Pronouncements under Service tax-16 05 15v2

Recent pronouncements under Service tax

Presented by:Ca. Payal Shah

Organised by:Ghatkopar Study Circle

On:16th May, 2015

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Cases on topics

• Applicability• Valuation• Payment of Service tax• Reverse Charge Liability• Export of services• Refund of Service tax• CENVAT Credit• Service tax Audit• Circulars• Adjudication• Penalty

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Overlapping of taxes

• A & Co. is having series of hotels spread across India

• It provides boarding and lodging facilities and also provides

restaurant services

• Vide Rule 2C of Service tax (Determination of Value) Rules,

2006, Service tax is payable on 40% of billed value

• As per VAT Laws of respective State, VAT has to be charged on

100% of the billed value

• Whether Service tax can be charged on supply of food?

• Whether this overlapping of taxes is allowed?5/16/2015

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• Section 65B (44) of Finance Act, 1994

“service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—(a) an activity which constitutes merely,—(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or(iii) a transaction in money or actionable claim;– …

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• Article 366 (29A) of the Constitution of India

(29A) tax on the sale or purchase of goods includes…(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made

• Section 66E of Finance Act, 1994: Declared ServicesThe following shall constitute declared services, namely :—…(i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.

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• Rule 2C of Valuation Rules

Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering. — Subject to the provisions of section 67, the value of service portion, in an activity wherein goods being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity at a restaurant or as outdoor catering, shall be the specified percentage of the total amount charged for such supply, in terms of the following Table, namely :-

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Sr. No. Description Taxable value = % of total amount

1 Restaurant 40%

2 Outdoor catering 60%

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No VAT on value of services

• Hotel East Park vs. Union of India (Chhattisgarh) 2014 (35) STR 433– Constitutional Validity

• Article 366 (29A) of COI has bifurcated supply of food into 2 part; service part and sale of goods

• Service tax only on service portion vide Section 66E (i) of FA, 1994• Accordingly, it held that section 66E(i) was intra vires the Constitution

– Valuation• Rule 2C of Service tax Rules, 2006 – Service tax presumed to be 40%/60%• VAT cannot be charged on the value demarcated by Service tax• State Government is directed to frame such rules and issue suitable

clarification

• Similar view pronounced by Uttarakhand High Court in case of Valley Hotel & Resorts vs. Comm of Commercial Tax, Dehradun (Uttarakhand) 2014 (35) STR 28

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• Chhattisgarh High Court directed respective State Government to make rules so that no VAT is charged on value on which Service tax is levied

• What about assessees in Mumbai Jurisdiction?– Judgment of other High Courts has persuasive value even if the said decision is appealed to

Supreme Court• Sports Club of Gujarat Ltd. vs. Union of India 2013 (31) STR 645 (Guj.)

– Strong case on merits– When there are 2 views on the subject matter, the one favouring assessee shall be adopted– Bona fides

• Recent amendment under Maharashtra VAT Laws– No VAT on Service tax amount– Nothing mentioned about VAT on value on which Service tax is leviable

• Practical issues– Trade Conflicts

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Levy of Service tax on equipment leasing and hire purchase transactions

• Kerala Non Banking Finance Com. vs. Union of India (Ker.) 2015 (37) STR 41– Constitutional Validity

• There is no conflict between the levy of sales tax on the sale or deemed sale of vehicle and the Service Tax payable on services rendered by the Financier under the hire-purchase agreement. So much so the Constitutional provision referred above authorising sales tax does not stand in the way of Parliament levying Service Tax on taxable service charges received in respect of hire-purchase transactions by the Financiers

• Since incidence of Service Tax is not on sale of goods or deemed sale of goods pertaining to leasing and hire-purchase transactions covered by clauses (c) and (d) of Article 366(29A) of the Constitution of India, we uphold the authority of Parliament to authorise levy of Service Tax on banking and other financial services including equipment leasing and hire-purchase

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Levy of Service tax on charges collected from members by a club/society…

• A gym is providing various services to its members such as yoga, sports etc.

• Gym is registered as Public Charitable Trust

• Whether services provided by club to its members is leviable to Service tax?

