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OIO No. 15/STC-AHD/ADC(MKR)/2011-12 of 31

BRIEF FACTS OF THE CASE

M/s. Patel Associates Services (herein after referred to as “the said service provider”), situated at 818, 2nd floor, Banker Niwas, Hirparu, Navovas, Danapith, Ahmedabad-380 001 (presently situated at 802, Pratiksha Complex, Mahalaxmi Panch Rasta, Paldi, Ahmedabad – 380 007) are engaged in the business of providing “Cleaning Services” to various clients, as defined under Section 65 (24b) of the Finance Act, 1994, as amended. Intelligence gathered by the H.Q. Preventive Section of Service Tax Commissionerate, Ahmedabad indicated that the said service provider was engaged in providing the said services but did not pay the Service Tax properly thus an inquiry was initiated against them and necessary records and information was called upon for necessary scrutiny.

2.1 A statement of Shri Pradip Jagdishbhai Patel, residing at 11/A, 1st

Floor, Chunibhai Colony, Opp. Jolly Park, Near Old Dairy, Kankaria, Ahmedabad, an authorized person of M/s. Patel Associates, Ahmedabad was recorded on 22.04.2008 under Section 14 of the Central Excise Act, 1944 read with Section 83 of Finance Act, 1994, wherein he inter-alia stated that he is the authorized person of M/s. Patel Associates, Ahmedabad and looking after all the affairs of the said firm; that he produced Authorization Letter dated 22.04.2008, duly notarized, issued by Mrs. Kirti Patel, Proprietor of M/s. Patel Associates; that M/s. Patel Associates is a Proprietary firm and Smt. Kirti Patel is the Proprietor of the said firm, who is his wife. On being asked regarding inception of the said company and the nature of business undertaken, he stated that the said company was started in the month of June, 2005; that in the said company they are providing cleaning services to various customers / clients; that the said company M/s Patel Associates is registered with the Service Tax Department bearing STC No. ACPPP9022JST001 under the category of Cleaning Services; that he produced copy of Registration Certificate dated 03.04.2006. He also produced copies of invoices pertaining to the period 2005-2006 (from June, 2005), 2006-2007 and 2007-08 (up to December, 2007).

3. He also produced a summary of Taxable value, Service Tax payable and Service Tax paid along with copies of TR-6 Challans. As per the aforesaid invoices and summary produced / provided by him, the Service Tax liability and Service Tax payment made by them is shown as under :

Sl. No. Period/ Year Taxable Value Rate of Service Tax


Realized Service Tax payable1 2 3 4 5

1.2005-2006(June, 2005 to March, 2006)

Rs.26,71,634/-(-) Rs.4,00,000/-*= Rs.22,71,634/ 10.20% Rs.2,31,707/-

2. 2006-2007 Rs.5,914/- 10.20% Rs.603/-Rs.29,71,624/-- 12.24% Rs.3,63,727/-

3. 2007-2008 (up to December, 2007)

Rs.66,714/- 12.24% Rs.8,166/-Rs.76,856/- 12.36% Rs.9,499/-

TOTAL Rs.53,92,742/- Rs.6,13,702/-

4. On being further asked, he stated that during the period 2005-2006, he was entitled for exemption of Rs.4,00,000/- under the Notification No. 6/2005-ST dated 01.04.2005, as they had started their business activities from June, 2005. On being asked regarding Taxable value realized, as shown in Col. 3 above, he stated that the said amount was the actual amount received against the cleaning services provided by them which is inclusive of TDS; that the value shown in the column of taxable value realized (Col. No. 3 above) is arrived after deducting the Service Tax; that the taxable amount realized shown above is exclusive of material cost and wherever he had supplied cleaning material, it was shown separately in a separate invoice; that all the amounts shown in the invoices were inclusive of Service Tax charged and recovered from various clients. On being asked regarding Service Tax payment, he stated that as on the date of recording of the statement they had made lump sump payment of Service Tax amounting to Rs.1,39,985/-; that the details of the same are as under :

SL. NO. DATE OF PAYMENT SERVICE TAX PAID (Rs.)

01. 26.03.2007 27,508/-02. 26.03.2007 30,508/-03. 26.03.2007 33,918/-04. 26.03.2007 29,673/-05. 03.04.2006 5,563/-06. 03.04.2006 5,468/-07. 03.04.2006 5,538/-08. 03.04.2006 1,809/-

TOTAL 1,39,985/-

5. He assured that he would pay the balance amount of Service Tax within short time; that they are maintaining Current Account bearing No. 2229 with Indian Overseas Bank, Gitamandir Branch, Gitamandir Road, Ahmedabad; that he produced copy of Bank Statement for the period from April, 2005 to December, 2007. On being asked regarding filing of ST-3 Returns, he stated that they had filed ST-3 Return for the year 2005-2006 only; that he assured to file ST-3 Returns for the year 2006-2007 and 2007-2008 in a short time.

6. Further statement of Shri Pradip Jagdishbhai Patel, Authorized person of M/s. Patel Associates, Ahmedabad was recorded on 02.05.2008


under Section 14 of the Central Excise Act, 1944 read with Section 83 of Finance Act, 1994. On being asked regarding the materials supplied to various clients, to whom service provided by them, he stated that the raw materials are sold by them as per clients / customers requirements; that in the invoices also value of such materials / goods were shown separately or material bills are prepared separately; that he had not charged / recovered any Service Tax on the material / goods supplied; that the details given by him of sales of cleaning materials supplied to the various clients are as under; that they had supplied material / goods without any profit i.e. cost to cost basis.

Sl. No. Period/ YearTaxable Value Realized

for the material consumed

1. 2005-2006(June 2005 to March, 2006) 17,36,703/-

2. 2006-2007 17,22,186/-

3. 2007-2008 (up to December, 2007) 99,255/-

TOTAL 35,58,144/-

7. On being asked regarding payment of Service Tax on the value of the materials, he stated that they had neither paid any Service Tax on the said value/cost of the materials realized nor had charged Service Tax from their clients/ customers on the value of the materials; that they had also not charged VAT/ Sales Tax from the clients/ customers; that they had not taken/ utilized any CENVAT Credit/ abatement; that the goods received from their distributor was inclusive of VAT.

8. Further statement of Shri Pradip Jagdishbhai Patel, Authorized person of M/s. Patel Associates, Ahmedabad was recorded on 10.02.2009 under Section 14 of the Central Excise Act, 1944 read with Section 83 of Finance Act, 1994 wherein he inter-alia stated and clarified that certain data with respect to House keeping charges/labour charges and cleaning material charges, so claimed, were not earlier shown /disclosed by their accountant, comprehensively since the same was not finalized at the relevant point of time; that he submit the final data based on audited profit and loss and Balance Sheet of the relevant period; that the facts and figures mentioned in Annexure –I and II of his statement, was examined and verified by him; that during the course of inquiry they had paid Rs.1,39,985/- voluntarily and willingly toward short payment of their service tax liability ; that they had filed ST-3 Returns for the period 2005-06; that as regard remaining period they had not filed any ST-3 Returns.


9. Further on being specifically asked as to why they had not discharged the service tax liability to the extent of Rs.14,56,709/- , as worked out and confirmed by him in Annexure-I to his statement, covering the period 16.06.2005 to 2007-08, he stated that due to recession in the market and financial crises they were not in a position to pay up the said amount as well as the interest on the delayed payments; that he would like to further bring on record that during the period in question they were taking up the business i.e. providing cleaning and house keeping services to various non-commercial organizations such as Medisurge Hospital, Pukhraj Hospital, BAPs , Apollo Hospital, Tulip Hospital and other such organization; that they are not in a position to furnish supporting evidence in respect of their non-commercial status.

