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2OIO No. 57/STC/AHD/ADC(JSN)/2012-13

BRIEF FACTS OF THE CASE:

1. M/s C.C. Chokshi & Co. (hereinafter referred to as "the said assessee") is a firm of Practicing Chartered Accountants, having their office at 'Heritage', 3rd Floor, Nr. Gujarat Vidyapith, Off Ashram Road, Ahmedabad-380014. They were engaged in rendering various services namely Practicing Chartered Accountants and Management Consultant’s Service. They are registered with the Service Tax Department under Registration No. AACFC2938DST001.

2. During the course of audit of the records of the party, it was observed that they were indulging in evasion of service tax by not fully discharging the service tax liability under the category of practicing chartered accountants. From the records related to accounts viz balance sheet etc., it was revealed that the party had collected fee under the head of income from their clients for the service of “Management Consultant’s Service/ Corporate Finance Service/ Solution Service rendered by them under the head of “Management Consultant”. As per their balance sheet, it was noted that they have received an amount of Rs. 6,90,94,874/- for the period from 1.4.2001 to 31.3.2005 on account of service namely practicing Chartered Accountants and Rs. 3,53,76,669/- on account of Management Consultancy service. Further, on scrutiny of their records, it was observed that there was difference in amount of fees collected as shown in their ST-3 returns as compared to the figures shown in the balance sheet for providing services under the category of "Practicing Chartered Accountant" for the period from 2001 to 2005. It was observed that the assessee had not paid any service tax towards management consultant service for the period from 2001 to 2005. As per the balance sheet, it appeared that the assessee had received an amount of Rs.6,90,94,874/- for the period from 01.04.2001 to 31.03.2005 on account of practicing chartered accountant service and Rs. 3,53,76,669/- on account of management consultancy service for the aforesaid period and hence, they were liable for service tax on the above taxable amount. The party had paid service tax on taxable value of Rs 5,09,04,489/- as per the ST-3 returns and had not paid service tax on the balance differential amount of taxable value of Rs. 1,81,90,385/- which works out to Rs.16,38,370/- at appropriate rate of service tax prevailed at the relevant time, under the category of “Chartered Accountant Service”. The party had also not paid any service tax on Rs. 3,53,76,669/- towards services rendered under the category of 'Management Consultant Service' which works out to Rs. 29,72,503/- at appropriate rate of service tax prevailed at the relevant time. Accordingly, they were issued with a Show Cause cum Demand Notice by the Additional Commissioner of Service Tax, Ahmedabad vide F No. STC/4-94/O&A/SCN/CCChoksi/2006 dated 19.10.2006 and were called upon to show cause as to why:

(i) Service rendered by them should not be considered as taxable. service under the category of “Practicing Chartered Accountant Service” and “Management consultant Service” as defined under Section 65 of the Finance Act 1994, as amended, and the amount of Rs. 6,90,94,874/- and Rs. 3,53,76,6691- received as payment fee recovered/ collected by them from their clients should not be considered as taxable value and differential Service Tax amounting to Rs. 16,38,370/- under the category of Practicing


Chartered Accountant Service and Rs. 29,72,503/- under the category of Management Consultant Service for the period from 01.04.2001 to 31.03.2005 should not be charged, and recovered from them under Section 73(1) of the Finance Act, 1994, invoking the larger period of five years, as discussed in the Show cause referred above;

(ii) Interest as applicable on the amount of Service Tax liability of Rs 16,38,370/- and Rs. 29,72,503/- respectively should not be paid by them for the delay in making the payment, under section 75 of the Finance Act, 1994;

(iii) 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;

(iv) 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;

(v) 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 as discussed hereinabove with an intention to evade payment of Service Tax;

(vi) Penalty should not be imposed under provisions of the erstwhile Section 75 A of the Finance Act, 2001 as much as they failed to make application for registration under the category of 'Management Consultant Service' within the stipulated time.

3. The above referred Show cause was taken up for adjudication and the Order-In-Original bearing No STC/30/JC/Div II/08-09 from the file No. STC/4-94/O&A/SCN/CC Choksi/06 dated 10.11.2008 was issued. The OIO interalia confirmed the aforesaid demand and ordered that:

(i) The Services rendered by them as taxable service under the category of Practicing Chartered Accountant Service and Management Consultant Service as defined under Section 65 of the Finance Act 1994, as amended, and considered the amount of Rs. 6,90,94,874/- and Rs. 3,53,76,669/- received as payment/ fees recovered/ collected by them from their clients as taxable value and confirmed the non payment/ short payment of Service Tax amounting to Rs. 16,38,370/- (Rupees Sixteen Lakhs Thirty Eight Thousands Three Hundreds Seventy Only) under the category of Practicing Chartered Accountant Service and Rs. 29,72,503/- (Rupees Twenty Nine Lakhs Seventy Two Thousands Five Hundreds Three Only) under the category of Management Consultant Service for the period from 01.04.2001 to 31.03.2005 under Section 73(1) of the Finance Act, 1994, invoking the larger period of five years;

(ii) The party (M/s C.C. Choksi & Co.) was directed to pay the interest as applicable on the amount of their Service Tax liability for the delayed/non payment of service tax under Section 75 of the Finance Act, 1994;

(iii) Penalty of Rs. 200/- (Rupees Two Hundreds Only) per day or at the rate of 2% of the service tax amount per month upon them under Section 76 of the Finance Act, 1994, as amended, for the failure to make the payment of Service Tax payable by them. As the actual amount of penalty was to be depending on actual date of payment of service tax, however, as per Section 76 of the Finance Act, 1994 penalty was to be restricted to their service tax liability;


(iv) Further the penalty of Rs. 8,000/- (Rupees Eight Thousand only) was imposed under Section 77 of the Finance Act, 1994, as amended, on them for the failure to file prescribed Service Tax return within the stipulated time;

(v) Further, a penalty of Rs 92,21,746/- (Rupees ninety two lacs, twenty one thousand seven hundred forty six only) was imposed on them under the provisions of Section 78 of the Finance Act, 1994, as amended; and

(vi) A penalty of Rs. 1,000/- (Rupees one thousand only) was also imposed on the party under the provisions of erstwhile Section 75 A of the Finance Act, 1994 as they failed to make an application and obtain service tax registration under the category of “Management Consultant Service” within stipulated time.

4. Being aggrieved by the Order-In-Original No. STC/30/JC/Div II/08-09 issued from the file No. STC/4-94/O&A/SCN/CC Choksi/06 dated 10.11.2008, the assessee had preferred an appeal alongwith stay application before the Commissioner (Appeal-IV), Ahmedabad. The same was decided vide Order-In-Appeal No. 203/2009(STC)HKJ/Commr(A)/Ahd dated 3.8.2009 from File No. V2(ST)18/A-IV/2009. In the aforesaid OIA, the order portion of OIA reads as “ In view of the aforesaid discussions, I hereby remanded back the impugned order to the adjudicating authority for proper quantification of service tax in term of para 7 above”. On going through the para 7 of the OIA, the same reads as under:

“I find that the appellants have contended the matter mainly on two issues, one is payment of service tax by their Vadodara Branch, which was separately registered and paid service tax on the services rendered by them and the other one is related to payment of service tax by their main contractor. I find that C.C. Choksi & Co. vadodara was functioning as an independent unit till 31.3.2004. They were independently providing services and discharging the liabilities of service tax thereon. With effect from 1.4.2004, C.C. Choksi & Co. vadodara was merged with C.C. Choksi & Co., Ahmedabad and the balance sheet, profit & loss account of the two units were consolidated to one after 1st April, 2004. The appellants have furnished copies of ST-3 Returns filed by their Vadodara branch, supported by the balance sheet showing taxable value and service tax paid separately for Vadodara branch for the year 2004-05 and at first hand I find that the adjudicating authority has confirmed the demand of the year 2004-05 including service tax liability discharged at Vadodara branch, which is not proper. The appellants had also produced a certificate from an independent C.A. to that effect. I am in the opinion that when the appellants hold separate registration for Vadodara branch and paid service tax separately, demand in relation to income by Vadodara branch for the year 2004-05 cannot be confirmed by the adjudicating authority. I, therefore, hold that the demand in this regard is not tenable and the total demand is required to be re-calculated accordingly. The recovery of interest under Section 75 and penalties under Section 76 and Section 78 vide impugned order is also required to be re-worked out accordingly. On this ground the matter needs to be remanded back for fresh decision”.

5. In view of the above, the adjudicating authority on remand, in OIO No. 23/STC-AHD/ADC(MKR)/2011-12 dated 22.07.2011, gave relief partly on the billed amount in respect of CA Service of their Vadodara office amounting to Rs. 76,31,290/- and applicable service tax of Rs. 6,84,487/-, and thereby confirmed the non payment/ short payment of Service Tax amounting to Rs. 9,53,883/- (Rupees nine Lakhs fifty three Thousands eight Hundreds eighty three Only) under the category of Practicing Chartered Accountant Service and Rs. 29,72,503/- (Rupees Twenty Nine Lakhs Seventy Two Thousands Five Hundreds Three Only) under the category of Management Consultant Service for the period from 01.04.2001 to 31.03.2005 under Section 73(2) of the Finance Act, 1994, and also confirmed the interest, and imposed penalties under Section 76, 77 and 78, and imposed a penalty of Rs. 1000/- under Section 75A of the Act.


6. Against the above order, the party again went in appeal in the Commission (Appeals) who vide OIA No. 23/2012(STC)/K.ANPAZHAKAN/Commr(A)/Ahd dated 23.01.2012 partly allowed the appeal of the assessee by deleting the total taxable value of Rs. 2,50,90,190/- { Value of Rs. 1,21, 81,471/- for Chartered Accountant Service + Value of Rs. 1,29,08,719/- for Management Consultant’s Service} pertaining to their Vadodara Branch, from the consolidated value of Rs. 10,44,71,543/-. In view of the above, the case has been remanded back to the adjudicating authority for proper quantification of Taxable value as well as Service Tax.