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…Levy of Service tax on charges collected from members by a club/society…

Pre negative list of services scenario:• Explanation to Section 65 Of the Finance Act, 1994

Explanation. — For the purposes of this section, taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration

• Ranchi club Ltd. vs. Chief Commissioner of C. Ex. & S. T., Ranchi Zone 2012 (26) STR 401 (Jhar.) admitted in Supreme Court in 2013 (32) STR J34 (SC)– In view of mutuality, if club provides any service to its members, it is not a service

by one legal entity to another, and is not liable to Service tax– Sale and service - Nature of - Sale entails transfer of property whereas service does

not -However, both transactions requires existence of two parties - Sale requires seller and buyer, and Service requires service provider and service receiver

• Sports Club of Gujarat Ltd. vs. Union of India 2013 (31) STR 645 (Guj.)

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…Levy of Service tax on charges collected from members by a club/society…

• Joint Commercial Tax Officer, ... vs Young Men‘s Indian Association ... on 12 February, 1970 SCC (1) 462– Unlike proprietary clubs the case of a members' club is analogous to that of an agent

investing his own monies for preparing things for the consumption of the principal and later recouping himself for the expenses incurred. Therefore, in the present case, even though the clubs are distinct legal entities they were ,Only acting as agents for members in the matter of supply of various pre- parations to them and no sale would be involved as the element of transfer would be completely absent. [685 A-B, 686 H]

– the clubs or associations sought to be rendered liable in these appeals were not transferring property belonging to them but were merely acting as agents for and on be-half of the members. They were not selling goods but were rendering a service to their members

• Post negative list of services:Explanation 3 to Section 65B (44) Of the Finance Act, 1994– For the purposes of this Chapter,—– (a) an unincorporated association or a body of persons, as the case may be, and a

member thereof shall be treated as distinct persons.

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…Levy of Service tax on charges collected from members by a club/society

• Matunga Gymkhana vs. Commr. Of ST, Mumbai (Tri.-Mum.) 2015 38 STR 407– In view of decision of Jharkhand High Court in the case of Ranchi Club Ltd.,

on application of principle of mutuality, services provided by appellants to their respective members would not fall within ambit of taxable club or association service nor the consideration whether by way of subscription/fee or otherwise received therefor be exigible to Service Tax

• Whether the case is applicable post negative list scenario?

• Publication by one of the very renowned News paper – The decision means a flat-owner or owner of a commercial premise in a

housing society registered under the Maharashtra Co-operative Societies Act will have to pay much less. The society will not be required to impose a service tax charge (currently 12.36%) against maintenance charges collected from its members.

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Service tax on Reimbursements

• A Pvt. Ltd. is providing consulting engineering services to National Highway Authority of India

• A Pvt. Ltd. recovered Travel, hotel stay, transportation etc. incurred by it in the course of providing taxable services

• Whether such reimbursements shall form part of gross value of taxable services?

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Service tax on Reimbursements…

• SECTION 67. Valuation of taxable services for charging service tax.(1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such 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;…

• RULE 5 of Service tax (Determination of Value) Rules, 2006Inclusion in or exclusion from value of certain expenditure or costs. — (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service…

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…Service tax on Reimbursements…

• RULE 5 of Service tax (Determination of Value) Rules, 2006– Exclusions– As a pure agent

• Contractual Agreement• Title• Use• Actual Amount

– 8 Conditions to exclude the expenditure or cost incurred by SP as pure agent from the value of taxable services• Pure agent• SR receives and uses• SR liable to make payment• SR authorises• SR knows that the goods or services shall be provided by the third party• Separate indication in Invoice• Actual recovery• Procurements in addition to services provided

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…Service tax on Reimbursements…

• Intercontinental Consultants & Technocrats Pvt. Ltd. 2014 (35) STR J99 (SC)– Delhi High Court had ruled that no Service tax can be levied on reimbursements in

absence of legislative competence– Hon’ble Supreme Court granted leave in SLP filed by department– Thereby, Hon’ble Supreme Court has admitted the case but final verdict is pending

• Explanation (a) to Section 67 of Finance Act, 1994 till 13th May, 2015– Consideration includes any amount payable for the taxable services provided or to be

provided

• Introduction of following in Explanation (a) to Section 67 of Finance Act, 1994 w.e.f. 14th May, 2015– Consideration includes (i) … (ii) any reimbursable expenditure or cost incurred by

the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed …

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Service tax on Reimbursements-Retrospectivity