10. As per the Annexure-I & II , of the statement of Shri Paradip J. Patel in respect of M/s. Patel Associates Ahmedabad which rendered Cleaning Service to various customers, the total taxable value collected / realized has been worked out to be as Rs.1,42,34,861/- and Service Tax actually payable worked out to the tune of Rs.15,96,694/- during the period from 16.06.2005 to 31.03.2008.

11. A further statement of Shri Pradip Jagdishbhai Patel was recorded on 26/02/2009 wherein he inter-alia stated that during the course of subject inquiry and at the time of filing of ST-3 Returns for the year 2005-06, they had paid Rs.1,39,985/- only which includes service tax for the relevant ST-3 return as well as short payment of service tax; that they have not entered into any agreement with any of their clients / customers; that they have also not charged / collected any service tax from their clients and customers; that the figures shown in the respective worksheets are not inclusive of service tax; that the cleaning service provided to various clients also includes supply of cleaning materials which is shown and charged separately in the invoices; that they never provided any cleaning service without supply of cleaning material; that the charges for the same are collected from the clients but the same are not actually sold to them but utilized in the cleaning process and that no sales tax/Vat was paid on the same.

12. Further statement of said Shri Pradip Jagdishbhai Patel was recorded on 11.11.2009 wherein he inter-alia stated that they have filed ST-3 returns for the financial year 2005-06 and have not filed any ST-3 returns after that and had paid only Rs.1,39,985/- towards service tax for the year 2005-06; that he would submit the further details/documents pertaining to


the period 2008-09 such as Balance Sheet/Trial Balance, Profit & Loss Account, copies of bills/invoices issued to the various clients/customers during the period 2008-09. On being asked specifically he clarified that they have not been considering the value in terms of cost of material supplied to the various customers, as per their requirements, in the computation of taxable value and have not considered the value of services provided to various hospitals, in computation of taxable value as they believe that the same is not taxable. On being further asked he stated that they had not claimed or charged any service tax under any invoice / bill, issued to their various clients/customers during the period 2005-06 to 2008-09, except in the case of M/s. Times of India; that in other words, the value shown in the various invoices is not inclusive of service tax; that they have not carried out any business activity during the period November 2007 to November 2008; that they have entered into an agreement with M/s. Times of India and rendered cleaning services to them on contractual basis and claiming service tax by showing the same separately in the various invoices issued to M/s. Times of India. He categorically admit that though they have claimed and charged service tax by showing the same separately in the various invoices issued to M/s. Times of India but they had not paid the same to the Government account. He assured to provide documentary evidences/details in respect of the same and while accepting the service tax liability agreed to discharge the same. 13. Consequent to recording of his above statement, the said service provider furnished the requisite details/documents pertaining to the period 2008-09 for scrutiny when it was noticed that they have not filed any ST-3 Return for the said period and not paid any service tax on the services provided by them during the said period. It was noticed that during the year 2008-09 they had provided the cleaning service to M/s. Times of India and collected service tax amounting to Rs.1,43,625/- on taxable value of Rs.11,97,370/-. It was observed that the service tax collected from M/s. TOI was not deposited in the Government account.

According to the provisions contained under clause 24b of the Section 65 of the Finance Act, 1994, as amended, Cleaning Activity means -‘Cleaning, including specialized cleaning services such as disinfecting, exterminating or sterilizing of objects or premises, of –(i) commercial or industrial buildings and premises thereof; or (ii) factory, plant or machinery, tank or reservoir of such

commercial or industrial buildings and premises thereof, but does not


include such services in relation to agriculture, horticulture, animal husbandry or dairying.’

The definition provides that cleaning activity means cleaning. Thus the term cleaning has to be understood in its general sense. As per American Heritage Dictionary,4th Edition, the term ‘cleaning’ means- to get rid of dirt, rubbish, or impurities; to remove the contents from; to undergo or perform an act of cleaning. Some examples of general cleaning services are – Dusting, Mopping, Vacuuming, Rubbish disposal, Toilets, Kitchens, Dishwashing, Glass cleaning, Car Park scrubbing, Factory floor cleaning etc.

14. Further, according to the provisions contained under sub-clause (zzzd) of Clause 105 of Section 65 of the Finance Act, 1994, as amended, taxable service is a service provided or to be provided to any person, by any other person, in relation to cleaning activity.

15. From the above, it appeared that the above said firm is engaged in the business of providing the taxable service i.e. Cleaning Services, is charging and collecting the taxable consideration for the service rendered and is liable to pay the Service Tax on the total taxable amount of consideration charged and received by them. Further, it appeared that the said firm is charging and collecting Service Tax from their customers but has not deposited the same with the Government account.

16. The government has from the very beginning placed full trust on the service provider so far service tax is concerned and accordingly measures like Self-assessments etc., based on mutual trust and confidence are in place. Further, a taxable service provider is not required to maintain any statutory or separate records under the provisions of Service Tax Rules as considerable amount of trust is placed on the service provider and private records maintained by him for normal business purposes are accepted, practically for all the purpose of Service tax. All these operate on the basis of honesty of the service provider; therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on the service provider. From the evidence, it appeared that the said assessee has not taken into account all the incomes received by them for rendering taxable services for the purpose of payment of service tax and thereby minimize their tax liabilities. The deliberate efforts to mis-declare the value of taxable service in ST-3 returns and not paying the correct amount of service tax in utter disregard to the requirements of law and breach of trust deposed on them such outright act in defiance of law appeared to have rendered them liable for stringent penal action as per the


provisions of Section 78 of Finance Act 1994 for suppression or concealment or furnishing inaccurate value of taxable service with intent to evade payment of service tax.

17. All the above acts of contravention on the part of the said service provider appeared to have been committed by way of suppression of facts with an intent to evade payment of Service Tax and therefore, the said Service Tax not paid is required to be demanded and recovered from them under the proviso to Section 73(1) of the Finance Act, 1994 by invoking extended period of five years. All these acts of contravention of the provisions of Section 66, 68, 70, 73A and 83 of the Finance Act, 1994 read with Rules 4, 5, 6 and 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 76, 77 and 78 of the Finance Act, 1994.

18. Moreover, in addition to the contravention, omission and commissions on the part of the said service provider as stated in the foregoing paras, it appeared that, they have willfully suppressed the facts, nature and value of service provided by them with an intent to evade the payment of Service Tax, rendering themselves liable for penalty under Section 78 of the Finance Act, 1994.

19. It appeared from the foregoing that M/s Patel Associates are liable to pay Rs.17,44,688/- as per Annexure ‘A’ of the show cause notice, out of which they have already paid Rs.1,39,985/- and therefore the net service tax liability is Rs.16,04,703/-.

20. Thus, it appeared that the said M/s. Patel Associates have contravened the provisions of:

a. Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, in as much as that they have failed to make payment of Service Tax total amounting to Rs.17,44,688/- as mentioned in the foregoing paras for the period from 16.06.2005 to 31.03.2009 within the statutory time limit prescribed; they had already paid Rs.1,39,985/- hence, the remaining service tax payable is Rs.16,04,703/- ;

b. Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994, in as much as that they have failed to file prescribe Service Tax returns in form ST-3 in the stipulated time;

c. Section 11D of the Central Excise Act, 1944 made applicable under Section 83 of the Finance Act, 1994 in as much as they have failed to deposit the Service Tax amounting to Rs.1,43,625/- collected from M/s.


Times of India during the period 2008-09, to the credit of Central Government;

d. Section 73A of the Finance Act, 1994 in as much as they have failed to deposit the Service Tax collected by them to the credit of Central Government.