7. In the meantime, the appeal filed by the said assessee against the OIA i.e No. 203/2009(STC)HKJ/Commr(A)/Ahd dated 3.8.2009, has also been decided by the the Hon’ble CESTAT. The Hon’ble CESTAT vide Order No. A/510/WZB/AHD/2011 dated 03.03.2011 has also remanded the matter with the direction that

(i) A fresh decision may be arrived in the light of the law declared and also to verify the certificates given by the principal contractor as regards payment of service tax on the entire value, in respect of “Chartered Accountant Service”;

(ii) And also to re-decide the issue of Management Consultancy Service provided prior to 1.08.2002 in light of the law declared.

DEFENCE REPLY AND PERSONAL HEARING

8. The assessee submitted their reply vide letter dated 24.01.2013. In their reply they submitted as under :

CLASSIFICATION OF SERVICE/ CERTAIN SERVICES RENDERED BY CHARTERED ACCOUNTANT NOT TAXABLE PRIOR TO 01.08.2002:The Central Board of Excise & Customs (hereinafter referred as ‘Board’) Circular No.ST-51/13/2002 issued from F.No.178/1/2002-CX.4 dt.7-1-2003 is reproduced below :

“I am directed to say that doubts have been raised regarding classification of certain services which appear to fall under two or more categories simultaneously.Some instances where such problems have arisen relate to Management Consultants v. Manpower Recruitment Services, Mandap Keepers v. Convention Services, Rent-A-Cab Scheme v. Tour Operators, Cargo Handling Services v. Storage and Warehousing Services, Architect v. Interior Decorator, Scientific and Technical Consulting Services v. Consulting Engineer, Practicing Chartered Accountants v. Management Consultants, etc.

2.The matter has been examined in the Board. It is hereby clarified that any service (transaction) can be taxed only once even if it appears to fall under two or more categories. Therefore, before levying service tax it is essential to determine under which category a particular service falls. It should be kept in mind that service tax is a tax on the service provided and is recovered from the service provider (in some cases even from the service recipient). The position is akin to Central Excise duty which is charged on manufactured goods. Just as Central Excise duty cannot be charged twice on the same goods under two separate chapters/headings/sub-headings of the Central Excise Tariff, so also Service tax cannot be charged twice on the same service (transactions). However, one service provider may provide more than one taxable service. In such cases, the service provider need only take one registration, but it shall be endorsed for all the taxable services and tax liability will have to be discharged for each of the taxable services separately.

3. However, in the absence of any interpretative rules. It may become difficult at times to decide the classification of a particular service. The guiding principle should be that a service should be categorized under that category which is more specific. As for


example, a hotel may rent out a conference room for an official conference where lunch is also served. A dispute could arise in this case as to whether this particular service would fall under the category of ‘mandap keeper’ and exempt from tax vide Notification No.12/2001-Service Tax, dated 20-12-2001, or it will fall under the category of ‘convention services’ and charged to service tax. Between the two competing categories, in this case, the more specific one would be that of a ‘convention service’ since a ‘mandap keeper’ includes official, social as well as business functions whereas a ‘convention service’ covers conventions only which is like an official function. Hence in this case the service would not be exempt from service tax.

4 Similarly, in each case where such problems arise the proper Central Excise Officer has to decide on merits as to which is the more specific category and charge tax accordingly.

5. Pending issues may be disposed of on the basis of the above guidelines. Past cases need not be re-opened.”

9. It was submitted by the assessee that it was clear from the above referred Circular that the Board had anticipated problems in classification of Practicing Chartered Accountants Service vs. Management Consultant Service. The assessee being a practising Chartered Account Firm had the bonafide belief that the services rendered by them were classifiable under Practicing Chartered Accountants Service since such services are permissible under the Chartered Accountants Regulations & paid service tax accordingly and this is perfectly in accordance with the aforesaid circular of the Board. As per above circular, the Ministry had clearly stated that certain services may appear to fall under two or more categories simultaneously. The Ministry was specifying that Practicing Chartered Accountants, Management Consultancy Services etc. may have some element of doubt in their classification. It had been clarified by the Board that any service (transaction) can be taxed only once, even if it appears to fall under two or more categories.It had been clarified by the Board in an unambiguous term that the position was akin to Central Excise duty which was charged on manufactured goods. Central Excise duty cannot be charged twice on the same goods under two separate chapters/ headings/ sub-headings of the Central Excise Tariff, so also service tax cannot be charged twice on the same service (transactions). The Assessee submitted that it had been held by various Hon’ble High Courts and Hon’ble Supreme Court that substantiative benefit cannot be denied merely on account of procedural irregularities.

10. Management Consultant Services are made taxable in the year 2002.

The definition of the “Management Consultant Service” at the relevant time is as follows:

“Management Consultant means any person who is engaged in providing any service, either directly or indirectly, in connection with the Management of any Organization in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to Financial Management, Human Resources Management, Marketing Management, Production Management, Logistics Management, Procurement and Management of information, technology resources or other similar areas of Management.”

The said assessee has given list of the jobs that has been performed by him. The assessee submitted that they have given a very serious thought that how service like provisions relating to assignment on the ‘Review of housing loan’, “Partner search assignments” and “syndication of Working Capital” can be termed as Management Consultant Service. Nowhere, the Joint Commissioner had discussed how the above services fall under the


category of Management Consultant Services. It was obligatory on his part to discuss how the above services fall under Management Consultant Services. Assessee submitted that the OIO passed by the Joint Commissioner was a non-speaking order, irrational and devoid of any merits

As stated above, the charter of work rendered by the Practicing Chartered Accountants as enumerated by the Institute of Chartered Accountants of India (ICAI) also covers Management Consultant Services. It has been decided by the Institute that the Chartered Accountants play an invaluable role in assisting business organization to utilize the resources effectively, increase their efficiency and achieve goals and objectives as Management Consultants.

The said assessee submitted that in view of above, the Chartered Accountant can render some of the services which can be classified as management consultant services. Therefore, the services in the nature of Management Consultancy which have been provided by the Assessee to its various clients wass a part of above service. It was worth noting that the services which fall under the category ‘Management Consultant Services’, Assessee has paid the service tax on or after 1-08-2002 under category of Chartered Accountant services.

They further submitted that the Practicing Chartered Accountants’ services were brought under the Service Tax Net by the Finance Act, 1998 with effect from 16-10-98 by Notification No.57/98 dated 7-10-98. The Notification No.57/98 dated 7-10-98 has stated categorically that service tax paid only on services of auditing and accounting rendered by the Practicing Chartered Accountants in their professional capacity. The Government has superseded the Notification No.57/98 dated 7-10-98. vide Notification No.59/98 dated 16-10-98 which exempted from the levy of service tax, all the services provided by the Practicing Chartered Accountants except the services mentioned therein.

In Notification No.59/98 dated 16-10-98, the Central Government has exempted the taxable services provided by a Practicing Chartered Accountant, a Practicing Company Secretary or a Practicing Cost Accountant, in his professional capacity to a client other than the taxable services relating to -

(i) accounting and auditing; or(ii) cost accounting and cost auditing; or(iii) secretarial auditing; or(iv) verification of declarations in prescribed forms of compliances for obtaining a certificate

of commencement of business or commencement of other business under section 149 of the Companies Act, 1956 (1 of 1956); or

(v) signing of the annual return of listed companies under section 161 of the Companies Act (1 of 1956); or

(vi) certification that requirements of Schedule XIII to the Companies Act, 1956 (1 of 1956) have been complied with as regards statutory guidelines for appointment of managerial personnel and payment of managerial remuneration to them without the approval of the Central Government under section 269 and Schedule XIII, of the Companies Act, 1956 (1 of 1956); or

(vii) certification of documents to be filed by companies with the Registrar of Companies under the Companies Act, 1956 (1 of 1956); or

(viii) certification in Form 1 that the whole of the amount remaining unpaid or unclaimed for a period of three years from the date of transfer to the special account under sub-section (1) and sub-section (2) of section 205A of the Companies Act, 1956 (1 of 1956) has been transferred to the General Revenue Account of the Central Government under


the Companies Unpaid Dividend (Transfer to General Revenue Account of the Central Government) Rules, 1978; or

(ix) certification of documents under the Exports and Imports Policy (1997-2000) of the Government of India; or

(x) certification for exchange control purposes which a practicing chartered accountant can issue as documentary evidence in support of certain applications under the Foreign Exchange Regulation Act, 1973 (46 of 1973); or

(xi) certification in respect of valuation of instruments or assets as per rule 8A(7) of the Wealth Tax Rules, 1957.

from whole of service tax leviable thereon.

It was submitted that Notification No.59/98 dated 16-10-98 was different from other exemption Notifications in the sense that this does not list the services that are exempt. But it lists down the services that are liable to service tax. Accordingly, only those services which are included in the said Notification, when provided by the Chartered Accountants in their professional capacity as Practicing Chartered Accountants, were liable to pay service tax. The language used in the Notification No.59/98 dated 16-10-98 as it stood before the insertion of the explanation to the above Notification, by Notification No.15/2002 dated 1-08-2002 :

“. . . . . . . hereby exempts the taxable services provided by a practicing chartered accountant other than the taxable services relating to . . . . . . . . . . . . . . . . from whole of service tax leviable thereon “.

Thus, it was clear that the intention was to tax only those services which are listed therein. Accordingly, all other services provided by the assessee in their professional capacity as Practicing Chartered Accountants did not attract service tax prior to 01.08.2002.

Further, there was nothing in the contents of the said Notification, as it stood before the insertion of explanation, to indicate that services, other than those listed therein, were exempt only if such services were not covered under any other category of taxable services.

The Assessee also drew attention to the Trade Notice No.8/98-Service Tax, dated 2-11-98, issued by the Mumbai Commissionerate to clarify the imposition of service tax on services rendered by Practicing Chartered Accountant, Practicing Company Secretary and Practicing Cost Accountant.

