Unreported Decisions – ST – March 2021
By Vinay Kumar Jain & Sachin Mishra, Advocates
1. Whether the cost of free supply diesel for running the drilling vessel made by M/s. Oil & Natural Gas Corporation Limited (ONGC) i.e. the service recipient should be included in the value of taxable service provided by the Appellant i.e. the service provider while providing mining services to M/s. ONGC for performing drilling operations on Oil Wells? Whether the same stand is correct after Section 67 of the Finance Act, 1994 was amended w.e.f. 14.05.2015 to include inter alia, any reimbursable expenditure or cost incurred by the service provider?
Facts and Pleading: M/s. Vantage International Management Company (hereinafter the ‘Appellant’) was engaged in providing mining services to M/s. ONGC for performing drilling operations on Oil Wells in the East and West Costs of India. The agreement inter alia, provided that there will be an average consumption of diesel @ 50 KL/per day, which will be provided by M/s. ONGC at their cost.
The Appellant argued that for the period prior to 14.05.2015, the term ‘consideration’ finding place in the valuation provisions under Section 67 of the Finance Act, 1994 meant only the amount, which was payable for the provision of the taxable service. Thus, it was submitted that since M/s. ONGC was not required to make payment towards the cost of fuel to the Appellant, its value cannot be added to the taxable value for the purpose of computation of service tax liability thereon. It was further submitted that even the amended provisions to Section 67 w.e.f.14.05.2015 would not be applicable to the case of Appellant inasmuch as it had never charged the cost of fuel to the service receiver M/s. ONGC for providing the taxable service. the Appellant relied upon the judgment of Hon’ble Supreme Court in the case of Commissioner of Service Tax vs. Bhayana Builders (P) Ltd., 2018 (10) G.S.T.L. 118 (S.C.) and Union of India vs. Intercontinental Consultants & Technocrats Pvt. Ltd. – 2018 (10) G.S.T.L. 401 (S.C.), to argue that value of free supplies made under the contractual arrangement by the service receiver to the service provider cannot be added to the value of taxable service provided by the service provider.
Judgment: The Hon’ble CESTAT has held that the Appellant had never charged any cost of fuel to M/s. ONGC over and above the amount claimed by it for providing the taxable service. Since, M/s. ONGC was not required to make payment of fuel to the Appellant, its value cannot be added to the taxable value both under the un-amended and amended provisions of Section 67 of the Finance Act, 1994. Further, it was held that the Appellant herein had received the entire consideration for provision of service in monetary terms, hence, it cannot be said that it was not properly able to determine the value of taxable service, in order to attract the provisions of Rule 3 (b) of the Service Tax (Determination of Value) Rules, 2006. The Hon’ble CESTAT also held that the provisions of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 also would not attract in this case inasmuch as no cost of fuel was charged or billed by the Appellant to the recipient of service. In this regard, the Hon’ble CESTAT followed the judgment of Hon’ble Supreme Court in the case of Commissioner of Service Tax vs. Bhayana Builders (P) Ltd., 2018 (10) G.S.T.L. 118 (S.C.).
M/s. Vantage International Management Company vs. Commissioner, CESTAT Mumbai, decided on 12.2.2021 in Final Order No. A/85359/2021.
2. Whether the Appellant is liable to pay service tax under Reverse Charge Mechanism on the Export Pass fee and Import fee, Storage License Renewal fee, Excise Staff Salary and Overtime charges, Permit fee paid to the State Excise department?
Facts and Pleading: M/s. Anheuser Busch Inbev India Ltd (hereinafter referred to as the “Appellant”) are engaged, inter alia, in manufacture and sale of alcoholic beverages. The Appellant was paying Export Pass fee and Import fee, Storage License Renewal fee, Excise Staff Salary & Overtime charges and Permit fee paid to the State Excise department.
The department alleged that the aforesaid fees paid by the Appellant are with respect to the purported service provided by the State Government and in view of the amendment made to Section 66D of the Finance Act vide Finance Act, 2015, read with Notification No.06/2016-ST dated 18.02.2016, the Appellant is liable to pay service tax under reverse charge mechanism on the same.