21. Accordingly, M/s. Patel Associates, were issued a show cause notice bearing F.No. STC-100/O&A/SCN/JC/PAL/R-14/D-III/09 dated 17.02.2010 asking them as to why;(i) Services rendered by them should not be considered as

taxable service under the category of Cleaning Service as defined under Section 65 of the Finance Act, 1994, as amended, and the amount of taxable value of Rs.1,54,23,199/- received as payment/ recovered by them from their clients should not be considered as taxable value under Section 67 of the Finance Act 1994 and Service Tax amounting to Rs.17,44,688/- for the period from 16.06.2005 to 31.03.2009 should not be demanded and recovered from them under Section 73(1) of the Finance Act, 1994, invoking the larger period of five years. As they have already paid Rs.1,39,985/- should not be adjusted;

(ii) Interest as applicable on the amount of Service Tax liability of Rs.17,44,688/- should not be recovered from them for the delay in making the payment, under Section 75 of the Finance Act, 1994;

(iii) Interest as applicable on the amount of Service Tax charged and collected for the period from 22.09.2008 to 31.03.2009 from M/s. Times of India amounting to Rs.1,43,625/- should not be recovered form them under section 11 DD of Central Excise Act, 1944 made applicable under section 83 of the Finance Act, 1994 and Section 73 (B) in as much as they have failed to deposit the service tax collected by them to the credit of Central Government account;

(iv) Penalty should not be imposed upon them under Section 76 of the Finance Act, 1994 for the failure to make the payment of Service Tax payable by them;

(v) Penalty should not be imposed upon them under Section 77 of the Finance Act, 1994 for the failure to file prescribed Service Tax return within the stipulated time; and

(vi) Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 for suppressing the value of taxable services provided by them before the Department with intent to evade payment of Service Tax.


DEFENCE REPLY 22. The service provider filed their defence reply vide their letter dated 26.05.2011 wherein at the very out set, they denied all the allegations and averments made vide the subject notice as if they all are individually and specifically dealt with and traversed, save and except what has been admitted by them herein below; that they in particular denied that they have not contravened the provisions of Section 66 , 68, 70 , 73A & 83 of the said Act and thereby were liable for penal action.

22.1 They submitted that before proceeding to deal with the allegation leveled against them for imposition of penalty, it would be profitable to appraise some of the basic and vital factual details, which would enable to adjudicate the case judiciously; that the proposal for imposition of SERVICE TAX on the “Cleaning Service”, under Section 65(105) of the Finance Act, 1994.

As per the provisions of Section 65(105) of the Finance Act, 1994 the term “Cleaning Service” has been defined as :-

The cleaning service came in to effect from 16.06.2005 and according to the provisions contained under clause 248 of the Section 65 of the Finance Act, 1994, as amended ; Cleaning Activity means -

(i) Commercial or industrial buildings and premises thereof; or (ii) Factory, plant or machinery, tank or reservoir of such

commercial or industrial buildings and premises thereof, but does not include such services in relation to agriculture, horticulture, animal husbandry or dairying.

The definition provides that cleaning activity means cleaning. Thus the term cleaning has to be understood in its general sense; that as per American Heritage Dictionary, 4th Edition, the term ‘cleaning’ means to get rid of dirt, rubbish, or impurities to remove the contents from to undergo or perform an act of cleaning. Some examples of general cleaning services are Dusting, Mopping, Vacuuming, Rubbish disposal, Toilets, Kitchens, Dishwashing, Glass cleaning, Car park scrubbing, Factory floor cleaning etc; that now the salient issue to be address here as under.

(i) whether service tax was applicable on service provided to the non-commercial Concern i.e. Hospital & religious place.

(ii) whether service tax was applicable on material sale value


billed to the client. (iii) whether service tax value to be treated as cum duty price

or not. (iv) in the year 2005-06 whether they were eligible for initial Rs.

4 lacs basic exemption. (v) whether they were liable to pay service tax on billing base

as demanded vide SCN for the period 2005-06 to 2009-10 on the basis of P&L A/c or receipt basis.

22.2 They further submitted that regarding service tax on demand on service provided to non-commercial concern under the category of cleaning service it is very clear from the definition of cleaning service it covers only the commercial & industrial building & premises thereof; that so it is clear from the above definition that only cleaning of commercial & industrial building and premises were covered under service tax net, other than commercial & industrial building and premises are exempt from service tax liability; that during SCN demand period they have carried out cleaning from non-profit organization & religious place, which data we they submitted to the preventive officer, even though Dept. has demanded service tax on total amount without exclusion of value of service for the non commercial building & premises; that during the SCN demand period they have provided service to non- commercial concern value amount of Rs.98,32,175/- relating to the service provided to the hospital & religious place; that they have enclosed copy of documents for non-commercial status of service receiver herewith.

22.3 They further submitted that regarding material supplied to the client, during the course of service providing in the bill itself they have shown separately material value, which also verified by the preventive team of S.T., and also reflected annexure-A enclosed with SCN showing in column material value supplied to the time; that so the demand of service tax on material value supplied to the client during impugned period was not justifiable; that service tax can not be leviable on value of material supplied to the client; that they also rely for claiming exclusion of material on the following judgments of CESTAT ;

2009 (14) STR 32 (Tri. Chennai) in the CSTAT, South Zonal Bench, Chennai, Ms Jyoti Balasundaram, Vice President and Shri P Karthikeyan, Member (T) PLA Tyre Works Vs Commissioner of C.Ex (Service Tax), Trichy Final Order No. 1427/2008 dated 16.12.2008 in Appeal No. S/69/2007.Valuation (Service Tax) – Material cost – Service tax paid on tyre re-


treading on 30% of gross amount treating balance 70% as value of goods – Invoices showing material cost and service charges separately - Re-sale tax paid on cost of materials - Ratio of 70:30 adopted even before introduction of Service tax on reconditioning of tyres - Sale of goods involved and benefit of exemption under Notification No. 12/2003-S.T. admissible - Impugned order rejecting bifurcation of receipts for sale and service, set aside - Section 67 of Finance Act, 1994. [paras 1, 3,4] Appeal allowed

2007 (5) STR 423 (Tri.-Bang.) In the CESTAT, South Zonal Bench, Bangalore, Dr. S.L.Peeran, Member (J) and Shri T.K.Jayaraman, Member (T) Shilpa Color Lab Vs Commissioner of C. EX., Calicut Final Order No. 10-18/2007, dated 30.10.2006 in Appeal Nos. ST/131 & 149/2006, ST/38/2005, ST/21, 140, 176, 177, 178 and 179/2006 Photography Services - Printing of photograph is liable to tax - Plea for non- taxation that material cost of printing was more than labour cost, rejected as there was definite element of service and it was not case of mere sale - Section 65(zb) of Finance Act, 1994. [para 8.1]

Valuation (Service tax) - Amounts charged other than for service - They do not form part of value of taxable service - Section 67 of Finance Act, 1994. [para 8.2] Valuation (Service tax) - Photography Services - Cost of unexposed photography film, unrecorded magnetic tape or other storage device - When sold to client in course of providing of service, it is excluded because it would amount to levy of Sales Tax, which constitutionally is a State subject and not that of Union - However, exclusion is subject to production of invoice/records regarding sale of the aforesaid goods - CBEC clarification dated 07.04.2004 - Notification No. 12/2003- S.T., dated 20.06.2003 - Sections 65(zb) and 67 of Finance Act, 1994. [paras 8.2, 8.4,8.13]

Taxability - Service tax - Constitutionality of - Goods sold while providing service are not liable to service tax as that would amount to Sales tax, which constitutionally is State subject and not that of Union - However, this is subject to production of documentary proof indicating value of said goods - But each and every invoice is not required to mention value of such goods for claiming exclusion - Section 67 of Finance Act, 1994. [para 8.2]