It was clearly stated therein, that in so far as these three categories of professionals are concerned, the intention of the government was to confine the imposition of service tax to certain specified services that are rendered by them either exclusively or are common to their professions. It is also stated that Notification No. 59/98-Service Tax, dated 16-10-98 was issued to this effect. Further, in Para 4 of the Trade Notice, the Commissioner clearly states that those services that are not covered within the scope of Notification No. 59/98 are exempt.

11. As in the case of banking and financial services, where the scope of taxable services is clearly defined, so also, in our case, the scope of the services that are taxable are clearly defined, and this being the case, none other than those specified are taxable.

As Practicing Chartered Accountants, the assessee is permitted to provide auditing, accounting, management consultancy & certain other specified services in their professional capacity, as Practicing Chartered Accountants. Of all these services, as can be seen from the contents of Letter F.No.B11/1/98-TRU dated 7-10-1998 & that of Notification No. 59/98-


Service Tax dated 16-10-98, the Government had intentionally chosen to levy tax only on accounting & auditing/certification services, irrespective of whether the other services rendered by them in their professional capacity, as Chartered Accountants, fell in any other category of taxable services or not.

11.1 The assessee submitted that the explanation inserted in the Notification No. 59/98 dated 16-10-1998 vide Notification No. 15/2002-ST dated 1-8-2002, had enlarged the scope of the levy by rendering taxable all those services provided by a Practicing Chartered Accountants, which were covered under any of the other taxable services defined in clause (105) of section 65 of the Finance Act, 1994. It was well settled law that an explanation having an effect of enhancing the scope of levy can only have a prospective effect. As per the general principle of interpretation of law, every fiscal enactment is to act prospectively, unless it is otherwise provided in the enactment itself or it is necessary to give a retrospective effect to the same going by the language of the enactment or legislative intent. Hence no statute should be considered to have retrospective operation unless either the Act itself provides for the same or such construction arises by necessary and distinct implication. In the instant case, the amendment was only to enlarge the scope of levy and since the Notification is silent about the effective date, it should be given prospective effect only. In this connection, they placed reliance on the decisions of the Supreme Court in CCE V. Dhiren Chemicals (2002) 2 SCC 127and also CCE v. Maruthi Foam P Ltd 2004(164) E.L.T.394(SC).

11.2 The classification of services as inserted by Section 65A of the Finance Act, 1994 also supports their view point. By virtue of Notification No.59/98 S.T. dated 16-10-98, they were not liable to service tax on Management Consultancy Services till the issue of Notification No.15/2002-ST dated 1-08-2002.

11.3 The Assessee also relied upon the Tribunal decision in case of M/s Sridhar and Santhanam & Co. Vs. Commissioner of Central Excise (Service tax) , Chennai, reported in [2009 (14) STR 756 (Tri.-Chennai)], which also supports Assessee’s contention as above. The Tribunal in the above referred case while allowing the appeal has held that service tax liability on a practicing Chartered Account prior to 01.08.2002 cannot be fastened under other service categories with retrospective effect , the relevant para of the decision is reproduced as under :

“I have considered the case records and the rival submissions. The dispute to be resolved in this case relates to the Notification No.15/2002-Service Tax dated 1st August, 2002. The disputes (sic) is confined to the date of effect of the Explanation introduced by this notification. The notification does not contain anything to indicate that it operates from a past date. The language of the notification does not say that the notification is intended to remove doubts and clarifies a position valid since the issuance of the notification No.59/98 ST. Considering the language of the notification, in the absence of a specific stipulation as regards its date of effect, the amendment has to be held to be effective only from the date of issue of this notification. The text of the notification No.59/98 ST does not support denying such exemption as availed by the Assessee. Perhaps the legislature did not envisage such a benefit under the said notification and hence the disputed notification was issued. But a legislative intent which is not obvious cannot be read into a notification by the agency which implements the notification. There is a risk in allowing the enforcing agency to read the legislative intent in that the same can be differently interpreted by different persons. A benefit available on a plain reading of the notification cannot be denied retrospectively by issuing a notification. The Explanation introduced under Notification No.15/2002-ST dt 01.08.02, therefore, takes effect only from the date of its issue. Therefore


liability to tax of the Assessees as regards services of ‘Management Consultant’ and ‘Man-power Recruitment Agent’ it rendered during the period 16.10.98 to 31.7.02 confirmed in the impugned order cannot be sustained. Demand is also barred by limitation in the absence of charge of suppression of facts. The returns for the material period had been filed in time as prescribed and the demand notice was issued beyond the normal period after filing the returns. In the result this appeal is allowed”

11.4 The Assessee also relied on below tribunal decisions in similar matter wherein the Hon’ble Tribunal has granted stay :

S.B.Billimoria&Co.Vs. C.C.E Chennai, reported in 2006 (4) STR 214 (Tri.Chennai) A.F.Ferguson& Co.Vs. C.C.E Chennai, reported in 2007(8) STR 413 (Tri-Chennai) Pricewater House Coopers Private Limited Vs. C.C.ST, Chennai in 2010 (19) STR 725

(Tri-Chennai)

11.5 In view of above, no service tax was payable by a Practicing Chartered Accountant on the Management Consultant Service prior to 1-08-2002.

11.6 Thus, they submitted that they were not liable to pay service tax on any services provided by them except those specified in Notification No.59/98 dated 16-10-98 till this Notification was amended by Notification No.15/2002 dated 1-08-2002.

12. The Assessee further submitted that certain services as provided by the Assessee from 2001-2002 & upto 1-08-2002 do not fall in the Management Consultancy Service nor under any other prevailing taxable category. The Assessee was not able to understand how these services fall under the Management Consultancy Services. The Respondent held the said services under the head of Management Consultancy Services from the nomenclature given to the services in the balance sheet. The Assessee failed to understand that how it was apparent that these services were covered under Management Consultancy Services, the onus to classify the service under a particular category with proper justification is on the department, the learned Respondent has nowhere discussed in the impugned order how the said services can be called as Management consultancy services.

13. SUBCONTRACTOR IS NOT LIABLE TO PAY SERVICE TAX PRIOR TO THE ERA OF MASTER CIRCULAR:

The assessee has submitted that the Department had not appreciated the various submissions made in view assessees contention that sub-contractor was not required to pay service tax prior to issuance of Master Circular No.96/7/2007-ST dated 23rd August, 2007.

The assessee had carried out work on subcontract basis for Deloitte Haskins & Sells Ahmedabad (hereinafter referred as “DHS”) a firm of Practicing Chartered Accountants and C.C.Chokshi Mumbai. The Assessee further submitted that it has made a ‘Contract Service Agreement’ with DHS Ahmedabad on 1st April, 1999. Both parties were rendering services under the same category. Both the parties recognized that the employees of Assessee were competent to fulfill the engagements entered into by DHS with its clients and that Assessee was in a position to spare its personnel for carrying out the contracts entered into by DHS. While the employees shall always remain on the rolls of CCC, they shall be permitted to carry equivalent designations in DHS while dealing with the clients of DHS. Thus, DHS, Ahmedabad decided to give its assignments on subcontract basis to the Assessee.


Assessee specifically drew your attention to the part containing consideration and manner of payment in agreement which is as follows :

“The fee agreed by DHS with the client in respect of any assignment shall include the payments to be made by DHS to CCC as sub-contractor . Such payments shall be arrived at on the basis of mutual discussions between DHS and CCC from time to time, based upon the complexities involved in the engagements and the estimated time to be spent by the personnel of CCC on the said assignment.

DHS shall also reimburse, at actuals, all out-of-pocket expenses incurred by CCC in the conduct of its services. CCC shall raise an invoice regularly and indicate separately the amounts payable as share of fee and out-of-pocket expenses. Payment shall be made after adjusting for the amounts due within 30 days of the invoice being raised.

The above payments shall be subject to withholding taxes in India, if any, DHS will be responsible for collecting and remitting service tax on the entire fee realized from its clients on its engagements/contracts (including the share of fee attributable to CCC).”

It can be seen from above that DHS was responsible for collecting and remitting service tax on the entire fee realized from its clients on its engagements/contracts (including the share of fee payable to CCC). In view of this, CCC was carrying out the work procured by DHS from its clients and DHS was paying the full amount of service tax on the work which it has contracted from its clients. CCC was raising debit notes on DHS. Thus, the entire service tax in these cases was paid by DHS.

13.1 The said assessee submitted that the services provided by them under the Sub-contracting arrangement and the services provided by the principal service provider to the client were covered under the same category of services, the service tax wa not required to be paid by the sub-contractor in view of the clarification provided by the Government in relation to the different services. In this connection, they drew attention to the following CBEC Circulars:

(i) Circular F.No.341/43/96-TRU dated 31-10-1996.(ii) Circular F.No. B/43/4/97/TRU, dated 2-7-1997(iii) Circular F.No.B-43/1/97-TRU dated 6-06-1997.

(iv) Circular F.No.B-11/3/1998-TRU dated 7-10-1998.

(v) Circular F.NO. B2/8/2004-TRU Dtd. 10/09/2004

The Assessee also drew attention to the Trade Notice No.7/97-ST, dated 4-07-1997 of Mumbai Commissionerate-I, which reads as follows :

“2.4 The services should be rendered to a client directly, and not in the capacity of a sub-consultant/associate consultant to another consulting engineer, who is the prime consultant. In case services are rendered to the prime consultant, the levy of the service tax does not fall on the sub-consultant but it falls on the prime or main consulting engineer who raises a bill on his client (which includes the charge for services rendered by the sub-consultant).”

13.2 The said assessee also relied on the letter issued by the Directorate General of Service Tax (F.No.V/DGST/Misc-7/98/Mumbai dated 11-02-1999) wherein it has been clarified that the principal of sub-contracting would be applicable for all service categories. This letter is


based on the Ministry of Finance letter (F.No.11/3/98-TRU dated 7-10-1998), wherein the issue of payment of service tax by a sub-contractor has been considered. The two conditions of service tax having been paid by the principal and the sub-contracting being in respect of same service category were mentioned therein. We submit that these conditions have been satisfied in our case. Relevant extract of said letter is reproduced hereunder for your ready reference.