The Appellant submitted that in terms of Entry 8 of List-II of Seventh Schedule of the Constitution of India, production, manufacture, possession, transport, purchase and sale of intoxicating liquors is the “exclusive privilege” of the State. It was also submitted that the State Government instead of engaging itself, can part with its “exclusive privilege” of trade in liquor on payment of such fee and on such terms and conditions as it can deem fit from time to time. Thus, there is no quid quo in the license fee and service, if any, rendered by the State Government. The license fee charged by the State Government is neither any tax nor fee, but it is the consideration charged by the State Government for parting with its privilege and granting it to licensee for manufacture and sale of liquor. In this regard, reliance was placed on Har Shankar Vs. Excise & Taxation Commissioner, (1975) 1 SCC 737 – 1975-VIL-14-SC. The Appellant also argued that the license fee charged by the State Government is not subject to tax as the same is not for any service. Pursuant to the retrospective amendment vide Section 117 of the Finance Act, 2019, it became even more clear that no service tax is leviable or payable on the license fee paid to the State Excise Department.
Judgment: The Hon’ble CESTAT has held that the fee charged for grant of license is not a consideration for service, but a price charged for “exclusive privilege” parted by the State, the export fee does not have an element of service and therefore not a service and accordingly not subject to levy of service tax. The Hon’ble CESTAT further observed that to deal with intoxicating liquor is part of the State responsibility and it is in exercise of these privileges, State has exclusive rights to manufacture, possession, consumption, transport etc. of liquor within its territory and to grant licenses and permits to ensure compliance. The Hon’ble CESTAT further held that in August, 2019, the Finance Act, 2019 was enacted amending Section 66B of the Act, to the effect that service tax was not leviable on services provided by the State Government by way of grant of liquor licenses against consideration in the form of license fee or application fee “by whatever name called”, during 01-04-2016 to 30-06-2017 along with this amendment the dispute regarding the leviability of service tax on fee paid to State Government in relation to alcoholic liquor for human consumption has come to an end and it is clear that service tax is not leviable on the said fees from April 2016 to June 2017. Specific inclusion of word “by whatever name called”, the Legislature made it abundantly clear that any fee paid under the purview of State Excise legislation would not be leviable to service tax. However, as far as levy of service tax on Storage License fee for CO2 was concerned, the Hon’ble CESTAT held that the said license is issued to the Appellant by the State Excise department for the specific purpose of storing CO2. The Appellant has paid the fee against the renewal of license for storing CO2 and the same cannot be considered as fee paid towards grant of liquor license. Therefore, the demand on the Storage License fee for CO2 was upheld.
M/s. Anheuser Busch Inbev India Ltd vs. Commissioner, CESTAT Bangalore, decided on 18- 02-2021 in Final Order No. 20038/2021.
3. Whether service tax is payable on the amount of liquidated damages/penalty collected by the Appellant for non-compliance of the terms of the procurement contracts and the amount collected towards theft charges from consumers for unauthorized use of electricity or for tampering of meters?
Facts and Pleading: M/s. M. P. Poorva Kshetra Vidyut Vitran Company Ltd. (hereinafter referred to as the ‘Appellant’) is a wholly owned undertaking of the Government of Madhya Pradesh and is engaged in the distribution of electricity in the eastern area of the State. In the course of business, certain contracts were executed by the Appellant in which a clause provided for levy of penalty for non-observance/breach of the terms of the contract. The Appellant also collected theft charges as penalty for unauthorized use of electricity as contemplated under section 135 of the Electricity Act, 2003 read with Chapter-X of the Madhya Pradesh Electricity Supply Code, 2013.
The department contended that this amount was not included in Section 66D(k) of the Finance Act, 1994 i.e. the negative list and the said penalty amount and the amount collected towards theft of electricity by the Appellant was towards consideration for tolerating an act and covered as a “declared service” under section 66E(e) of the Finance Act w.e.f. July 1, 2012. The department argued that at the time of signing the contract, both the parties planned and agreed to tolerate any breach of contract through the payment of liquidated damages, hence, the consideration is both intentional and at the desire of the parties. The department relied upon decision of the Constitution Bench of the Supreme Court in Fateh Chand vs. Balkishan Das AIR 1963 SC 1405 wherein it is held that reasonable compensation for a breach of contract has to be proportionate to the actual injury suffered, which means injury tolerated since the word “suffering” is synonymous to “tolerating”. The department also argued that a case of compensation or damages for breach of a contract always involves one party tolerating/suffering an injury, hence, the claim of the Appellant in the present case that their contract is not for tolerating anything is fundamentally wrong. In this regard, department relied upon XL Energy Limited Vs. Mahanagar Telephone Nigam Limited MANU/DE/1892/2018.
The Appellant relied upon the decision of the Tribunal in M/s. South Eastern Coalfields Ltd. Vs. Commissioner of Central Excise and Service Tax 2020-TIOL-1711- CESTAT-DEL to submit that the amount collected towards liquidated damages and theft of electricity cannot be subjected to service tax.