Constitution - Taxation - Legislative power - Aspect theory - Subject which in one aspect and one purposes fall within particular legislature


may in another aspect and for another purpose fall within another legislative power - They might be overlapping, but that should be in law - Same transaction may involve two or more taxable events in its different aspects, but fact that there is overlapping does not detract from the distinctiveness of aspects. [para 8.13] Appeals allowed

2008 (10) S.T.R. 26 (Tri. - Bang.) In the CESTAT, South Zonal Bench, Bangalore, Dr. S.L.Peeran, Member (J) and Shri T.K.Jayaraman, Member (T), Commissioner of C. EX., Mysore Vs Crystal Colour Lab Final Order Nos. 1168 and 1169/2007, dated 09.10.2007 in Appeal Nos. ST/290 and 291/2006

Valuation (Service tax) - Photography service - Abatement to material Tribunal decision in 2007 (5) S.T.R. 423 holding value of goods and materials consumed during photography service not includible in taxable value, applicable - Relied upon decision not stayed by Supreme Court - Tribunal decisions on the impugned issue to be followed in terms of judicial discipline - Impugned order sustainable - Section 67 of Finance Act, 1994. [paras 1,4] Appeals rejected

2009 (14) S.T.R. 65 (Tri. - Bang.) In the CESTAT, South Zonal Bench, Bangalore, Dr. S.L. Peeran, Member (J) and Shri T.K.Jayaraman, Member (T), TB. Shine Vs Commissioner of Central Excise, Calicut Final Order No. 747/2008, dated 3-7-2008 in Appeal No. ST/104/2008

Valuation (Service tax) - Photography Service - Inclusion of value of material consumed - Submission that value of materials excluded in light of Notification No. 12/2003-S.T and Board's Letter F. No. 233/2/ 2003-CX, dated 07.04.2004 - Number of Tribunal orders in assessee's favour - None of the judgments appealed before Supreme Court, hence ratio stands accepted - Impugned order set aside and appeal allowed - Section 67 of Finance Act, 1994. [para 4]

Judicial discipline - Precedents - Issue settled by number of Tribunal orders - None of the judgments appealed against before Supreme Court, hence Department accepting ratio of Tribunal orders - Subordinate authority bound by judgments of higher authority - Action of authorities in not accepting Tribunal’s rulings not sustainable. [para 4] Appeal allowed

2009 (15) S.T.R. 344 (Tri. - Bang.) In the CESTAT, South Zonal Bench, Bangalore S/Shri T.K.Jayaraman, Member (T) and M.V. Ravindran,


Member (J) Grand Ashok Vs Commr. of Service Tax, Bangalore Final Order No. 17/2009, dated 12.01.2009 in Appeal No. ST/7/2008

Valuation (Service tax) - Sale of goods - Outdoor Caterer service - In-flight catering Service tax paid in handling and transportation charges alone and not on gross amount - VAT paid on charges collected for food and beverages - Service tax leviable only on service component if contract contains components of service and supply of goods - Service tax not demandable simultaneously where goods involved and sales tax paid - Cost of food separately identifiable and exemption under Notification No. 12/2003-S.T. admissible - Bona fide belief on non-liability and extended period not invocable and penalties not imposable - Sections 67, 73 and 76 of Finance Act, 1994. [paras 6, 6.1, 6.2] Appeal allowed.

;that from the above it is clear that demand of service tax on material value unjustifiable & benefit of not no 12/2003 has to be allowed and demand for material value amt to RS.23,000/- has to be dropped.

22.4 They further submitted that SCN issued & demanding service tax on value of service realized on audited balance sheet, which always to be treating as cum duty price; that benefit of cum duty price to be allowed to them; that the same may be allowed as per Section 67 of the said act as amended Finance Act,2004 & this method of valuation was also held to be correct by the appellate tribunal Mumbai in K.R.Choksey & Co. Vs Commr. of Central Excise, Mumbai 1996 (88) ELT 566 (CEGAT-MUMABAI); that from the above it is clear that duty demand may be reduced amt to Rs.48,761/-.

22.5 They further submitted that regarding SSI exemption in the year 2005-06 service tax levied on cleaning service w.e.f. 16.06.2005 & onwards; that so in the very first year 2005-06 they were eligible for basic exemption of SSI amount of Rs. 4 lacs; that to that extent demand of duty amt to Rs.40,800/- may be reduced; that they have discharge their duty on receipt basis regularly; that again demands of service tax are on bill basis & without going to the service wise were untenable & unjustifiable; that so it is clear that as per Rule 6 of service tax rules they are liable for service tax on receipt basis only demand of service tax on accrual basis were not sustainable.

22.6 They further submitted that initially due to starting of business & intricacy of newly introduced service tax law, they were not able to justify


applicability & Category of service tax and also having no Knowledge of said Act; that they were in the misbelieve that where they were in receipt of service tax from clients / customer on that only they were liable; that they were not liable for service tax on receipt where service tax was not paid by service receiver; that as soon as they were aware about intricacy of the said Act, they have paid part service tax with interest for the period 01.04.2008 to 31.03.2009 without collecting from client; that they were not able to pay service tax payable in full due to financial crunch & were depositing service tax first for the prior demand; that there was no deliberate defiance on their part; that in view of the above, a lenient view may please be taken and the proceeding may be dropped in the interest of Justice.

22.7 They further submitted that while deciding the similar type of cases of service tax and central excise law have mentioned below the honorable CEGAT as well as commissioner (appeal) has taken lenient view and has not impose any penalty under section 76, 77 & 78 of Finance Act, 1994 and has given relief of section 80 ibid of finance Act, 1994 of Service Tax Act; that they also rely on such Judgment in support of their case :

CCE, Bhopal Vs Thyrocare Services [2006(4) STR 200 (Tri.-Del.)]; Genuine interpretational dilemma as to correct classification of service and possibility existing of assessee being misguided - Assessee having justifiable reasons to believe that they were not covered under service tax - Setting aside of penalty upheld.

CCE, Jaipur V. Sikar Ex-Serviceman Welfare Co-Op. Soc Ltd. [2006(4) STR 213 (Tri.- Del.)]; As interpretation of law involved, setting aside of penalty upheld.

Suri Colour Labs (P) Ltd. CCE, Meerut-II [2006(4) STR 96 (Tri.-Del.)]; Since appellants under confusion in respect of eligibility to benefit of notification 12/2003-ST, imposition of penalty not warranted.

Surat Municipal Corp. V. CCE, Surat [2006(4) STR 44 (Tri.-Del.)] Appellant were under bonafide belief that they are not liable to pay service tax penalty not imposable in view of section 80.

BST Ltd. V. CCE, Cochin [2006(4) STR 40 (Tri.-Bang.)] Penalty not justified when activity not taxable.

Cosmic Dye Chemical V. CCE, Bombay [1995(75) EL T 721 (SC)] When bonafide impression is gained from 2 CBEC Circulars, no penalty can be imposed; that in their case also, based on bonafide dependence on circular issued by CBEC, they had determined the classification and hence cannot be imposed.

CCE, Ludhiana V. Silver Oak Gardens Resort [2008(9) STR 481 (Tri.-Del.)] wherein it is held that penalty under section 76 is not warranted


where penalty is imposed under section 78 of the Finance Act, 1994. The proposal in the present SCN to impose penalty under section 76 and 78 is also against the settled legal position and any proposition to impose penalty in this manner is against the judicial discipline. We also draw your attention to provisions of section 80 of the Finance Act, 1994. wherein it is provided that, notwithstanding anything contained in the provisions of section 76, 77 & 78, no penalty shall be imposed on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for such failure.