No Service Tax on sub-contracted services and reimbursements-Clarification-

During the Core Group meeting held on 2nd February, 1999, it was brought to the notice by numerous assessees that different practices are being followed by the field formations with regard to interpretation of the Service tax provisions. The points brought to the notice are enumerated as under:-

(i) The field formations are allowing the benefit of Sub-contracting only in those service categories, where it have been specifically provided in the Ministry’s instructions. In other service categories, the benefit of the same is not being given. The Para 7.2 of the Ministry’s instruction issued vide F.No.B. 11/3/98-TRU dated7-10-1998 specifically deals with the issue. The Para reads as follows -

“A question has been raised as to whether service tax is payable by a market research agency in case an advertising agency commissions a market research for or on behalf of a client of the advertising agency as it would result in double or multiple taxation (as the advertising agency is also liable for paying service tax on services rendered by him to his client). It is clarified that in the instant case a market research agency would be required to pay service tax on services rendered by it to an advertising agency and the advertising agency is also liable to pay service tax on the amount billed to its client for advertising services. As stated earlier in Para 5.6 service tax is not required to be paid by a sub-contractor only in cases where service tax has been paid by the principal for services rendered by him to his client and provided further that the sub contracting in question is in respect of the same service category”.

The issue is very clear in the light of above clarification by the Ministry and the practice being followed in the field formations is not in accordance with the above clarification. Therefore, it is clarified the above clarification in Para 7.2 of the Ministry’s instruction would be applicable of all service category.

The Assessee relied upon the decision of Hon’ble Tribunal in the case of BBR India (Ltd.) vs. Commissioner of Central Excise, Bangalore-II, reported in [2006 (4) STR- 269 (Tri.- Bangalore)], has held that –

“liability to pay service tax to the Government is on the prime consultant and not on the sub-consultant, who is the Assessee and the Assessee is not liable to pay service tax demanded.”

Further in the case of CCE Indore vs. ShivhareRoadlines reported in [2009-TIOL-526-CESTAT-Del], Hon’ble Tribunal has held that:

“5. We have perused the letter placed by the learned Counsel received from the principal contractor and addressed to the Joint Commissioner bringing the case of the respondent. We have also examined the last sentence in para 7 of the Order-in-Appeal. We are of the clear opinion that on the given facts and circumstances, the ld. Appellate authority himself felt that the respondent should get refund but he failed to discharge his duty as a public servent to render complete justice as the circumstances warranted since the case is under pre-master Circular era. We do appreciate his difficulties. The applleate order was passed on 21st


August 2007 that is just 2 days before the master Circular was issued. We also appreciate the respondent should get double taxation relief which is granted in the different manner through the CENVAT Credit Rule 2004. Therefore, we are of the view that if it is proved from record, on verification, that the principal contractor has discharged the tax liability in respect of the contract, cascading effects should be avoided and the Assessee is entitled to refund. It would be proper to implement the law without causing any harassment to the respondent if the cascading effect is demonstrated by the record itself upon examination of records of the principal contractor and the sub-contractor. This exercise is required to be done by the learned Adjudicating Authority.

6. In the facts and circumstances as well as due to peculiar observation of the ld. Appellate authority below, we have no hesitation to direct the learned adjudicating authority to call for record of both the principal contractor and sub-contractor and satisfy that the liability that is required to be discharged has been done. Sub-contractor shall not be doubly taxed if the principal contractor has discharged the liability. Once the Authority is satisfied that there is situation amounting to double taxation of the same subject matter, he should not hesitate to grant refund. We make it clear that due to confusion of the law the respondent should not claim any interest from the department if refund is admissible. It is also made clear that while granting the refund, the sub-contractor has to meet the test of unjust enrichment. We allow the cross objection in the aforesaid terms. While holding as aforesaid, revenue’s appeal is dismissed finding that proper arithmetical exercise was done in para 6 of the Order-in-Appeal”

13.3 The Assessee also placed reliance on the decision of Tribunal in the case of Sunil Hi-Tech Engineers Ltd. vs. The Commissioner of Central Excise, Nagpur reported in [2009-TIOL-1867-CESTAT-Mum] wherein Hon’ble tribunal has observed and held that:

If main Contractor pays service tax, Sub-Contractor need not to pay service tax prior to 23.08.2007.

Oppressive Circular dated 23.08.2007 should be given prospective effect. Benefit of previous ‘beneficial’ circular must be the assessee.

13.4 Also in the case of Shiva Indus.Security Agency (Guj.) P. Ltd. Vs. CCE Surat 2009 (13) STR 699 (Tri.-Ahm.) while granting the stay observed that :

“We have carefully considered the submissions. From the perusal of the records and order of the Original Authority, submission made to the effect that M/s. Reliance Group Support Services Pvt. Ltd. has paid the entire amount related to the services rendered by the applicant has been noted; the statement dated 11-7-2006 of the representative of M/s. Reliance Group Support Services Pvt. Ltd. before the Superintendent of Service Tax, Jamnagar has also been referred to; a letter dated 26-5-2007 of M/s. Reliance Group Support Services Pvt. Ltd. regarding payment made has also been referred to. However, the Commissioner held that if there was any truth in their claim, that the service tax payable by the applicant has been paid by M/s. Reliance Group Support Services Pvt. Ltd., then the later could apply for refund of the same as per law. Prima facie, we find that the service tax amount in respect of the services rendered by the applicant has been paid to the Government account though not by the applicant.”

They further submitted that in the case of Koch-Glitsch India Ltd. vs. CCE Vadodara-I reported in [2009 (13) STR 636 (Tri. Ahm.), Revenue had contended that in view of clarification issued by the Board vide letter F.No. B/43/4/97/TRU, dated 2-7-97, sub-contractors were not liable to pay service tax and service tax liability is on the main


contractor and what has been deposited by the sub-contractor is not a service tax but only a deposit. Hon’ble CESTAT has held that:

“We feel that the judgments of the Tribunal stated by the Assessee above clearly cover the issue even though they do not relate to the service tax. It is not in dispute that sub-contractor provided the service to the main contractor and they were not accountable to the service receiver. Assessee clearly had a choice to pay service tax themselves instead of making the sub-contractor pay service tax and take credit of the same and utilize for payment of tax by them. It is not in dispute or has been contended before us that sub-contractors did not provide any service at all but passed on the credit. Since the services has been provided and liability has been discharged in two stages rather than in one stage and there is no evasion of tax, we feel that the Revenue cannot have any grievance. In these circumstances the credit taken by the Assessee cannot be denied. We are also unable to appreciate the contention of the Revenue that what has been deposited by the sub-contractor is not service tax but only a deposit. We allow the appeal with consequential relief to the Assessee.”

That the Department has to adapt only one stand and cannot take contrary views in same situations for the benefit of revenue at the cost of the assessee. This view has been upheld by the Hon’ble Tribunal in the matter Sun PolytronInds. Ltd. Vs CCE Vapi reported in 2009 (238) E.L.T. 380 (Tri. - Ahmd.). While remanding the matter it was observed “The department cannot blow hot and cold in the same breath and has to adopt only one stand”

Additionally, Hon’ble Chennai CESTAT in the matter of Fraser & Ross Vs. CCE (ST) Chennai in stay order no.895/2009 dated 20.10.2009 relying on TRU Circular No.11-3-98- TRU dated 07.10.1998 has observed:

“In view of the fact that the Assessees are only a sub-contractor to the main service provider M/s. Deloitte Haskins & Sells and the entire service tax has been paid by the latter, the requirement of pre-deposit is waived and recovery stayed during the pendency of the Appeal”

13.5 In addition to above the Assessee also relied upon following Honble Tribunal Decisions in similar matter as under:

i) Urvi Construction Vs. CST, Ahmedabad-2009-TIOL-1890-CESTAT- Ahm.ii) EvergreenSuppliers Vs. CCE, Mangalore- 2008 (9) S.T.R.467 (Tri-Bang.)iii) Foto Flash Vs. CCE, Bangalore - 2008 (9) S.T.R. 462 (Tri-Bang.)iv) Synergy Audio Visual Workshop Pvt. Ltd. Vs. Commr. Of S.T., Bangalore-

2008 (10) S.T.R. 578 (Tri-Bang.)v) Oikos Vs. CCE, Bangalore- 2007 (5) S.T.R. 229 (Tri-Bang.)vi) RanaUdyog Pvt. Ltd. Vs.CCE Kolkata.-2007 (7) S.T.R 526 (Tri-Kol.)

14. The Assessee stated that the main contractors, i.e., DHS, Ahmedabad and CCC, Mumbai are already registered under Service Tax provisions and the registration numbers of them are as under :

DHS, Ahmedabad AABFD7917AST001

CCC, Mumbai CA/MUMBAI-I/2206

14.1 It was further stated by the said assessee that they have duly collected and paid service tax in respect of taxable services rendered by us to the main contractors. Chartered Accountant’s Certificates of DHS, Ahmedabad and CCC, Mumbai certifying that that applicable service tax was paid by them were produced before the respondent which is even acknowledged in the facts of the case of OIO, however contrary remarks in findings were mentioned by the respondent stating that


no evidence was produced that DHS Ahmedabad has paid the service tax. Assessee in support of its contention that DHS has paid the tax on gross amount submitted complete details of debit note raised by the Assesseevis a vis service tax paid by DHS which was duly certified by independent Chartered Accountant.

