Unreported Decisions – ST – April 2019

By Vinay Jain & Sachin Mishra, Advocates, Lakshmikumaran & Sridharan Attorneys

1. Whether while making a declaration under Section 107(1) of the Service Tax Voluntary Compliance Encouragement Scheme, 2013, the declarant is required to declare ‘all service tax due or payable’ and not paid as on 1.3.2013 for ‘all the services’? Whether disclosure of service tax payable on some services and non-disclosure of service tax payable on other services would amount to ‘substantially false’ declaration under Section 111(1) of the Finance Act, 1994?

Facts and Pleadings: M/s Raj West Power Limited (hereinafter referred to as ‘Appellant’), is inter-alia engaged in the business of generation of electricity. The Appellant filed a declaration to the designated authority under Section 107(1) of the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (hereinafter referred to as ‘VCES, 2013’) on 30.12.2013 under the category of ‘Business Support Service’ and ‘Manpower recruitment Service’ received during the period April 2011 to June 2012.

The Department alleged that while making the above declaration under VCES, 2013, the Appellant failed to declare service tax payable under reverse charge on the remittance made in foreign convertible currencies to the service providers under ‘Banking and Other Financial Services’. It was the case of the department that in terms of Section 105(1)(e) of the Finance Act, 1994, ‘Tax Dues’ means ‘all the service tax due or payable’ under Finance Act, 1004 and not paid as on 1.3.2013. In this regard, the department also relied upon Form VCES-1 which provides that a calculation sheet is required to be separately furnished if the ‘tax dues’ relate to more than one service. Therefore, the department alleged that the declaration made by the Appellant under the VCES, 2013 amounts to ‘substantially false’ declaration and thus liable to be rejected under Section 111(1) of the Finance Act, 1994.

The Appellant contended that service tax payable if any, under ‘Banking and other Financial Services’ under reverse charge mechanism was not the subject matter of the opted declaration under the VCES, 2013. The Appellant was under bonafide belief that no tax was payable under reverse charge mechanism at the time when such declaration was made. The Appellant submitted that the provisions of Section 111 of the Finance Act, 1994 cannot be resorted to, if the Appellant has not made any declaration regarding service tax payable for the so-called service of ‘Banking and other Financial Services’.

Judgment: The Hon’ble CESTAT referred to Second Proviso of Section 106 (1) of the Finance Act, 1994, that provides that where a notice or an order of determination has been issued to any person in respect of any period on any issue, no declaration shall be made of tax dues on the same issue for any subsequent period. The Hon’ble CESTAT observed that Second Proviso of Section 106 (1) of the Finance Act, 1994 contemplates that there can be many issues but a declaration could be made on some issue/issues. The Hon’ble CESTAT also referred to Circular dated 8.8.2013 that provides that the assessee can declare ‘tax dues’ concerning an issue which is not part of the audit paragraph. The Hon’ble CESTAT further observed that the requirement of furnishing a calculation sheet separately if service tax dues are in respect of more than one service under the Form VCES-1 cannot be the basis to conclude that to avail benefit of VCES, 2013, the declarant must necessarily disclose ‘all the tax dues’. Accordingly, the Hon’ble CESTAT held that under Section 111(1) of the Finance Act, 1994, the Commissioner should have reasons to believe that the declaration made by declarant under VCES, 2013 was ‘substantially false’ in relation to the specific service mentioned in the declaration. The department cannot invoke the above provision regarding a service for which declaration was never made on the count that the department had reason to believe that tax for that service should also have been included in the declaration. Accordingly, the Hon’ble CESTAT allowed the benefit of VCES, 2013 to the Appellant.

M/s. Raj West Power Limited vs. CST, Jaipur, CESTAT, New Delhi, decided on 28.2.2019 in the Final Order No. 50381/2019.

M/s. Raj West Power Limited

2. Whether the value of goods supplied free of cost by the service recipient shall be included in the ‘gross value’ to claim abatement under Notification dated 1.3.2006? Whether benefit of Exemption Notification dated 1.3.2006 can be denied on the count that the assessee has availed Cenvat credit on input services in relation to soil testing by wrongly discharging service tax under ‘Consulting Engineer Service’ and not under ‘Commercial or Industrial Construction Service’?

Facts and Pleadings: M/s. Madhya Bharat Telecom Infrastructure (hereinafter referred to as the ‘Appellants’) is inter-alia engaged in providing infrastructure related construction service to telecom companies which includes construction of civil work and telecom towers. The Appellant paid 100% service tax on the work order related to soil testing under ‘Consulting Engineering Service’ and availed benefit of Cenvat credit on input services. Whereas, the Appellant availed benefit of 67% abatement under Notification dated 1.3.2006 for the work order related to ‘Commercial or Industrial Construction Service’.

The Department alleged that the value of goods supplied free of cost by the service recipient shall be included in the ‘gross value’ to claim abatement of 67% under Notification dated 1.3.2006. The case of the department was that the activity of soil testing is integral part of construction services and hence taxable under ‘Commercial or Industrial Construction Service’. The department further alleged that in view of Section 65A(2)(b) of the Finance Act, 1994, the essential character of the said activity was construction service only. Therefore, by availing Cenvat credit on input services, the Appellant was not entitled to the benefit of Exemption Notification dated 1.3.2006.

The Appellant contended that even for the purposes of claiming abatement under Notification dated 1.3.2006, in view of Bhayana Builders (P) Ltd. 2018-TIOL-66-SC-ST, the value of free of cost supplies shall not be included in the ‘gross value’. The Appellant further submitted that the Appellant has not availed any Cenvat credit on the ‘Commercial or Industrial Construction Service’ rendered by it, the Appellant has only availed Cenvat credit on ‘Consulting Engineer Service’ on which it has not claimed any abatement under Notification dated 1.3.2006. Further, there are two separate work orders for both the soil testing as well as construction service, hence not a composite service.

Judgment: The Hon’ble CESTAT held that the principle laid down in the decision of Bhayana Builders (P) Ltd. 2018-TIOL-66-SC-ST should be applicable even while claiming abatement under Notification dated 1.3.2006 and the value of free of cost supplies shall not be included in the ‘gross value’. The Hon’ble CESTAT further held that the term ‘such taxable service’ in the proviso to Notification dated 1.3.2006 shows that the benefit of abatement can only be denied in cases wherein Cenvat credit on the input service has been availed by the assessee on that specific taxable service on which abatement has been claimed. Since, in the present case, the Appellant has not availed any Cenvat credit on input services relating to ‘Commercial or Industrial Construction Service’, abatement cannot be denied under proviso to Notification dated 1.3.2006. Further, the fact that there are two separate work orders for the soil testing as well as construction service and soil testing is independent of construction service as negative outcome of soil testing will result in non-rendition of construction service, the present transaction is not a composite service. In view thereof, Section 65A(2)(b) of the Finance Act, 1994 is not applicable. Accordingly, the Hon’ble CESTAT allowed the benefit of Notification dated 1.3.2006 to the Appellant.

Madhya Bharat Telecom Infrastructure vs. CCE, CESTAT New Delhi, decided on 25.2.2019 in Final Order No. 50371/2019

Madhya Bharat Telecom Infrastructure