It was held in the case of ETA Engineering Ltd. V. Chennai [2003 (3) STR 429 (Tri.- LB)] that appellants being under bonafide doubt regarding their activity as to whether covered by service tax or not, their exits reasonable cause on their part in not depositing service tax in time and hence penalty was not imposable in terms of section 80 of the Finance Act, 1194 notwithstanding sections 76 and 77 ibid

Smitha Shetty V, CCE, Bangalore [2003(156) EL T 84 (Tri.-Bang.)] It is held that where there is technical or judicial breach of the provisions of Act or where the breach follows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute then in such circumstances, in the light of Apex court judgment, penalty was not imposable, The Tribunal noted that the discretion of impose penalty is to be exercised judicially after considering the relevant circumstances. The ruling of Apex court rendered in the case of Hindustan Steel V. State of Orissa [1978(2) EL T j159 (S.C)] was considered wherein it was held that an order imposing penalty for failure to carry out statutory obligation is the result of quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law was guilty of conduct contentions or dishonest or acted in conscious disregard of its obligations. It also held that penalty will not also be imposed for failure to perform the statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of the relevant circumstances. The above cited case laws are also relied on in the case of CCE, Bangalore-II V. Impress Ad-Aids & Displays [2006(3) STR 385 (Tri.-Bang.)]

;that from the above it is clear that they are liable for service tax on differential amount mention in reconciliation as mention supra & for the balance amount they are not liable for service tax on the basis of reasons mention above; that it would be seen that there would not be deliberant de-finance for not complying the provision of said Act as soon as they were


aware, they have taken immediate steps to fulfills their service tax liability; that they requested to take the lenient view and requested to drop the penalty proceeding.

22.8 They further submitted that while deciding the similar type of cases of service tax and central excise law have mentioned below the honorable CEGAT as well as commissioner (appeal ) has taken lenient view and has not impose any penalty under section 76,77 & 78 of Finance Act, 1994 and has given relief of section 80 ibid of finance Act, 1994 of Service Tax Act; that they relied on the following Judgment in support of their case:

In the case of 1999 (106) E.L.T. 564 [Commissioner Appl] before the Commissioner of Central Excise [Service Tax], New Delhi Shri Virendra Singh, In re : Bharti Cellular Ltd., OIO No. 4/98 dt 23.07.1999. In Para 41, stated that “Service Tax is a new concept and initially there is bound to be lack of understanding of the procedure to be followed. There is also bound to be some confusion for correct determination of the service tax liability by the assessee. I am therefore inclined to take a lenient view and do not impose a penalty”.

In the case of Ashwani & Associates Vs Collector of Customs New Delhi reported in ELT 1999 (105) ELT 40 ( Tribunal) stated that “Stay / Dispenation of pre -deposit-service tax - penalty on stock broker - Delay in filling return and payment of service tax - Assesses contended that service tax was introduced only w.e.f. 01.07.1994. On service rendered by stock broker and he being new assesses could not clearly understand provision regarding working out of amount of taxable service and so there was a delay prime facie case made out for waiver of penalty- section 35F of central excise Act 1994 -section 70 ,76 and 77 of finance Act, 1994 -Rule 6 of Service Tax rules 1994”.

In the case of before the Commissioner of Customs & Central Excise (appeal), Ghaziabad. In RE: B.M.REHAN, OIO Appeal No . 12- CE/KNP -1/99 dated 24.02.1999 [1999 (108) ELT 59 (Commr. Appl )] :- Service Tax - Penalty - Delay in filing quarterly ST-3 Return-Tax deposited along with interest as provided under Section 75 of Finance Act, 1994 as the service tax was imposed for the very first time and the quarter in question was also very first quarter-Benefit of Section 80 ibid to be given.

2000 (121) ELT 574 (Comm. Appl.) before the Comm. of Customs & Central Excise (Appeals), Tiruchy in Re. :- B.S.K. Cotspin Ltd. :- stated that for penalty under rule 9(1) and 173 Q(1) as also under rule 43, 52A, 53(3), 57T,173B etc. of Central Excise Act & Rules 1944 , set aside and stated that “The Appellant were new to central excise law


and so it was the duty of the department to have extended their co-operation and guided the appellants for following the central excise procedure and then only issued notice for penal action. From the record it appears that whenever there was omission, the same has been made good by the appellants themselves. So it cannot be said that the contravention were malafide or with intention to evade central excise duty. Otherwise they would not have taken the trouble of obtaining central excise Registration. Therefore, there is no warrant for penalty in this case; a simple waning would have saved the purpose. Accordingly the appellants are warned to be more careful in future”.

Also in case of M.P.Ramani Vs Com. Of C-Ex Mumbai -I [2001 (132) ELT 304 (Trib -Mumbai) In the CEGAT, West Zonal BENCH [Mumbai]

In case of Mukund K. Roongta V. CCE, Jaipur 1999 (107) ELT 38(T).

In case of Rajinder Kumar Somani V. CCE, Kanpur, 1999 (113) ELT 111 (Tri).

Ashok Ratogi V. CCE Kanpur Reported in 1998 (104) ELT 480 (T) 1997 (22).

Shri Sajjankumar Kariwala Vs CCE, Allahabad reported in 1997(20) RLT 885.

In the case of Commissioner of C.Ex., Jaipur Vs. Milan Tent Palace in the CEGAT COURT No. IV, NEW DELHI 2001 (131) ELT, 274 (Tri-Del):- Service Tax - Delay in filling of return- Imposition of penalty is discretionary - Penalty of minimum of Rs.100/- per day not compulsory and in deserving cases can be waived off- section 77 of finance Act 1994.

;that in the above context, it is submitted that penalty may not be imposed in all cases only because lawful to do so; that the adjudicating authority should take in to consideration all the factors before proceeding to impose penalty; that in the subject notice there is nothing to suggest that the half yearly returns were not filed deliberately, the half year returns could

not be filed for the reasons explained above; that they requested that a lenient view may be taken and proceeding may be dropped.

22.9 They further submitted that proceeding for imposing penalty is a proceeding which is quasi - criminal in nature; that the question of imposition of penalty in ordinary course came for scrutiny before Hon'ble Supreme Court in the case of Hindustan Steel Vs State of Orissa reported in AIR 1970 SC 253. The Hon'ble Supreme Court observed that penalty should


not be imposed in ordinary course unless the party acted in deliberately in definance of law. Penalty will not also be imposed merely because it is lawful to do so; that applying the ratio, of the above decision in the present case, it would be seen there is no allegation of deliberate definance on them as such, no penalty may be imposed and the proceeding initiated vide the subject notice may be dropped.

22.10 Lastly they requested that ;

(i) out of total demand of S.T. amount to Rs.17,44,688/- has to be reduce amount to Rs.4,36,522/- out of which they have already paid an amount of Rs.2,83,610/- & remaining out standing amount of Rs.1,52,912/- will pay in short time.

(ii) drop the demand of service tax for the receipt from the non commercial concern amounting to Rs.11,09,189/-.

(iii) drop the demand of service tax for the material supplied by them amounting to Rs.2,816/-.

(iv) drop the demand of service tax on cum duty price calculation amt to Rs.48,761/-.

(v) allow the benefit of initial SSI exemption benefit & reduce duty demand Rs.40,800/-.

(vi) Drop the demand of service tax on billing base amt to Rs.1,06,600/-.

(vii) take lenient view regarding penalty proposition under Section 76, 77 & 78 of the Finance Act, 1994.