15. In view of above discussion, since there was no dispute that the relationship between CCC and DHS is that of a principal contractor and sub-contractor respectively and further that on the fees collected from the client which included the fee paid to the sub-contractee the entire tax has been deposited by the principal contractor as evidenced by the Chartered Accoutant certificates filed the services provided by Assessee under the sub-contracting arrangement shall not be taxable since the services provided by them as well as the principal service provider are covered under the same taxable service category, i.e., ‘Practicing Chartered Accountants’ service and the principal service provider has charged service tax to the client on the gross value of the services including the charges received by Assessee. That as a matter of fact the relationship between CCC and DHS cannot be called a client relationship for purpose of Sec 65(105)(s) as it stood during the relevant period for the present dispute in view of the Ministry of Finance, Department of Revenue Circular C..B.E.C # F. No. B. 43/5/97-TRU, dated 2-7-97 where at para 3.4 it is observed as follows:

“The services should be rendered to a client directly, and not in the capacity of a sub-consultant/associate consultant to another consulting engineer, who is the prime consultant. In case services are rendered to the prime consultant, the levy of service tax does not fall on the sub-consultant but is on the prime or mail consulting engineer who raises a bill on his client ( which includes the charge for services rendered by the sub-consultant”

The word “Client” in the said definition was substituted by the words “to any person” only with effect from 16-5-2008 In view of the discussion the Assessee is not required to pay tax of Rs.2009803/- and accordingly no interest and penalty is payable by the Assessee in this regard.

16. In addition to above the assessee also relied upon following Hon’ble Tribunal Decisions in similar matter as under: Viral Builders Vs. Commissioner Of Central Excise, Surat – 2011 (21) S.T.R. 457 (Tri-

Ahmedabad) while dealing with the similar facts has held that - “Service definitely stands provided only once. As such by no stretch of imagination service tax in respect of the same service can be paid for the second time. It is not a case where the service provided by sub-contractor is further used by him for providing services to his buyers. As such, the example of inputs being used in the final product and both leviable to excise duty is not apt.

Admittedly, the service in the present case stands provided by the sub-contractor through the main contractor i.e. Assessee. It stands clarified by the Board also that there cannot be double taxation in cases where services are rendered by a person through another person to the ultimate consumer as long as the main person who has the contract with the customer is paying the service tax on the gross amount.”

Tinu Multiple Services Vs. Commissioner Of Central Excise, Rajkot - 2009 (16) S.T.R 288 (Tri-Ahmedabad),

Tribunal while dealing with the similar facts has granted the unconditional stay on the recovery of demand on the strong prima faciecase in the favour of Assessee.

Shiv Indus. Security Agency (Gujarat) P. Ltd. Vs. CCE, Surat - 2009 (13) S.T.R 699 (Tri-Ahmedabad),


Tribunal while dealing with the similar facts has granted the unconditional stay on the recovery of demand on the strong prima faciecase in the favour of Assessee.

16.1 Considering the merit in their case, Additional Commissioner in other similar matter for the subsequent period i.e. for FY 2005-06 has provided them a favorable order after perusing the merits in the case. The copy of the said order has been enclosed herewith for easy reference.

16.2 In view of the above discussion, there does not appear any service tax liability considering the fact that an independent Chartered Accountant has verified and provided a detailed certificate enumerating that the applicable tax has been discharged by the Main Contractor. Consequently, they believe that there does not appear any liability for interest and penalty in this regard.

17. JUDICIAL DISCIPLE:

Notwithstanding the above, assessee would like to submit that the show cause notice was also not tenable on the ground that the authorities have not followed the judicial disciple. To mean, any final order of the Tribunal is required to be followed by the subordinate authority.

Gujarat High Court in the case of Topland Engines Pvt. Ltd. Vs. Union of India - 2008 (9) S.T.R 331 (Guj) has held that:

“The principles of judicial discipline require that the orders of higher authority are required to be followed unreservedly by the subordinate authority, even if an appeal is filed, it cannot furnish a ground for not following the order of the superior forum unless the operation of the order has been stayed by a competent higher forum. Admittedly, the order of Tribunal has not been challenged further. In the circumstances, subordinate authority is bound to follow the same and implement it without any reservation.”

Ahmedabad Tribunal in the case of Lubi Electricals Ltd. Vs.Commissioner Of Service Tax, Ahmedabad - 2010 (17) S.T.R 217 has held that:

“Surprisingly, though Commissioner (Appeals) takes note of all the above judgments, while reiterating submissions of the Assessee, but does not deal with them, while arriving at findings against them. The adjudicating as well as appellate authorities, while deciding matters, have to keep in mind that once a law is declared by the higher appellate forum on a disputed issue, the same should be followed in deciding matters. Not doing the same amounts to not following the judicial discipline and putting the assessee/Assessees to unnecessary harassments and litigation expenses. If the appellate authorities were of the view that the law declared by the Hon’ble Supreme Court in the L.H. Sugar Factories case [2006 (3) S.T.R. 715 (S.C.) = 2005 (187) E.L.T. 5 (S.C.)] is not applicable, the least expected from him was to make a distinction while not following the same. Instead, the appellate authority has chosen to remain silent on the said relied upon judgment of the Hon’ble Supreme Court. If that is done, the entire system of judicial hierarchy gets defeated and thepublic/assessees/Assessees are not given their dues, which is just and fair.”

18. PENALTIES AND INTEREST PROVISIONS NOT APPLICABLE:


SCN, on the premise that the said assessee had not paid the service tax, levied the penalty under Sections 76, 77 and Section 78 of the Finance Act, 1994.

18.1 They submitted that it was a well-settled proposition in law that imposition of penalty was the result of quasi-judicial adjudication. It was not a mechanical process or cannot be imposed just because it was legitimate to impose penalty. The element of mensrea or malafide intent must be necessarily present, in order to justify imposition of penalty. The penalty may not be imposed on the assessee in absence of any dishonesty or willful intent to defraud revenue or evade the payment of duty on our part.

18.2 The decision of the Hon’ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [(1978) ELT J 159] has categorically held that:

“the discretion to impose a penalty must be exercised judicially. A penalty will be ordinarily by imposed in cases where the party acts deliberately in defiance of the law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation; but not, in cases where there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

18.3 It was submitted that, the element of mensrea or any positive act to evade duty was conspicuously absent in the instant case. The issue involved was one of interpretation and as such no penalty should be imposed upon them.

18.4 For the reason that the SCN in question was patently erroneous on facts and in law, they request to withdraw the SCN and drop the demand of service tax as specified in the SCN.

19. The assessee was granted PH on 24.01.2013 and 5.02.2013,. Shri Hardik Shah ( Deputy Manager) and Shri Arjun Shah ( Associate) appeared on both the dates. In the hearing dated 24.01.2013, they submitted that prior to 1.08.2002, tax on Management & Consultancy Service was not leviable and therefore the demand of Rs. 41,871/- may be dropped. Further, as per the Comm(Appeals) order dated 23.01.2012, the demand on account of services provided by Vadodara firm has been set aside, and therefore the value of services required for verification was Rs. 2,76,56,182/-. The other contention in respect of the value of services, their main contractor i.e M/s Deloitte Haskins & Sells, Ahmedabad has already paid Service Tax and in terms of Comm(Appeals) order, the said payments are required to be verified. Consequently, in the hearing dated 5.02.2013, they submitted worksheets for services sub-contracted by each of those main contractors giving the details of service tax paid by each one of them.

20. The said assessee vide their letter dated 5.02.2013 wherein they submitted copies of the challans through which the main contractor had paid service tax during the period under dispute and consideration. Secondly, they submitted the copies of the Circulars which specify that the sub-contractor was not liable to pay service tax when the main contractor has discharged the applicable service tax on the amount including the sub-contracted income, as under :

(i) F.No. 341/43/96-TRU dated 31.10.1996.(ii) F.No. B-43/1/97 TRU dated 6.06.1997.(iii) F.No. B/43/5/97 TRU dated 2.07.1997.(iv) F.No. B-11/03/1998 TRU dated 7.10.98.(v) F.No. B2/08/2005 TRU dated 10.09.2004.


(vi) Trade Notice No. 07/97-ST dated 4.07.97(vii) F.No. V/DGST/Misc-7/98/Mumbai dated 11.02.1999.(viii) Master Circular No. 96/07/2007-ST dated 23.08.2007.

21. The assessee also submitted the copies of the cases wherein Tribunals during the relevant period has upheld the contentions of sub-contractor and granted relief from payment of service tax, as under :

(i) Urvi Construction Vs. CST, Ahmedabad [2010(17) STR 302 (Tri-Ahd)](ii) Viral Builders Vs CCE Surat [2011(21)STR 457(Tri-Ahd)](iii) Koch-Glitsch India Ltd Vs. CCE Vadodara-I [2009(13) STR 636(Tri-Ahd)](iv) CCE Indore Vs Shivhare Roadlines [2009(16)STR 335 (Tri-Del)](v) Evergreen Suppliers Vs. CCE Mangalore [2008(9)STR 467(Tri-Bang)](vi) Foto Flash Vs. CCE Bangalore [2008(9) STR 462(Tri-Bang)](vii) Synergy Audio Visual Workshop P Ltd Vs. CST Bangalore [2008(100578 (Tri-Bang)](viii) Oikos Vs. CCE Bangalore [ 2007(5)STR 229 (Tri-Bang)](ix) Rama Udhyog Pvt. Ltd Vs CCE Kolkata [2007(7) STR 462(Tri-Kol)](x) BBR India Ltd Vs. CCE Bangalore [2006(4)STR 269(Tri-Bang)]

DISCUSSIONS AND FINDINGS

22. I have carefully gone through the contents of the Show Cause Notices and defence replies, relevant documents of the case, and written submissions of the said assessee along with all the relevant documents submitted during or before personal hearing.

23. I find that the matter has been remanded back in pursuance to the appeal filed by the assessee against OIO No. 23/STC-AHD/ADC(MKR)/2011-12 dated 22.07.2011. Further I find that the appellate authority at Para 15 of the Order, has also directed that in addition to re-determining the taxable value & as well the Service Tax, the directions of the CESTAT under Order No. A/510/WZB/AHD/2011 dated 03.03.2011, which also had been remanded to the original adjudicating authority, should also be incorporated.