Judgment: The Hon’ble CESTAT held that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided under Section 67 of the Finance Act, 1994. The same refer to “where the provision of service is for a consideration”, whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a “consideration” for the provision of such service. The Hon’ble CESTAT observed that the Explanation to sub-section (1) of Section 67 clearly provides that only an amount that is payable for the taxable service will be considered as “consideration”. The Hon’ble CESAT emphasized on the fact that the term “consideration” is couched in an “inclusive” definition. The Hon’ble CESTAT also considered the basic difference between “conditions’ to a contract and “consideration for the contract” to held that certain “conditions’ contained in the contract cannot be seen in the light of “consideration’ for the contract and merely because the service recipient has to fulfil such conditions would not mean that this value would form part of the value of the taxable services that are provided. Accordingly, the Hon’ble CESTAT while relying on M/s. South Eastern Coalfields Ltd case and several other decisions to held that the amount collected towards liquidated damages and theft of electricity cannot be subjected to service tax.
M/s. M. P. Poorva Kshetra Vidyut Vitran Company Ltd Vs Principal Commissioner, CESTAT Delhi, decided on 14.01.2021 in Final Order No. 51024/2021.
4. Whether the Tribunal was correct in law in travelling beyond the Show Cause Notice and remanding the matter for fresh adjudication on a ground which was never raised by the Revenue in the Show Cause Notice or in the adjudication order i.e. to remand the matter to original authority to issue a fresh show cause notice to the Petitioner as regards its very entitlement for CENVAT credit?
Facts and Pleading: M/S Chemplast Sanmar Ltd (hereinafter the ‘Petitioner’) is engaged in the manufacture of caustic soda and chloromethane products. Show cause notices were issued against the Petitioner alleging wrong availment of service tax credit based on debit notes, the eligibility of the Cenvat credit otherwise was not disputed. The matter reached to the Tribunal level, wherein Hon’ble CESTAT remanded the matter back to the original authority to issue a fresh show cause notice to the Petitioner as regards its very entitlement for CENVAT credit.
The Petitioner contends that the Tribunal was incorrect in law in travelling beyond the Show Cause Notice and remanding the matter for fresh adjudication on a ground which was never raised by the Revenue in the Show Cause Notice or in the adjudication order. The Petitioner also contended that the Tribunal was wrong in law in directing the adjudicating authority to examine the eligibility of credit in the light of Section 37(2) of the Central Excise Act when no such contention was raised by the Revenue in the Show Cause Notice. The Petitioner also contended that the Tribunal was acting beyond its jurisdiction in holding that the adjudicating authority should examine whether the impugned services can be considered as eligible input services under the Cenvat Credit Rules when the only issue in appeal was whether a debit note is a valid document or not for availing cenvat credit. The Petitioner further stated the Tribunal was wrong in holding even after accepting the submissions made by the Petitioner with reference to the allegations in the Show Cause Notice that they can remand the matter for denovo adjudication with a fresh proposal which was not the subject matter of the appeal.
The Respondent Authorities contended that the Tribunal would be entitled to examine all issues, when it seized of an appeal arising out of an order in original or an order in appeal.
Judgment: The Hon’ble High Court held that firstly, the appeal was filed by the Petitioner and not the Revenue. The Revenue did not prefer any cross appeal/objection. Therefore, the Petitioner cannot be worse off in its own appeal before the Tribunal. Further, the Tribunal has not recorded as to who had advanced such submission. In the absence of any such observation, the Hon’ble high Court held that it is suo motu exercise by the Tribunal, which is uncalled for and without jurisdiction. The Hon’ble High Court relied on on the decision of the Hon’ble Supreme Court in SACI Allied Products Ltd., vs. Commissioner of C. Ex., Meerut, 2005 (183) ELT 225 (SC) to held that the Tribunal cannot sustain the case of the Revenue against an assessee on a ground not raised by the Revenue either in the show cause notice or in the order in original passed by it. Accordingly, the Hon’ble High Court held that the direction issued by the Tribunal to issue a fresh show cause notice to the Petitioner as to whether the impugned services are eligible input services or not is wholly without jurisdiction and the same is liable to be set aside.
M/s Chemplast Sanmar Ltd Vs The Commissioner of Central Excise, Anaimedu, Salem, High Court of Madras, decided on 11.02.2021 in C.M.A.Nos.2200 to 2202 of 2010 and M.P.Nos.1, 2 & 2 of 2010.