PERSONAL HEARING

23. Vide this office letter dated 05.05.2011, the service provider was requested to appear for personal hearing on 13.05.2011 but the service provider did not appear for personal hearing and requested adjournment for 15 days. Next date of personal hearing was given on 27.05.2011 but the service provider did not appear and again requested adjournment for 5 days. Accordingly, next date of hearing was extended on 08.06.2011. Shri Vipul Kandhar, C.A & Shri Ashish Kandhar, C.A appeared for personal hearing on behalf of the service provider and re-iterated their defence reply.

DISCUSSION & FINDINGS

24. I have carefully gone through the facts on records, the show cause notice under reference and submissions made by the service provider vide their letter dated 26.05.2011 and during the course of personal hearing.


25. I observe that the service provider has nowhere disputed the facts about the nature of service provided. This is not a disputed fact, as indeed, it is only from 16.06.2005 that “Cleaning Activity” has been under the net of service tax.

26. As per Section 65 (24b) of the Finance Act, 1994 Cleaning Activity means ;

“Cleaning activity” means cleaning, including specialized cleaning services such as disinfecting, exterminating or sterilizing of objects or premises of ;(i) Commercial or industrial buildings and premises thereof ; or(ii) Factory, plant or machinery, tank or reservoir of such commercial

or industrial buildings and premises thereof, but does not include such service in relation to agriculture, horticulture, animal husbandry or dairying.

27. From the above definition, it is very much clear that the service provided by the service provider clearly falls within the category of “Cleaning Activity” and is chargeable to Service Tax.

28. I further observe that the service provider in his defense reply has argued that they have provided cleaning services to hospitals & religious places and has recovered total sum of Rs.11,09,189/- and the same is exempted from service tax as non commercial buildings and premises thereof are not covered within the purview of service tax under the category of “Cleaning Activity”.

28.1 I further find that to prove that the cleaning service to whom it has been rendered are non-commercial entities, they have not provided any documentary evidence or any certificate issued by Income Tax department that the same are charitable organizations. Just because an organization is a hospital or is a seva ashram or is named as a seva ashram does not make it a non-commercial organization. No such certificates have been provided to the adjudicating authority by the service provider till date. In view of the above, I find that there are no grounds to arrive at conclusion that the said organization is of non commercial nature.

29. I find that the exemption from payment of service tax in the category of “Cleaning Activity” is available only in the following case ;

(i) Services provided to United Nations or an International Organization.


(ii) Service provided to a Developer or a Unit of Special Economic Zone (SEZ) ;

(iii) Service provided to the foreign diplomatic missions / consular posts in India or to the family members of diplomatic agents / career consular officers ;

(iv) Services provided to Reserve Bank of India(v) Services exported from India ;(vi) Value of goods & material sold by the service provider(vii) Services provided by small service providers, whose aggregate

value of taxable services excluding exempted service does not exceed Rs.10 Lakhs.

30. I further find that though the service provider being registered with the department and providing taxable service to various clients and recovering service tax from their clients but they were not depositing the same in the Government Account.

31. From the above discussion, it is very much clear that the service provided by the service provider to hospitals & religious place falls within the purview of Service Tax and the Service Tax is required to be recovered from them.

32. Further, I find that the service provider has also argued in his defense reply that in the impugned show cause notice, service tax has also been charged on the material supplied to the client. The total value of the material supplied during the period from June 2005 to 2007-08 is Rs.23,000/-.

33. Here, I find fit to reproduce the relevant provisions of Section 67 of the Finance Act, 1994, as effective from 18.04.2006, read with the Service Tax (Determination of Value) Rules, 2006 ;

“Where the provision of service is for a consideration in money, the value of taxable service shall be the gross amount charged by the service provider for the service provided or to be provided.All expenditures or costs incurred by the service provider in the course of providing a taxable service forms integral part of the taxable value and are includible in value.

34. Further, I find that under Rule 5(2) of the Determination of Value Rules, 2006, the expenditure or costs incurred by the service provider as a


pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-

(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

(iii) the recipient of service is liable to make payment to the third party; (iv) the recipient of service authorizes the service provider to make

payment on his behalf; (v) The recipient of service knows that the goods and services for which

payment has been made by the service provider shall be provided by the third party;

(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

35. To my belief the cleaning material are an integral part of “Cleaning Activity Service”, and how the party intends to exclude the same from the gross taxable value is beyond comprehension. As a service provider in the category of cleaning activity services, all the activity of cleaning was to be done by them. The expenditure incurred on such work will form part of their services. Under Rule 5 (1) of the Service Tax (Determination of Value) Rules, 2006, where any expenditure or costs were 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.

36. Moreover, M/s Patel Associates Ltd., were providing cleaning services and as a service provider, the entire work of the services was to be performed by them, and thus whatever expenses incurred by them would form part of the taxable services. Thus, their claim to exclude Cleaning Material from the amount of services is not correct. It is also clear that the


conditions stipulated for exclusion of the reimbursable expenses under Rule 5(2) of the Determination of Value Rules, 2006, were not fulfilled in the case of M/s Patel Associates Ltd.

37. Rule 5(1) of the Valuation Rules states that 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 the 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. Thus none of the expenses deducted from the taxable value by the party can be done so legally and they are to be added in the taxable value. The rules do not allow any deduction other than the expenditure / costs incurred as pure agent by fulfilling the conditions laid down under rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 but as already pointed out, the party has not fulfilled the necessary conditions laid down under this rule to make them a “pure agent.”

38.1 I find that the service provider has relied on number of judgments. I observe that most of the decisions have been given with respect to photography service, whereas in the present case the service provider is providing cleaning service. Hence, all such cases are irrelevant and misplaced.

38.2 The nature of photography service and cleaning service is altogether different. In photography service expenditure is dispensable and evitably incurred to provide the service. That’s why the hon’ble tribunal has taken different view. Whereas in the cleaning service, the expenditure is indispensable and inevitably incurred to provide the service, such cost should essentially form part of cost of service itself and shall contribute to value of taxable service.

38.3 I further find that the Apex Court in the case of All India Federation of Tax Practitioners Vs Union of India reported in 2007 – TIOL – 149 – SC – ST = 2007 (7) S.T.R. 625 (S.C) held that service tax is destination based consumption tax and that may be either performance based or property based. Economic services are provided for valuable consideration without being rendered charitably. No service which is un- economical or commercially unviable are provided in the commercial world. Various elements of cost contribute to the provision of economic services. Expenses which are indispensable and inevitably incurred to make the economic service performable that contribute to the gross


value of service. The provider of economic service recovers his entire cost involved in providing such service in the best possible manner that may be viable to him and the service recipient.

38.4 The basic principle that service tax being destination based consumption tax, till the service reaches its destination, that contributes to the proposition that all expenses incurred till that point and time become essential consideration of cost of service. Agreement of parties in respect of modality of payment of valuable consideration towards service provided does not matter for Revenue. In whatever manner the recipient and provider of taxable service arrange their affairs for their benefit or mutuality to deal with consideration that is also immaterial to Revenue. Service Valuation Rule of 1994 (sic) contributes to the above fiscal philosophy and the destination based consumption tax submit for taxation on the gross value of taxable service which is measure of taxation. The gross value takes into its fold entire cost of service enabling that to be performable. Therefore, by no stretch of imagination neither the arrangements of the parties nor their mutuality or nomenclature or format of their agreement and mode of discharge of consideration shall prevail on the law relating to service tax. Legislature accordingly intend that the gross value of the service shall be the measure of value for taxation whether paid as consideration directly or by reimbursement of expenses relating to providing of taxable service.