24. I find that the Hon’ble CESTAT in its order has remanded the matter for a fresh decision on the issue whether the assessee as a sub-contractor are liable to service tax when the principal contractor has paid the service tax on the entire value, in respect of “Chartered Accountant Service”;and secondly whether service tax has to be paid on Management Consultancy Service provided prior to 1.08.2002, in light of the law declared. The appellate authority in his order has remanded the matter and has directed for proper quantification of taxable value and service tax as the value of Rs. 2,50,90,190/- { Value of Rs. 1,21,81,471/- for Chartered Accountant’s Service + Value of Rs. 1,29,08,719/- for Management Consultant’s Service , pertaining to the assessee’s Vadodara’s office} is to be deducted from the total taxable value of Rs. 10,44,71,543/-. Further, I find that both the orders i.e CESTAT Order No. A/510/WZB/AHD/2011 dated 03.03.2011 & OIA No. 23/2012(STC)/K.ANPAZHAKAN/Commr(A)/Ahd dated 23.01.2012 have been accepted by the Department.

24.1 Thus the issues to be decided in this de-novo adjudication are as under :

(i) Whether the said assessee who is a sub-contractor are liable to service tax when the principal contractor i.e M/s Delotte Haskins & Sells, Ahmedabad has paid the service tax on the entire value, in respect of “Chartered Accountant Service”;

(ii) whether service tax has to be paid on Management Consultancy Service provided by the said assessee prior to 1.08.2002, and


(iii) The taxable value of Rs. 2,50,90,190/- { Value of Rs. 1,21,81,471/- for Chartered Accountant’s Service + Value of Rs. 1,29,08,719/- for Management Consultant’s Service , pertaining to the said assessee’s Vadodara’s office} is to be deducted from the total taxable value of Rs. 10,44,71,543/- and the service tax payable to be calculated, based on the findings of the clause (i) & (ii) above.

25. I find that the said assessee has cited among various others, the circular nos. F.No. B/43/5/97-TRU, dated 02-7-1997; B/43/1/97/TRU dated 06.06.1997; B/11/3/1997/TRU dated 07.10.1998 to state that the service tax was not leviable on the ground that the service provider had acted as a Sub-contractor during the relevant period. However, I find that the abovesaid circulars are not applicable in this case as demand in this case pertains to the year 2001-02 to 2004-05 ( SCN being issued on 19.10.2006) after introduction of Service Tax Credit Rules, 2002 and CENVAT Credit Rules, 2004, whereas, the CBEC circulars were issued prior to introduction of these Rules. I also find that the F.No. B2/08/2005 TRU dated 10.09.2004, as cited by the assessee, does not throw any light on the issue. As such, I find that the CBEC Circular No. 96/7/2007-ST dated 23.08.2007 issued from F.No. 354/28/2007-TRU is apt for the facts in the present case which provides that sub-contractor has to pay the service tax whether or not these services are used as input service by the main contractor.

26. I find that the said assessee has provided services as a Sub-Contractor in relation to Chartered Accountant services to their principal chartered accountant firm i.e. M/s. Delloite, Haskins & Sells. The services rendered by the assessee is chargeable to Service Tax under the category of “Chartered Accountant’s services” and “Management Consultant’s Service” under Section 65(105) (s) and 65(105)(r) of the Finance Act, 1994 with effect from 16.10.1998. as defined under this section states that:

“(s) [to any person], by a practicing chartered accountant in his professional capacity, in any manner;

“(r) [to any person] by a management or business consultant in connection with the management of any organization or [business,]* in any manner;]

26.1 The Board vide Circular No.96/7/2007-ST dated 23.08.2007 has also clarified as under :-

“A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provisions of taxable service by the sub-contractor”.

26.2 I observe that the said Circular dated 23.08.2007 is named as “Master Circular” and the body of the Circular reveals that this Circular gives clarification on various technical issues and reflects the current practice of the department. Hence, no new provision was made effective by issuing this Circular, this was a compilation of various Circulars and therefore consequent upon issuance of this master circular all earlier clarifications issued on technical issues relating to service tax were withdrawn.

26.3 The issue of levy of service tax from sub-contractors has been further clarified by CBEC vide Circular No.138/07/2011-ST dated 06.05.2011. The relevant excerpts of the circular are re-produced below:

Reference Issue Clarification


Code999.03/ 23.08.2007

A taxable service provideroutsources a part of the work by engaging another service provider, generally known as subcontractor. Service tax is paid by the service provider for the total work. In such cases, whether service tax is liable to be paid by the service provider known as sub-contractor who undertakesonly part of the whole work

“A sub-contractor is essentially a taxable service provider. The fact that the services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provisions of taxable service by the subcontractor. Services provided by subcontractors are in the nature of input service.

Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether ornot such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided”

26.4 Therefore, it is clarified that the services provided by the subcontractors / consultants and other service providers are classifiable as per Section 65 A of the Finance Act, 1994, under respective sub clauses (105) of Section 65 of the Finance Act, 1994 and chargeable to service tax accordingly.

The above circular is very clear and specific on the issue of levy of service tax from the sub-contractor who has provided the services to main contractor.

26.5 The same view gets supported by the judgments of Honorable CESTAT in the case of INDFOS INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., NOIDA reported at 2012 (26) S.T.R. 129 (Tri. - Del.)where it was observed at Para 15 that policy that if the main contractor has paid service tax, the sub-contractor need not pay tax again on the same service, for periods prior to introduction of Cenvat Scheme is reasonable and acceptable based on the Board’s Circulars.

26.6 Further in the case of M/s SAFE & SURE MARINE SERVICES PVT. LTD. Versus COMMR. OF SERVICE TAX, MUMBAI reported at 2012 (28) S.T.R. 30 (Tri. - Mumbai), the Tribunal observed as under :

5.3 The appellant has also argued that as far as M/s. SICAL is concerned, after 1-5-2006 M/s. SICAL has discharged the Service Tax liability on the entire amount and, therefore, they are not required to pay Service Tax as they are only sub-contractors. This argument is totally incorrect especially in the context of a Value Added Tax regime, which is in force in India. Under the Value Added Tax regime, which applies to Service Tax also, the provider of taxable services has to discharge the Service Tax liability and if such services are used as input services by other service provider or manufacturer of the goods down the line, they can avail input service credit on the Service Tax paid by the input service provider. There is no exemption on input service or input service provider under the law. The entire scheme of invoice based Value Added Tax, which is in force, envisages payment of tax at each stage of taxable event and availment of credit of tax so paid at the subsequent


stage. If this tax , regime, which is in force, has to be given any meaningful effect, then it is mandatory that the Service Tax liability is discharged as and when taxable services are rendered by the service provider.

(emphasis added)

26.7 In view of the above discussions, I find that assessee as a sub-contractor are therefore liable to service tax even when the principal contractor has paid the service tax on the entire value, in respect of “Chartered Accountant Service”. Therefore, as directed in the Commissioner(Appeal)’s order dated 25.01.2012, excluding the value of Rs. 1,21,81,471/- with respect to their Vadodara Office for the year 2004-05, the taxable value comes to Rs. 5,69,13,403/- , and the calculation of duty is as under :

Period/Year Audit Fees collected as per Balance Sheet

Audit Fees shown in ST-3 returns

Difference of taxable value

Rate of service Tax

Service Tax on differential amount payable

Remarks

2001-02 12188619 8842830 3345789 5% 1672892002-03 12679656 11998637 681019 5% 340512003-04 (16040367)

656059(15951802)659059

-3000 5% -150 (Excess paid)

15384308 15292743 91565 8% 7325

2004-05 (28186232)6389520

(14111220)6126020

263500 8% 21080

9615241* 7985200 1630041 10.2% 166264 *Excluding Vadodara CA service

5,69,13,403 50904489 6008914 3,96,009

27. Now coming to the next issue i.e. whether service tax has to be paid on Management Consultancy Service provided prior to 1.08.2002.

27.1 I find that Notification No. 15 /2002-Service Tax was issued on 1.08.2002 , which laid down as under :

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994) (herein after referred to as the said Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following amendments in the notification of Government of India in the Ministry of Finance (Department of revenue) No. 59/98-ST dated 16.10.1998, namely,-

In the said notification, the following Explanation shall be inserted in the end, namely,-

“Explanation.-Nothing contained in this notification shall apply to the services provided by a practicing chartered accountant, a practicing company secretary or a practicing cost accountant which may fall in any other taxable services as defined in clause (90) of section 65 of the said Act.

Illustration:-The service provided by a practicing chartered accountant, a practicing company secretary or a practicing cost accountant in connection with the management of


any organization in any manner or recruitment of manpower in any manner shall be deemed to be the taxable service provided under the category of management consultant or manpower recruitment agency, as the case may be. Therefore no exemption under this notification shall be applicable to such practicing chartered accountant, a practicing company secretary or a practicing cost accountant. ”

27.2 Further, Notification No. 59/98 – Service Tax dated the 16th October, 1998, lays down as under :

G.S.R. 624(E) – In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), and in suppression of the notification of Government of India in the Ministry of Finance (Department of Revenue) No. 57/98-Service Tax, dated the 7th October, 1998, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided by a practicing chartered accountant, a practicing company secretary or a practicing cost accountant, in his professional capacity to a client, other than the taxable services relating to –

i. accounting and auditing; or ii. cost accounting and cost auditing; or

iii. secretarial auditing; or

iv. verification of declarations in prescribed forms of compliance's for obtaining a certificate of commencement of business or commencement of other business under section 149 of the Companies Act, 1956 (1 of 1956); o

v. signing of the annual return of listed companies under section 161 of the Companies Act, 1956 (1 of 1956); or

vi. certification that requirements of Schedule XIII to the Companies Act, 1956 (1 of 1956) have been complied with as regards statutory guidelines for appointment of managerial personnel and payment of managerial remuneration to them without the approval of the Central Government under section 269 and Schedule XIII, of the Companies Act, 1956 (1 of 1956); or

vii. certification of documents to be filed by companies with the Registrar of Companies under the Companies Act, 1956 (1 of 1956); or

viii. certification in Form 1 that the whole of the amount remaining unpaid or unclaimed for a period of three years from the date of transfer to the special account under sub-section (1) and sub-section (2) of section 205A of the Companies Act, 1956 (1 of 1956) has been transferred to the General Revenue Account of the Central Government under the Companies Unpaid Dividend (Transfer to General Revenue Account of the Central Government) Rules, 1978; or

ix. certification of documents under the Exports and Imports Policy (1997-2002) of the Government of India; or

x. certification for exchange control purposes which a practicing chartered accountant can issue as documentary evidence in support of certain applications under the Foreign Exchange Regular Act, 1973 (46 of 1973); or


xi. certification in respect of valuation of instruments or assets as per rule 8A(7) of the Wealth Tax Rules, 1957, from whole of service tax leviable thereon.

