount charged" by a service provider represents the value of taxable services, which excludes any amount that has not been billed to the recipient, whether through a reduction in the invoice amount or a subsequent credit note reflecting the final consideration. This principle was upheld by the Hon'ble CESTAT in Linde Engineering India Private Limited v. CCE (2024), confirming that any reduction in the amount billable to the Buyers, as per the contractual terms, does not constitute the taxable value of services. In the present case, the reduced price, as finalized by the Buyers, is effectively unbilled and therefore does not fall under the definition of "gross amount charged" for the purposes of service tax under Section 67. Consequently, the service tax paid by the Appellant on the original, higher invoice amount is excessive and should either be refunded or adjusted against any existing liability. 2.8 He further submits that the amount reduced through credit notes, following the finalization of the price, does not form part of the taxable value under Section 67 of the Finance Act, and therefore, the levy of tax under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same group, but distinct persons having incorporation in different countries. Roles and responsibilities between the appellant and AGPTE were clearly defined in the respective contracts, however they were jointly and severally responsible for delivery of coal at the TPS of the Consumers which means the appellant carried equal responsibility towards the quality and quantity of the coal being delivered at the TPS. Services provided by the appellant were subjected to service tax in respective invoices for which credit notes were issued. Coal was sold by AGPTE and directly billed to the Buyers and not by the appellant. Appellant did not bill the coal to the recipients. Credit Notes issued by the appellant were adjusted against the invoices raised by them to the Buyers for handling services and not recovered or adjusted against the coal invoices which were issued by the AGPTE. Revenue has not brought on record any evidence to plausibly demonstrate that the amounts of credit notes, in full or part, were recovered by the appellant from the AGPTE. 4.1 In light of foregoing important facts which we found from the records and not disputed by the revenue, we proceed to examine the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. 4.2 Therefore, following the actual facts forthcoming from the records as well as by following the preponderance of all probabilities, it is necessary to carry a contention that the reasons for deviations beyond the specified thresholds are attributable to the period which began with the role of the appellant and not prior thereto. Thus, in light of the given facts, we find that the reasons for deviations in both the quality as well as quantity parameters are attributable to the factors beginning at the destination port when the coal is unloaded and from which the role of the appellant begins. Thus, the natural, contractual as well as obvious responsibility of the appellant for the deviations is not obliterated but substantially and significantly exists in high amplitude. Therefore, the appellant taking responsibilities thereof and allowed adjustment against their consideration is not unreasonable, artificial or avoidable. 4.3 Furthermore, the appellant has vehemently pressed the undisputed fact that the amounts involved in credit notes were actually reduced from the price payable to the appellant and not from the price payable for coal to the AGPTE. We carefully referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable services for charging service tax (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of respective invoices further reduced by the credit notes and consequently the value of taxable services shall be such gross amount charged. Accordingly the amount of tax paid in respect of the amount of credit note which did not form part of the value of taxable services as per section 67(1) was liable to be adjusted against other liabilities in terms of rule 6. 4.6 In case of CCE v. Kepco Plant Service & Engineering Company Limited, this Bench has taken similar view where the performance indicators were measured with respect to electricity which is 'goods', however the recovery was effected against the invoice of the respondent for services and against which credit notes were issued for the purpose of adjustment, relevant para of which reads as under : "5. We have carefully considered the submissions made by both the sides and perused the record. We find that there are two issues arise from the order-in-original to be considered as under:- (i) Whether the credit notes issued on account of lowering of contract price on account of PAF less than 75%, is liable to service tax or otherwise, (ii) Whether service tax is charged on the value of spares and consumables supplied dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... framework of section 67 of the Act. 4.8 Regarding the contention of adjudicating authority in impugned order as regards possibility of the Buyers to claim the deviations from the AGPTE being joint and severally liable, we do not find any merit. It is a settled position of law that what could have been done or carried out is not the subject of taxation but the actual deeds of the parties are. There are always different options and alternatives available for doing business in commercial world, however the tax laws are designed to follow the acts and deeds actually made by the taxpayers and not what they could have alternatively carried out. There is no denial that under joint and several liability framework, the AGPTE can be held liable by the Buyers, but AGPTE has not been held liable by the Buyers in the fact of this case. The parties, one of which is a public sector undertaking and credibility of their involvement in the transaction is beyond a reasonable doubt and question, unless specifically proven otherwise with the help of incriminating evidences which the revenue has not done, have chosen to and actually carried out the recovery from the price payable to the appellant and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e SWC group and may turn around and make profits in future years. Besides, M/s Maltings Ltd. is only one concern of the assessee - it is the assessee's expertise in this field on all counts that was the threat perception of the SWC group which cannot be second guessed by the revenue. Equally the fact that there was no penalty clause for violation of the Deed of Covenant, has been found by us to be incorrect given the letter dated 02.04.1994. The fact that the respondent-assessee in his letter dated 26.03.1998 in reply to the show cause notice had stated that the SWC group had gained substantial commercial advantage by the purchase of shares in CDBL as the turnover increased from INR 9.79 crores in the accounting period ending 31.03.1991 to INR 45.17 crores in the accounting period ending 31.03.1997 is again neither here nor there. As a matter of fact, the SWC group, due to its own advertisement and marketing efforts, may well have reached this figure after a period of six years (the date 30.09.1995 is wrongly recorded by the High Court in paragraph 19 - the correct date as per the letter dated 26.03.1998 is 31.03.1991, as has been pointed out by us hereinabove)." 4.10 Regarding an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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