39. The philosophy of service tax law has been described by Apex Court in paras 6, 7, 8 of All India Federation of Tax Practitioners v. Union of India reported in 2007 - TIOL -149 - SC - ST = 2007 (7) S.T.R. 625 (S.C) in following terms :-

“6. At this stage, we may refer to the concept of “Value Added Tax” (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer. 7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax. 8. As stated above, service tax is VAT. Just as excise duty is a tax on value addition on goods, service tax is on value addition by rendition of services. Therefore, for our understanding, broadly “services” fall into two categories, namely, property based services and performance based services. Property based services cover service providers such as architects, interior designers, real estate agents, construction services,


mandapwalas etc. Performance based services are services provided by service providers like stock-brokers, practicing chartered accountants, practicing cost accountants, security agencies, tour operators, event managers, travel agents etc.”

40. The nature and character of service tax has also been explained by Apex Court in para 22 of the judgment Association of Leasing & Financial Service Companies Vs Union of India and Others reported in 2010 – TIOL-87-SC-ST-LB = 2010 (20) S,T.R 417 (S.C)

“22. In All India Federation of Tax Practitioners’ case (supra), this Court explained the concept of service tax and held that service tax is a Value Added Tax (‘VAT’ for short) which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a “sale” from “service”. That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation etc. It gives value addition to the goods manufactured or produced or sold. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. The same view is reiterated broadly in the earlier judgment of this Court in Godfrey Phillips India Ltd. v. State of U.P. [(2005 (2) SCC 515] in which a Constitution Bench observed that in the classical sense a tax is composed of two elements : the person, thing or activity on which tax is imposed. Thus, every tax may be levied on an object or on the event of taxation. Service tax is, thus, a tax on activity whereas sales tax is a tax on sale of a thing or goods. Law as it stood before the Constitution (Forty-sixth Amendment) Act, 1982 :”


41.1 When logic of service tax incidence calls for taxation of service on the gross value of taxable service and there is no specific deduction allowed under statutory provisions to diminish the value of taxable consideration of taxable service, in absence of such provision in law, the cost of material can not be excluded from the taxable value and the service provider can not show this amount under trading of materials just to evade / escape service tax to this extent.

41.2 My above view finds support from below mentioned case laws ;

a. Naresh Kumar & Co. Pvt. Ltd., Vs Commr. – 2008 (11) STR 578 (Tri.)b. CCE, Chandigarh Vs Team S & S – 2011 (21) STR 290 (Tri.Del)

42.1 Looking to the above discussion, I find that the impugned show cause notice has been rightly issued and the service tax amount of Rs.17,44,688/- has been rightly demanded, which needs to be confirmed.

42.2 In view of above, I find that the assessee have contravened the provisions of Section 67 and Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, in as much as they had suppressed the taxable value and also failed to make payment of service tax of Rs.17,44,688/- [including Education Cess] on such suppressed value under the category of “Cleaning Activity”, such amount of service tax is required to be paid by them along with interest under Section 73 (2) & 75 of the Finance Act, 1994.

42.3 Since the said service provider had not discharged service tax liability on the amount of taxable value received as income/commission demanded under the show cause notice and therefore, they have contravened the provisions of Section 67, 68, of the Finance Act, 1994 and thereby rendered themselves liable to penal action under Sections 76, 77 & 78 of Finance Act 1994.

Penalty under Section 76 :

43.1 I further observe that during the relevant period M/s Patel Associates Ltd., have defaulted in payment of service tax which has been established as not paid, in accordance with the provisions of section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, and thereby rendered liable to pay mandatory penalty under the provisions of Section 76 of the Finance Act, 1994 for default in payment of service tax on time till the final payment. It has come to my notice that till date M/s Patel


Associates Ltd., have not paid the service tax, hence imposition of mandatory penalty under Section 76 is once again justified.

43.2 Accordingly, I hold that M/s Patel Associates Ltd., are liable to imposition of penalty under Section 76 of the Finance Act, 1944. My conclusion is also based on various decisions of Hon’ble High Courts & Tribunals as mentioned below ;

CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.)

UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.) UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.) Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-

Ahmd) CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–

Ahmd) Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-

Ahmd)

43.3 I further observe that the Hon’ble CESTAT in a recent judgment in the case of M/s Gujarat Industrial Security Force Society Vs CST, Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated 05.08.2010, has held that no lenient view can be taken under section 76 of the Finance Act, 1994. The relevant paras are reproduced below ;

“2. After hearing both the sides, I find that in this case, the assessee was registered more than 6 years back and no explanation has been given by them for delayed filing of return and delayed payment of service tax. Under these circumstances, I am not finding fault in stand taken by the lower authority that penalty is imposable under section 76 and once it is held that penalty is imposable under section 76, the amount fixed as per the provision of section 76 is required to be imposed. Under these circumstances, even though the Ld. Advocate submitted that the appellant is a non profit organization, no lenient view can be taken in view of the provisions of law.3. Accordingly, the appeal is rejected.”

43.4 Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port Officer, reported at 2010 (19) STR 641 (Guj) has now settled the issue of penalty under Section 76. The relevant para is reproduced below ;

“10. A plain reading of Section 76 of the Act indicates that a person who is liable to pay service tax and who has failed to pay such tax is under an obligation to pay, in addition to the tax so payable and interest on such tax, a penalty for such failure. The quantum of penalty has been specified in the provision by laying down the minimum and the maximum limits with a further


cap in so far as the maximum limit is concerned. The provision stipulates that the person, who has failed to pay service tax, shall pay, in addition to the tax and interest, a penalty which shall not be less than one hundred rupees per day but which may extend to two hundred rupees for everyday during which the failure continues, subject to the maximum penalty not exceeding the amount of service tax which was not paid. So far as Section 76 of the Act is concerned, it is not possible to read any further discretion, further than the discretion provided by the legislature when legislature has prescribed the minimum and the maximum limits. The discretion vested in the authority is to levy minimum penalty commencing from one hundred rupees per day on default, which is extendable to two hundred rupees per day, subject to a cap of not exceeding the amount of service tax payable. From this discretion it is not possible to read a further discretion being vested in the authority so as to entitle the authority to levy a penalty below the stipulated limit of one hundred rupees per day. The moment one reads such further discretion in the provision it would amount to re-writing the provision which, as per settled canon of interpretation, is not permissible. It is not as if the provision is couched in a manner so as to lead to absurdity if it is read in a plain manner. Nor is it possible to state that the provision does not further the object of the Statute or violates the legislative intent when read as it stands. Hence, Section 76 of the Act as it stands does not give any discretion to the authority to reduce the penalty below the minimum prescribed.”

43.5 The Hon’ble High Court of Gujarat has further confirmed the above view in the case of CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105 (Guj.) and CCE Vs Bhavani Enterprises reported at 2011 (21) STR 107 (Guj.).

Penalty under Section 77

44. I further find that the assessee has failed to file their ST 3 returns for the period covered under the impugned show cause notice & hence they are liable for penalty under Section 77 for non filing of ST 3 returns for the period in dispute.

Penalty under Section 78 :

45.1 I further observe that the show cause notice also proposes imposition of penalty under Section 78 of the Finance Act, 1994. I find that fraud, suppression of facts and wilful mis-statement on the part of M/s Patel Associates Ltd., has been established beyond doubt as discussed and concluded in the earlier part of this order. Accordingly, I hold that M/s Patel Associates Ltd are also liable to penalty under the provisions of Section 78 of the Finance Act, 1994.


45.2 As it is already proved that the service provider had suppressed the facts, the consequences shall automatically follow. Hon’ble Supreme Court has settled this issue in the case of U.O.I Vs Dharmendra Textile Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the case of U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Hon’ble Supreme Court has said that the presence of malafide intention is not relevant for imposing penalty and mens rea is not an essential ingredient for penalty for tax delinquency which is a civil obligation.