27.3 On careful reading of both the notifications, I find that w.e.f. 1.08.2002, it has only been clarified by way of insertion/amendment , that no exemption from payment of service tax of such services as provided by Practicing Chartered Accountants like the management consultancy would be available. Thus I find that from 16.10.1998 onwards, the taxability of management consultancy as provided by the Practicing Chartered Accountants was never in doubt. Only the services relating to clause (i) to (xi) under Notification 59/98-ST are exempted, and the management consultancy i.e management of an organization were always a taxable service. Also I find that the said assessee has not provided any evidence/arguments to show that they fall within the aegis of clause (i) to (xi) of Notification 59/98-ST. I further find that the cases cited by the assessee on this issue have not attained finality and are still pending for decision.

27.4 In view of the above discussion, I come to the conclusion that service tax was payable by the said assessee on management consultancy from 1.4.2001 to 31.03.2005. Therefore, as directed in the Comm(Appeal)’s order dated 25.01.2012, excluding the value of Rs. 1,29,08,719/- with respect to their Vadodara Office for the year 2004-05, the taxable value comes to Rs. 2,24,67,950/- , and the calculation of duty is as under :

Period/Year Management Fees collected as per Balance Sheet

Management Fees shown in ST-3 returns

Difference of taxable value

Rate of service Tax

Service Tax on differential amount payable

Remarks

2001-02 3265500 0 3265500 5% 1632752002-03 4010743 0 4010743 5% 2005372003-04 (7656557)

135000 13500 5% 675

7643057 0 7643057 8% 611445

2004-05 (20443869)4032000

0 4032000 8% 322560

3503150 * 0 3503150 10.2% 357321 *Excluding Vadodara MC service

2,24,67,950 16,55,813

28. The scope of this De-novo proceeding is limited to re-quantification of taxable income and service tax thereon in respect of their income for Ahmedabad office. In view of the above discussions, I re-quantify the taxable value in case of Chartered Accountant service to Rs. 5,69,13,403/- from Rs. 6,90,94,874/- and the service tax payable to Rs. 3,96,009/- from Rs. 16,38,370/-. Further, in case of Management Consultancy service, I re-quantify the taxable value to Rs. 2,24,67,950/- from Rs. 3,53,76,669/- and the service tax payable to Rs. 16,55,813/- from Rs. 29,72,503/-.

29. In view of above discussion and findings, I pass the following order :

-: O R D E R :-

(i) I consider the Services rendered by them as taxable service under the category of Practicing Chartered Accountant Service and Management Consultant Service as defined under Section 65 of the Finance Act 1994, as amended, and consider the amount of


Rs. 5,69,13,403/- and Rs. 2,24,67,950/- received as payment/ fees recovered/ collected by them, respectively, from their clients as taxable value and confirm the non payment/ short payment of Service Tax amounting to Rs. 3,96,009/- (Rupees Three Lacs Ninety Six Thousand and Nine Only) under the category of Practicing Chartered Accountant Service and Rs. 16,55,813/- (Rupees Sixteen Lacs Fifty Five Thousand Eight Hundred and Thirteen Only) under the category of Management Consultant Service for the period from 01.04.2001 to 31.03.2005 under Section 73(2) of the Finance Act, 1994.

(ii) I direct M/s C.C. Choksi & Co. to pay the interest as applicable on the amount of their Service Tax liability for the delayed/non payment of service tax under Section 75 of the Finance Act, 1994.

(iii) I impose a penalty of Rs. 200/- (Rupees Two Hundreds Only) per day or at the rate of 2% of the service tax amount per month upon them under Section 76 of the Finance Act, 1994, as amended, for the failure to make the payment of Service Tax payable by them. 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 their service tax liability.

(iv) I impose a penalty of Rs. 8000/- (Rupees Eight Thousand only) under under Section 77 of the Finance Act, 1994, as amended, on them for the failure to file prescribed Service Tax return within the stipulated time.

(v) I impose a penalty of Rs. 20,51,822/- (Rupees Twenty Lacs Fifty One Thousand Eight Hundred and Twenty Two Only) under Section 78 of the Finance Act, 1994, as amended, on them for suppressing the value of taxable services provided by them before the Department with an intention to evade payment of Service Tax. If the service tax amount is paid alongwith appropriate interest as applicable within 30 days from the date of receipt of this order, the amount of penalty under Section 78 shall be reduced to 25% of service tax amount, provided if such penalty is also paid within such period of 30 days.

(vi) I impose a penalty of Rs. 1000/-(Rupees One thousand only) under provisions of the erstwhile Section 75 A of the Finance Act, 1994 as much as they failed to make application for registration under the category of ‘Management Consultant Service’ within the stipulated time.

(J S Negi)Additional CommissionerService Tax : Ahmedabad

F No. STC/4-94/O&A/SCN/CCChoksi/06 Date : 22/03/2013

By R.P.A.D/Hand Delivery

ToM/s C C Choksi & CoHeritage 3rd Floor,Near Gujarat Vidyapeeth, Ashram Road, Ahmedabad-14Copy to :


1. The Commissioner, Service Tax, Ahmedabad (Attention RRA Section)2. The Assistant Commissioner, Service Tax, (Audit), Ahmedabad. 3. The Deputy Commissioner, Service Tax Division- II, Ahmedabad. 4. The Supdt, Range- VII, Division- II, Service Tax, Ahmedabad ( with an extra copy of the OIO to be delivered to the assessee) 5. The Guard File.

2012 (26) S.T.R. 129 (Tri. - Del.)

IN THE CESTAT, PRINCIPAL BENCH, NEW DELHI

[COURT NO. III]Ms. Archana Wadhwa, Member (J) and Shri Mathew John, Member (T)

INDFOS INDUSTRIES LTD.Versus

COMMISSIONER OF C. EX., NOIDA

Final Order No. ST/206/2011(PB), dated 25-5-2011 in Appeal No. ST/650/2007Demand - Limitation -


Relevant date - Whether it is date of billing or realization - Section 73 of Finance Act, 1994 is not very specific about this issue - In that view, meaning given by reading all provisions and giving harmonious interpretation - Under Rule 6 of Service Tax Rules, 1994, tax is paid when value is

realized and not when value is billed, and theme of Section 73 ibid also was short payment - So relevant date had to be counted from date of ST-3 return in which short payment occurred and not

the date on which information is furnished regarding billing. - It may be appropriate to see the consequence of the interpretation canvassed by the Appellant. If an assessee raises bills for Rs. 1,00,000 in March 2004 and reports the same in the ST-3 return for March in row 3 of item 4(A)

of ST-3 and does not receive the billed amount till March 2005, no notice under section 73 can be issued because no short payment has occurred. In May 2005, if payment is received and the

assessee does not pay tax, then SCN under Section 73 cannot be issued because more than one year has passed after filing of return for March 2004 and consequently no tax can be demanded. Suppression also cannot be alleged since he has already reported the amount in ST-3 return of March 2004. The provisions of Section 73 of Finance Act and the particulars called for in ST-3 return cannot be interpreted to provide such loopholes for not paying taxes. [paras 11, 12]

Maintenance and repair - Sub-contracting of - Service tax not paid under belief that sub-contractors do not have to pay Service tax - However, no argument raised that main contractor had discharged Service tax liability - HELD : If evidence was produced to the effect that main contractor had discharged Service tax liability, demand on sub-contractor was not maintainable - Section 65(64) of Finance Act, 1994. [para 15]

Service tax - Levy of - Main contractors/sub-contractors - C.B.E. & C. Circulars - No circular has laid down principle or clarified that sub-contractors are not liable to pay Service tax on any taxable activity, with no condition attached - C.B.E. & C. Instruction F. No. B-11/3/98-TRU, dated 7-10-1998 is specific service to interior decorators and subject to condition that main contractor had paid tax inclusive of value of work done by sub-contractor - In case of service provided to client by consulting engineer, sub-contractor carrying out part of activity may not have fitted into definition of “consulting engineer” and consulting engineer sub-contracting work might not have fitted into the definition of “a client”; in such situations clarifications were issued by C.B.E. & C. [para 14]

Service tax - Liability of - It has to be decided with reference to definition of concerned taxable service at relevant time, activities carried out and contract governing such activity. [para 15]

Service tax - Liability of - Policy that if main contractor has paid Service tax, sub-contractor need not pay tax again on same service, for periods prior to introduction of Cenvat Scheme - HELD : It was reasonable and acceptable for maintaining equality before law. [para 15]

Exemption - Claim of - It can be made at any stage of proceedings - It cannot be denied on ground that it was not made in adjudication proceedings, and made in first appeal. [para 16]

Appeal to Appellate Tribunal - Remand - Contradictory findings in impugned order - Entire matter could not be decided by Tribunal just by resolving faulty findings, and requiring examination of other facts and laws - In that view, matter remanded to be decided in light of our observations of the Tribunal - Section 86 of Finance Act, 1994 - Section 35B of Central Excise Act, 1944. [para 17]

Appeal disposed off

CASES CITED

BBR (India) Ltd. v. Commissioner — 2006 (4) S.T.R. 269 (Tribunal) — Distinguished [Para 5]Oikos v. Commissioner — 2007 (5) S.T.R. 229 (Tribunal) — Distinguished [Para 5]Semac Pvt. Ltd. v. Commissioner — 2006 (4) S.T.R. 475 (Tribunal) — Distinguished [Paras 5,


15]Share Medical Care v. Union of India — 2007 (209) E.L.T. 321 (S.C.) — Relied on [Para 16]

DEPARTMENTAL CLARIFICATION CITED

C.B.E. & C. Instruction F. No. B-11/3/1998-TRU, dated 7-10-1998 [Paras 5, 14]

REPRESENTED BY : Shri J.K. Mittal, Advocate, for the Appellant.