• TRU circular 28.02.2015– Para 5.2 (iv) intention of the Department

• Section 67 prescribes for the valuation of taxable services. It is being prescribed specifically in this section that consideration for a taxable service shall include– All reimbursable expenditure or cost incurred and charged by the

service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically in Section 67

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Service tax on Reimbursements-Retrospectivity

• 2013 (289) E.L.T. 117 (Sikkim) Unicorn Industries– Authority exercising it cannot read in powers of delegated legislation something

more than what that provision in fact provides - It is impermissible to read Intent. [para 20]

• 1984 (18) E.L.T. 207(Bom.) Universal Drinks Private Ltd., Nagpur– It is only a declaratory or a procedural enactment which is normally held to be

retrospective. A remedial Act on the contrary is not necessarily retrospective. It may either be enlarging or restraining and it takes effect prospectively, unless it has retrospective effect by express terms or by necessary intendment.

• 2014 (302) E.L.T. 529 (Guj.) Goyal Traders– Interpretation of statutes - Amendments - Retrospective applicability of -

Amendments, either creating fresh liability hitherto not existing, or extinguishing accrued rights would be considered prospective unless the statute either specifically or by necessary implication gives such provision retrospective effect

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Agent can pay Service tax on behalf of Principal

• Zaheer Khan provides services to various corporates for promotion of their products

• He entered into a tripartite agreement

• As per the said Agreement, his agent had to negotiate, receive consideration, discharge Service tax, deduct expenses and his commission and had to remit balance amount to Zaheer Khan

• Department contended that this is not appropriate way of discharge of Service tax liability. Accordingly, department has demanded Service tax with interest and penalty.

• Whether the action of department is justified?5/16/2015

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Agent can pay Service tax on behalf of Principal

• Zaheerkhan B. Khan (Mum.-Tri.) 2014 (33) STR 75– Section 65 (7) of FA, 1994

• “assessee” means a person liable to pay the service tax and includes his agent

– Service Tax rendered by agents for services rendered by principal sufficient

• Section 65 made ineffective from 1st July, 2012

• W.e.f. 1st July, 2012, Section 65B (12) of FA, 1994– “assessee” means a person liable to pay tax and includes his agent

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Service tax paid by service provider for RCM Services

• Coca Cola India Pvt. Ltd. had entered into a contract for sponsorship of a Cricket team

• Service provider collected Service tax and deposited the same with Government

• Since the services were sponsorship services, covered under RCM, department demanded Service tax again from Service receiver

• Whether Coca Cola should surrender and pay huge Service tax liability on sponsorship services?

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Service tax paid by service provider for RCM Services

• Coca Cola India Pvt. Ltd. Vs. Commissioner of Service tax, Delhi III (Del.-Tri.) 2014-TIOL-2198– Relying on Delhi Tribunal’s decision in case of Hero Motocorp Limited

vs. CST, Delhi reported in 2013 (32) S.T.R. 371 (Tri. Del.) = 2013-TIOL-873-CESTAT-DEL, services were held not to be sponsorship services

– Once Service tax is discharged on a transaction under one category, Service tax cannot be demanded on the same transaction under different category again

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http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=ODg1OTY=

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Export of services and Refund of Service tax

• A Ltd., India provided marketing services to its holding company, B Plc, situated at UK

• The invoice was raised on 30th June, 2013 whereas convertible foreign exchange was realised by A Ltd. on 31st March, 2014

• Whether the services can be treated as export of services vide Rule 6A of Service tax Rules, 1994?

• In the course of providing output services, A Ltd. availed various services on which Service tax is paid

• In absence of output Service tax liability, A Ltd. filed refund claim on 14 th March, 2015 of accumulated CENVAT Credit vide Notification No. 27/2012-CE (NT) dated 20th June, 2012 read with Rule 5 of CENVAT Credit Rules, 2004

• Having regard to Section 11B of Central Excise Act, 1944, Department concluded that the refund is time barred and accordingly, rejected the refund claim

• Whether the action of department is justified?

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Export of services• Rule 6A of STR: Export of services

– The service provider is located in the taxable territory– The service recipient is located outside India– The service is not specified in negative list under Section 66D of the Act– The place of provision of the service is outside India– The payment for such service has been received by service provider in

convertible foreign exchange and– The service provider and service recipient are not merely establishments of a

distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act

• Expl. 3 (b) & Exp. 4 of Section 65B (44) of FA, 1994– Expl. 3 (b) : an establishment of a person in the taxable territory and any of his

other establishment in a non-taxable territory shall be treated as establishments of distinct persons.