45.3 I, therefore, hold that they have rendered themselves liable to penalty under Section 78 of the Finance Act, 1994. My above view gets support from below mentioned case laws ;

Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680 (Tri.Ahmd.) CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40 (Tri. Ahmd.) Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010 in the case of

M/s Bajrang Security Services Vs CST, Ahmedabad. Order No. A/1937/WZB/AHD/2010 dated 08.10.2010 / 20.12.2010 in the case

of M/s Dhaval Corporation Vs CST, Ahmedabad.

45.4 I further observe that recently hon’ble High Court of Punjab & Haryana, in the case of CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal to service tax imposed under Section 78 of the Finance Act, 1994. Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K Vijaya C Rai reported at 2011 (21) STR 224 (Kar.).

Both Penalty under Section 76 & 78 – Justified:

46.1 I also find that penalty under Section 76 ibid is provided for failure to pay service tax whereas penalty under Section 78 ibid is for suppressing value of taxable service. In the instant case, service tax liable to be paid in terms of Section 68 read with Rule 6 of the Service tax Rules, 1994, have not been found paid as well as service tax has not been paid / short paid by suppressing value of taxable service by reason of wilful mis-statement and suppression of facts. Of course these two offences may arise in the course of same transaction, or from the same action of the person concerned. But the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act the penalty is imposable for ingredients of both offences, this aspect was also considered by the Hon’ble High Court of Kerala in the case of Assistant Commissioner, C.Ex. Vs


Krishna Poduval – 2006 (1) STR 185 (Ker). I also find that the Hon’ble Mumbai Tribunal in the case of Golden Horn Container Services Pvt. Ltd. v/s Commr. of C. Ex., Raipur reported at 2009 (16) S.T.R. 422 (Tri.-Mumbai), has held that Section 76 provides for a penalty who commits default simpliciter in payment of the tax whereas section 78 is a more stringent penal provision, which provides harsher penalty who commits default with mens rea. Since in this case also, M/s Patel Associates Ltd has committed default with mens rea, the decision of the tribunal is squarely applicable.

46.2 Therefore, I am of the view that in the facts and circumstances of the case, it is justifiable, if the penalty is imposed under the provisions of Section 76 and 78 of the Finance Act, 1994, separately, following the decisions of Hon’ble Kerala High Court and Mumbai tribunal (supra). My views are also further supported by various decisions of tribunals in the cases of ;

a) Shiv Network v/s Commissioner of Central Excise & Customs, Daman reported at 2009 (14) S.T.R. 680 (Tri.-Ahmd.)

b) Commissioner of Central Excise, Vapi v/s Ajay Sales Agencies reported at 2009 (13) S.T.R. 40 (Tri.-Ahmd.), and

c) Mett Macdonald Ltd. v/s Commissioner of Central Excise, Jaipur reported at 2001 (134) E.L.T. 799 (Tri.-Del.).

d) M S Shah & Co., Vs CST, Ahmedabad – Order No. A/1328/ WZB/ Ahd/ 2010 dated 30.06.2010 / 26.08.2010.

e) Bajarang Security Services Vs CST, Ahmedabad – Order No. A/745/ WZB/Ahd/2010 dated 09.06.2010 / 23.06.2010.

f) CESTAT, Principal Bench, New Delhi in the case of Bajaj Travels Ltd., Vs CCE, Chandigarh – 2009 (16) STR 183 (Tri.Del.)

Reliance placed by the service provider and their weak arguments47.1 I observe that the service provider has also placed reliance on several case laws for not imposing penalty. All these case laws are old, outdated and irrelevant. On the contrary, I have cited latest and relevant case laws in support of imposition of penalty.

47.2 The service provider has submitted that they could not deposite service tax due to various reasons, such as starting of new business, they were not aware about service tax liability, financial crunch etc. I find that the service provider has taken a very weak and childish argument. They should know, rather know that service tax is leviable on receipt of taxable value. In other words, unless the taxable value is received, no service tax is required to be paid. Hence, the argument of financial crunch falls. Secondly, starting


of new business, ignorance of law etc are not excuse and the service provider, even after receipt of the show cause notice, has not deposited the service tax. In this circumstances, their such arguments do not look good and become ineffective. Similarly, logic of SSI exemption does not appear convincing, once they crossed the limit in the first year itself.

In view of the above discussions and findings, I pass the following order :

-: O R D E R :-

(i) I consider the services rendered by M/s Patel Associates Ltd., as taxable service under the category of “Cleaning Service” as defined under Section 65 of the Finance Act, 1994, as amended, and consider the amount of taxable value of Rs.1,54,23,199/- received as payment / recovered by them from their clients as taxable value under Section 67 of the Finance Act 1994 and confirm the Service Tax amounting to Rs.17,44,688/- (Rupees Seventeen Lakhs Forty Four Thousand Six Hundred Eighty Eight Only) for the period from 16.06.2005 to 31.03.2009 under Section 73(2) of the Finance Act, 1994. As they have already paid Rs.1,39,985/- the same is being appropriated against their out standing service tax liability;

(ii) I direct M/s Patel Associates Ltd to pay interest at the prescribed rate chargeable under the provisions of Section 75 of the Finance Act, 1994, as amended, for delay payment of service tax.

(iii) I further direct M/s Patel Associates Ltd to pay interest on the amount of Service Tax charged and collected for the period from 22.09.2008 to 31.03.2009 from M/s. Times of India amounting to Rs.1,43,625/- under section 11 DD of Central Excise Act, 1944 made applicable under section 83 of the Finance Act, 1994 and Section 73 (B) in as much as they have failed to deposit the service tax collected by them to the credit of Central Government account;

(iv) I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon them per day or at the rate of 2% of the service tax amount per month, whichever is higher, under the provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay Service Tax within the stipulated period as required under the provisions of Section 68 (1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1944, as amended. As the actual amount of penalty could be depending on actual date of payment of service tax, however, as per Section 76 of the Finance Act, 1994, penalty will be restricted to the above confirmed amount of service tax liability;


(v) I impose penalty of Rs.8,000/- (Rupees Eight Thousand Only) upon them under Section 77 of the Finance Act, 1994 for the failure to file prescribed Service Tax return within the stipulated time; and

(vi) I also impose a penalty of Rs.17,44,688/- (Rupees Seventeen Lakhs Forty Four Thousand Six Hundred Eighty Eight Only) upon them under Section 78 of the Finance Act, 1994 for suppressing the value of taxable services provided by them before the Department with intent to evade payment of service tax under the category Business Auxiliary Service. If the service tax amount is paid alongwith appropriate interest as applicable, within 30 days from the date of receipt of this order, then the amount of penalty under Section 78 shall be reduced to 25% of the service tax amount, provided if such penalty is also paid within such period of 30 days.

-Sd-

[Dr. Manoj Kumar Rajak]Additional Commissioner

Service Tax : Ahmedabad

F. No.STC-100/O&A/SCN/JC/PAL/R-14/D-III/09 Date:

By Regd. Post AD

To,M/s. Patel Associates, 802, Pratiksha Complex, Mahalaxmi Panch Rasta, Paldi, Ahmedabad – 380 007

Copy to:-i. The Commissioner of Service Tax. (Attention Review Cell)ii. The Assistant Commissioner Service Tax Division III, Ahmedabadiii. The Assistant Commissioner, Service Tax (Prev), Hqrs., Ahmedabad.

(Atten. Supdt. (Prev), Gr. II) iv. The Superintendent , Range XIV, Service Tax Dn.- III, Ahmedabad along

with an extra copy of OIO to be delivered to the assessee and submit the acknowledgement to this office.

v. Guard File

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