– Expl. 4. : A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;

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Export of services

• Tandus Flooring India Pvt. Ltd. Vs. Commr. Of Service tax, Bangalore (AAR) 2014 (33) STR 33– The applicant proposes to enter into Marketing and Sales Support

Services agreements with Tandus US and Tandus China– They are covered by none of these exceptions, namely Rules 4 to 12 of

these Rules. Consequently in their case the place of provision of service shall be the location of the service recipients

– The applicants, as well as the recipients of service, are independent legal entities, and not merely establishments of a distinct person, as evidenced by the certificates of incorporation under the respective laws, copies of which have been furnished by them. Consequently, the bar under clause (f) above would not apply to their case

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Refund of Service tax

Refund of CENVAT Credit (Notification No. 27/2012-CE(NT) dated 18th June, 2012)

• Exporter of Goods / Services:– Refund Amount(Export turnover of goods+ Export turnover of services) x Net CENVAT credit

Total turnover– Quarterly claims– Claim before expiry of 1 year from the relevant date– Refund available on inputs and input services– Ineligible exporters if claimed

• Drawback• Rebate

– Follow procedures– Proper documentation




Situations Relevant DateRelevant Date: Explanation (B) to Section 11B of the Central Excise Act, 1944

Export of goods: Refund of Excise Duty on final product or on inputs used in manufacture of final product:Goods exported by sea or air Date on which the ship or aircraft leaves

IndiaGoods exported by land Date on which such goods passes the

frontierGoods exported by post Date of dispatch by the Post Office

Goods returned for being remade, refined, reconditioned or subject to any other similar processes in the factory

Date of entry into the factory

Goods requiring affixation of banderols if removed for home consumption but not so required for exports, if returned after being removed for exports

Date of entry into factory



Situations Relevant DateExplanation (B) to Section 11B of the Central Excise Act, 1944

Duty paid as per rates fixed by Government through Notification. After payment of duty but before expiry of that period, if the rates are reduced

Date of such reduction

Person other than a manufacturer Date of purchase of goods

Goods exempted by order under Section 5A (2) of the Central Excise Act, 1944

Date of issuance of such order

Excise duty paid provisionally Date of adjustment of duty after final assessment

Duty is refundable on the basis of judgment, decree, order or direction of appellate authority, Appellate Tribunal or any court

Date of such judgment, decree, order or direction

Any other case Date of payment of duty

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• Eaton Industries P. Ltd. 2011 (Mum.-Tri.) (22) STR 223– Statutory provisions indicating that date when payment for services

exported received as relevant date (Rule 5 of Cenvat Credit Rules, 2004 - Rule 3 of Export of Services Rules, 2005)

• Affinity Express India Pvt. Ltd. 2015 (Mum.-Tri.) (37) STR 321– Combined and harmonious reading of sub-clause (a) thereof with Rule

5 of Cenvat Credit Rules, 2004 and Notification No. 5/2006-C.E. (N.T.) indicates that period of one year is to be computed from date of export of service

– Payment condition was only to ensure that service provider received payment in convertible foreign exchange so as to get benefit of Service Tax

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• Ratio Pharma India Pvt. Ltd. (Tri.-Mum.) 2014-TIOL-2397– It is inferred that just as the relevant date in the case of Central Excise

is the date of export of goods, the relevant date in the present case would mean would be the date on which the services are exported

– To have a uniformity on the issue in view of the different judgments of the Tribunal, it is my considered view that the matter should be referred to Larger Bench

• Hundai Motor India Engineering (P) Ltd. (AP) 2015-TIOL-739 (Decision dated 4th March, 2015)– Export of services Refund of CENVAT credit under Rule 5 of the

CENVAT Credit Rules, 2004 – Relevant date for filing the refund claim – Appeal by revenue against the order of Tribunal holding that the relevant date is the date of receipt of payment

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Name of the Assessee Favourable/AgainstYear of reporting Citation Court Jurisdiction

Date of Decision

Hyundai Motor India Engineering Favourable 2015 TIOL-739 HC AP 04-03-2015

Ratio Pharma India Ref. to LB 2014 TIOL-2397 Tri. Mumbai 14-11-2014

Apotex Research Favourable 2014 TIOL-1836 Tri. Bangalore 18-09-2014

Affinity Express-ROM Against 2015 37 STR 333 Tri. Mumbai 22-08-2014Hyundai Motor India Engineering Favourable 2014 TIOL-1034 Tri. Bangalore 21-05-2014

BA Continuum India Favourable 2014 TIOL-2231 Tri. Bangalore 08-05-2014

Affinity Express Against 2015 37 STR 321 Tri. Mumbai 06-05-2014

Taco Faurecia Favourable 2014 TIOL-442 Tri. Mumbai 22-01-2014Business Process Outsourcing Favourable 2014 34 STR 364 Tri. Bangalore 31-12-2013

Bechtel India Favourable 2014 34 STR 437 Tri. Delhi 17-07-2013GTN Engineering (I) Ltd. Against 2012 28 STR 426 HC Mad. 25-08-2011

Eaton Industries Favourable 2011 22 STR 223 Tri. Mumbai 15-12-2010

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CENVAT Credit on ST paid to Commission Agent

• A Ltd. was engaged in manufacturing and sale of goods. For sale of goods, commission agents were appointed

• Service tax paid to these commission agents was claimed as CENVAT Credit by A Ltd. considering the same as services in relation to “sales promotion” which is eligible input service

• Department denied CENVAT Credit on such commission agent’s services since the commission is directly related to sales and not sales promotion

• In view of Gujarat High Court’s unfavourable decision, whether the matter can be referred to larger bench?

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• Ambika Overseas (P & H) 2012 (25) STR 348– Services provided by Overseas Commission Agents of canvassing and

procuring of orders, within the ambit of definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004 - Availment of credit upheld

• Cadila Healthcare Ltd. (Guj.) 2013 (30) STR 3– Agents were directly concerned with sales rather than sales promotion

- Services provided by them was neither Business Auxiliary Service under Sections 65(19) and 65(105)(zzb) of Finance Act, 1994, nor were they covered in main or inclusive part of definition of input service in Rule 2(l) of Cenvat Credit Rules, 2004

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• Astik Dyestuff Pvt. Ltd. (Guj.) 2014 (34) STR 814– If there is conflict between jurisdictional High Court’s decision and CBEC Circular, decision

of jurisdictional high Court is binding on the department.

– Decision of jurisdictional High Court in case of Cadila Healthcare Limited (Supra) is challenged before the Hon’ble Supreme Court and the said order is not stayed by Hon’ble Supreme Court.

– Decision of jurisdictional High Court is binding on the department rather than decision of other Courts even in case there are contradictory decisions prevailing on the subject matter.

– Since decision of Cadila Healthcare Limited (Supra) is pending before Hon’ble Supreme Court, the matter cannot be referred to Larger Bench. Even otherwise, High Court did not see any reason to take a contrary view than as given in Cadila Healthcare Limited (Supra).

– Just because there were contrary decisions, matter cannot be referred to Larger Bench when High Court was in agreement with the view taken by jurisdictional High Court.

– Accordingly, Hon’ble High Court held that the Tribunal was right in relying on the decision of Cadila Healthcare Limited (Supra) CENVAT credit of sales commission services

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CENVAT Credit on ST paid to outdoor service caterer

• Rule 2 (l) of CENVAT Credit Rules, 2004– “input service” means any service, -– …– but excludes, -– (C) such as those provided in relation to outdoor catering, beauty treatment,

health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee

• Hindustan Coca Cola Beverages Pvt. Ltd. (Mum.-Tri.) 2015 (38) STR 129– Cost of outdoor catering service used in relation to business activities for part

of cost of final product, fact not rebutted by Revenue - Cost of such services admittedly borne by appellant and not by employee - Cenvat credit not deniable

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Service tax audit

• Whether Service tax audits conducted by Department are bad in Law?

• Travelite (India) vs. Union of India (Del.) 2014 (35) STR 653– Hon’ble High Court quashed Rule 5A (2) of STR, 1994 empowering

department to carry out audit on the ground that such Rule did not have appropriate statutory backing

• Finance Act, 2014– Section 94 (2) (k) of FA, 1994 w.e.f. 6th August, 2014

In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely :-• imposition, on persons liable to pay service tax, for the proper levy and

collection of the tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified

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Service tax audit

• Rule 5A of STR, 1994 Access to a registered premises. — …(2) Every assessee shall, on demand, make available to the officer authorised empowered under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, or a cost accountant or chartered accountant nominated under section 72A of the Finance Act, 1994, - within a reasonable time not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by such officer or the audit party, as the case may be, -(i) the records as mentioned in maintained or prepared by him in terms of sub-rule (2) of rule 5;(ii) trial balance or its equivalent the cost audit reports, if any, under section 148 of the Companies Act, 2013 (18 of 2013); and (iii) the income-tax audit report, if any, under section 44AB of the Income-tax Act,

1961 (43 of 1961), for the scrutiny of the officer or audit party, or the cost accountant or chartered accountant, within the time limit specified by the said officer or the audit party or the cost accountant or chartered accountant, as the case may be.”

Notification No. 23/2014-ST dated 5th December, 2014

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Service tax audit

• CBEC Circular No. 181/7/2014-ST dated 10th December, 2014– Clarifying changes made and legal backing for conducting Service tax

Audits

• Decision stayed by Hon’ble Supreme Court on 18th December, 2014– Rule 5A (2) of STR, 1994 granted statutory backing to Service tax

authorities to conduct Service tax audit w.e.f. 6th August, 2014– The Cost Accountant or Chartered Accountant authorized under Section

72A of FA, 1994 are granted power to do Service tax Audit on or after 5th December, 2014

– In light of Hon’ble Delhi High Court’s decision, one may feel that Service tax audits done on or before 5th August, 2014 are without the authority of law

– However, one has to wait till Apex Court finally decides this issue.

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Beneficial Circulars viz-a-viz Oppressive Circulars

• Mysore Electricals Industries Ltd. 2006 (204) ELT 517 (SC)– Change in classification due to Circular– Change has to be given a prospective effect

• Suchitra Components Ltd. 2007 (208) ELT 321 (SC)– Departmental clarifications - Date of effect –– Beneficial circular to be applied retrospectively while oppressive

circular applicable prospectively– Circular when against the assessee, they have right to claim

enforcement prospectively

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Beneficial Circulars viz-a-viz Oppressive Circulars

• L & T Sargent & Lundy Ltd. 2014 (35) STR 945 (Tri.-Ahmd.)– Circular when against the assessee, they have right to claim enforcement

prospectively– C.B.E. & C. Circular No. 868/6/2008-CX., dated 9-5-2008 clarifying that export

of services without payment of Service Tax not to be treated as exempted services - Circular to be applied retrospectively and accordingly full credit admissible

• International Clearing & Shipping Agency Pvt. Ltd. 2014 (34) STR 418 (Tri.-Chennai)– Demand of Service Tax confirmed by including value of reimbursements - In

their own matter, appellant allowed benefit of exclusion of reimbursements vide Order-in-Original Nos. 35-36/2010, dated 25-8-2010, whenever conditions as laid down in Para 6 of C.B.E. & C. Circular No. 119/13/2009-S.T., dated 21-12-2009 shown to have been complied with in respect of reimbursements - HELD : Above Circular being clarificatory is applicable even for period prior to issue of such circular

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Extension for filing reply to SCN

• Tulip Global Pvt. Ltd. 2014 (36) STR 1083 (Tri.-Del.)– The appellants were repeatedly asking for extension to file reply to

SCN on account of change in counsel– Request for extending time to reply to show cause notice neither

accepted nor rejected - Adjudication order passed ex parte– Adjudicating authority under legal obligation to respond to request

for extending time - Request could have been rejected if felt that appellant was intentionally delaying proceeding

– Non-communication of decision on request keeps an assessee in dark who may entertain a view that request stands granted

– Matter remanded for fresh decision

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Recovery before concluding adjudication

• Section 87 of the Finance Act, 1994– Recovery of any amount due to Central Government. — Where any amount payable

by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made thereunder is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below :—

• R. V. Man Power Solution 2014 (33) STR 23 (Utta.)– The appellants were issued SCN but without deciding the matter and without any

hearing, notice for recovery was issued– Accordingly, all the bank accounts of the petitioner was freezed– According to me, going by the language of Section 87 of the Finance Act that any

amount payable means that amount adjudged after hearing the show cause notice and this provision of Section 87 is one of the methods of recovery of the amount due and payable after adjudication is done. Moreover, I find from the language of clause (b), there is no power to freeze the Bank accounts. At the most, if it is applied, the money can be claimed from the Bank itself. Such claim can be made only when the final adjudication has been done after quantifying the amount due and payable by the assessee

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Recovery after making pre-deposit

• Kala Mines and Minerals 2015 (38) STR 208 (Tri.-Mum.)– The Appellant complied with Section 35F of the Central Excise Act,

1944 while filing appeal.– DGCEI wrote a letter to the bankers of the Appellant to remit the

amounts lying with the bank to the Government exchequer, in pursuance to which, the bankers froze the bank accounts

– In our considered view and as also statutorily once mandatory deposit of 7.5% is made, there is no reason for recovery of any further amount from the appellant and the action of the Dy. Director, DGCEI seems to be beyond the scope of law

• Finance Act, 2015– ST payable in self-assessed return but not paid-Can be recovered with

interest without issuance of SCN

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Ca. Payal Shah 45

Penalties

• Calderys India Refractories Ltd. 2014 (36) STR 102 (Tri.-Mum.)– Discharge of Service Tax liability and interest immediately on pointing

out of short-payment - Transaction reflected in balance sheet of relevant years - Evidence indicating no intention to suppress or withhold information

– No penalty under Section 76, 77 and 78 of the FA, 1994

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PenaltiesParticulars Penalty under Section 76 (Bona

fide cases)Penalty under Section 78

(Mala fide cases)

Cases covered Cases other than

Fraud

Collusion

Wilful mis-statement

Suppression of facts

Contravention of provisions of the Act with intent to evade Service tax payment

Cases of

Fraud

Collusion

Wilful mis-statement

Suppression of facts

Contravention of provisions of the Act with intent to evade Service tax payment


Penalties

Particulars Penalty under Section 76 (Bona fide cases)

Penalty under Section 78 (Mala fide cases)

Non-levy/Non-payment/Short-levy/Short-payment/Erroneous refund of Service tax and SCN issued

Penalty not exceeding 10% of Service tax (In addition to payment of Service tax with interest)

Penalty equal to 100% of Service tax (In addition to payment of Service tax with interest)

Effective from 14th May, 2015


Penalties



Service tax with interest paid within 30 days from the date of service of SCN

No penalty Reduced penalty of 15% of Service tax provided such reduced penalty is also paid within 30 days from the date of service of SCN



Penalties



Service tax with interest and reduced penalty as per these Sections is paid within 30 days from the date of receipt of Adjudication Order

25% of the penalty imposed 25% of Service tax


Waiver of penalties

• Section 80 removal

• Pratibha Processors vs. Union of India 1996 (88) ELT 12 (SC) held that penalty is for contumacious behavior of the assessee and it is penal in nature

• Principal of natural justice to be followed



Ca. Payal Shah 51

Criterion for selection of relevant cases

• Facts of the case on hand are of prime importance• Try to find all decisions on the matter including unfavourable ones (In a year

thousands of decisions)• Try to highlight Higher Court’s decisions in favour of the assessee• Before relying on any case, please ensure that:

– The case should be read thoroughly– Understand the crux of the decision– It should not be only a stay case as far as possible– The case should be of the law applicable to the case on hand (i.e. should not be an older

decision)– If the case is based on older law, check if similar interpretation can be adopted in new

law. If yes, even an older decision can be considered– The decisions should be on merits– If the decision is on facts, the facts should be identical with that of the case on hand– Find out the latest status of the decision before relying on the same– Even if the decision is on different facts and law, check if the ratio of the decision can be

applied in the case on hand

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Disclaimer

The presentation is meant for understanding of certain important concepts pertaining to the topic. Before using the same for any statutory interpretations, raising demands or taking any business decisions, prior written consent of the author is mandatory.

The presentation highlights latest pronouncements under indirect tax. The same can not be construed to be the opinion of the Author.

In any case, the author is not responsible for the usage of the presentation material without any written consent of the Author.

The views presented in the Presentation are personal views of the Author and may not be accepted by the Tax or Judicial Authorities.

The Presentation endeavors to explain the situation of the Law as on or before the date of the presentation. The Author does not undertake any responsibility to update the same in the future.© Author


Ca. Payal ShahIndependent Practitioner and

Associate at Office No. 422, 4th Floor, Zest Business Spaces, M. G. Road, Ghatkopar (East), Mumbai – 400 077.

2/22 Nityanand Nagar, Sahar Road, Andheri (East),Mumbai-400 069.

[email protected]

Right advice at right time…


mailto:[email protected]

Documents

Pronouncements under Service tax-16 05 15v2