Shri Amrish Jain, DR, for the Respondent.

[Order per : Mathew John, Member (T)]. - The Appellant is engaged in the business of manufacturing and repairing Hydraulic Service Trolley (HST). The Appellant was registered under service tax laws as a provider of service under the category “Maintenance and Repair”.

2. M/s. HAL Bangalore had entered into a contract for maintenance and repair of HST owned by the Indian Air Force. They had sub-contracted this activity to the Appellant.

3. For the period 29-9-2004 to 3-3-2005, the Appellant received Rs. 72,17,994/- from HAL for maintenance and repair done by the Appellant. The Appellant did not pay service tax on the said amount under the belief that sub-contractors do not have to pay service tax as per clarifications given by C.B.E. & C. in a booklet published as “Frequently Asked Questions and Answers”. The Appellant had intimated this stand to the department vide their letter dated 4-11-2004 along with the bill numbers under which the said amount was received. The Appellant did not include the amount in the ST-3 return filed by them.

4. The Appellant was issued with a Show Cause Notice dated 10-3-2006, demanding service tax amounting to Rs. 7,36,236/- on the said amount of Rs. 72,17,994/-. In adjudication proceedings this demand was confirmed along with interest. Further a penalty equal to the said amount was imposed under Section 76 of Finance Act, 1994. The Appellant filed an appeal with the Commissioner of Central Excise who confirmed the duty demand but set aside the penalty. Aggrieved by the order of the Commissioner (Appeal) the Appellant is before this Tribunal.

5. The main grounds stated in the appeal are the following :

(i) The work executed by them was in their capacity as a sub-contractor and hence the Appellant is not liable to pay service tax. The Appellant relies on the following circular of C.B.E. & C. and case laws in this regard :(a) C.B.E. & C. Circular F. No. B-11/3/98-TRU, dated 7-10-1998

(b) BBR (India) Ltd. v. C.C.E. - 2006 (4) S.T.R. 269 (Tri.-Bang.)

(c) Semac Pvt. Ltd. v. CST - 2006 (4) S.T.R. 475 (Tri.-Bang.)

(d) Oikos v. C.C.E. - 2007 (5) S.T.R. 229 (Tri.-Bang.)

(ii) The work executed by the Appellant involved supply of materials and hence they were eligible for exemption under Notification 12/2003-S.T. for the value of material supplied. Though this claim was not made in the adjudication proceedings they had made this claim in the first appeal along with necessary supporting documents to prove the value of materials sold. However the Commissioner (Appeal) did not consider this plea.

(iii) The demand is time-barred because SCN is not issued within one year from the date on which they issued the invoices. The position that they had issued the invoices and they were not including it in ST-3 return was informed to the department under separate letter dated 4-11-2004.

6. During the hearing before the Tribunal the main point argued was the issue that the notice was time-barred.

7. The argument of the Appellant is that the invoices were dated 31-3-2004. If these amounts were taxable the same should have been included in the ST-3 return for March 2004, in the fourth row in item 4(A) for “Amount billed-gross”. The Appellant did not include it and the


position that it was not included was intimated to the department along with the reasons. The contention of the Appellant is that as per provisions in Section 73 of Finance Act, 1994, SCN should have been issued within one year from 25-4-2004, that is the date on which ST-3 return for March 2004 was to be filed.

8. The argument of the department is that the earliest payment under the impugned bills was received on 25-1-2005. The Appellant should have paid service tax on this amount before 5-2-2005 and should have included in row 1 of item 4A of ST-3 return for “Amount received for taxable service(s) provided” in their ST-3 return for March 2005 to be filed before 25-4-2005. Since SCN was issued on 24-4-2006 it is contested that the notice is issued within one year from the relevant date.

9. Provisions made under Section 73 of the Finance Act, 1994 are relevant for deciding this dispute. The provisions are reproduced below :

“73. Recovery of Service tax not levied or paid or short levied or short paid or erroneously refunded - (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :

Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of —

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax,

by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “one year”, the words “five years” had been substituted.

---

---

---

(6) For the purposes of this section, “relevant date” means, —

(i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid -

(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;

(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

(c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;

(ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of adjustment of the service tax after the final assessment thereof;

(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the


date of such refund.”

10. Revenue is not contesting the issue that in this case extended period of five years prior to relevant date cannot be invoked. The contentious issue is what is the relevant date. There is no dispute that provisions of Section 73(6)(i)(b) will apply in this case.

11. The issue in short is that the disputed amount should have been reported in two ST-3 returns for the first time when the amount was billed (i.e. in fourth row in item 4(A) of ST-3 return) and a second time (i.e. in the first row in item 4(A) of ST-3 Return) when the amount was realised. The Appellant argues that the period should be counted with reference to the former event that is billing while revenue contests that it should be with reference to the latter event, that is realization. Section 73 of Finance Act, 1994 is not very specific about this issue. So a meaning has to be given by reading all the provisions and giving a harmonious interpretation. Under the scheme of levy of service tax, as provided in Rule 6 of Service Tax Rules, 1994, tax is be paid when the value is realized and not when value is billed. Therefore short payment occurs when value is realised but tax not paid. The theme of Section 73 of the Act is short payment. So the relevant date has to be interpreted in the context of short payment. So the relevant date has to be counted from the date of ST-3 return in which short payment occurs and not with reference to the date on which information is furnished regarding billing.

12. It may be appropriate to see the consequence of the interpretation canvassed by the Appellant. If an assessee raises bills for Rs. 1,00,000/- in March 2004 and reports the same in the in ST-3 return for March in row 3 of item 4(A) of ST-3 and does not receive the billed amount till March 2005, no notice under Section 73 can be issued because no short payment has occurred. In May 2005, if payment is received and the assessee does not pay tax, then SCN under Section 73 cannot be issued because more than one year has passed after filing of return for March 2004 and consequently no tax can be demanded. Suppression also cannot be alleged since he has already reported the amount in ST-3 return of March 2004. The provisions of Section 73 of Finance Act and the particulars called for in ST-3 return cannot interpreted to provide such loopholes for not paying taxes.

13. For the arguments stated above, we are not in agreement with the interpretation given by the counsel for the Appellant in the matter of time bar. So the contention that demand is time-barred is rejected.

14. Now the argument that they were not the main contractors but were only sub-contractors needs to be examined. This issue whether sub-contractor needs to pay service tax has arisen because of certain clarifications issued by the Board in the early stage of evolution of service tax levy and connected laws. These instructions were issued in view of different factors like,

(i) Even prior to the introduction of Cenvat Scheme for service tax, the policy of the government was to tax the same service only once, that is in the hands of the main person providing the service. There was no intention to tax the same value twice in the hands of two different parties rendering different part of the same service. This situation is most aptly demonstrated by the service rendered by a stock broker and that rendered by a sub-broker to a broker. Sub-broker receives payment from the brokerage charged by the broker who was already paying tax on the full brokerage. Similar was the situation in the case of advertising agency. Many persons do different parts of the job of advertising like conceptualisation, the making of the advertisement, display of the advertisement etc. The policy was to tax the amount involved only once that is when the main advertising agency raises bill on the client who benefits from the advertisement. Though many Circulars were quoted the text of only one could be seen that is the Circular F. No. B-11/3/98-TRU, dated 7-10-1998 para 5.6. This is with reference to the specific service of interior decorators and is subject to the condition that the main contractor pays tax on the value inclusive of the value of work done by the sub-contractor. No circular laying down a principle that sub-contractors are not


liable to pay tax, with no condition attached, has been produced.(ii) There was another issue that the definition of the service concerned could not cover the

activity carried by some of the sub-contractors and therefore in some cases clarifications were issued to the effect that the person who bills for the complete service which will fall with the service as defined will only be taxable.

(iii) There was also the issue that in initial stages services were not defined as a specified service provided to “any person” by “any other person” as is the case for most of the entries in Section 65(105) of the Finance Act, 1994 as it stands today. Earlier the nature of the person providing service as well as the nature of the person availing service was specified in many of the taxable entries. For example if service provided to a customer by a telegraphic authority was taxed, the service provided by one telegraphic authority to another telegraphic authority for the former to render service to the customer was not under the tax net. Such issues came up also in the case of service provided to a client by a consulting engineer. The sub-contractor who was carrying out part of the activity may not have fitted into the definition of “consulting engineer” and the consulting engineer sub-contracting the work might not have fitted into the definition of “a client”. It is in such situations that the impugned clarifications were issued by the Board. The clarifications issued by Board do not expose a legal position that no sub-contractor is liable to pay service tax on any taxable activity.

15. The liability to tax has to be decided with reference to the definition the concerned taxable service at the relevant period of time and the activities carried out and the contract governing such activity. Some of the case laws quoted do not discuss any provision of any statute to come to the conclusion that there shall be no levy of service tax on sub-contractors. In fact the decision in Semac Pvt. Ltd v. CST - 2006 (4) S.T.R. 475 (Tri.-Bang.) is given considering that the main contractor had paid tax for the full value. However the policy that if the main contractor has paid service tax, the sub-contractor need not pay tax again on the same service, for periods prior to introduction of Cenvat Scheme is reasonable and acceptable based on the Board’s Circulars, for maintaining equality before law. In this case no argument is raised that the main contractor namely, HAL has discharged service tax liability. But if evidence is produced to that effect the demand on the sub-contractor is not maintainable.

16. The argument that they can claim an exemption at any stage of the proceedings is now settled because of the decision of Apex Court in Share Medical Care v. UOI - 2007 (209) E.L.T. 321. The Commissioner (Appeal) has erred in not considering the claim of the Appellant for exemption under Notification No. 12/2003-S.T., when evidence regarding value of goods sold was apparently produced by the Appellant.

17. The finding of the adjudicating authority has not explained the reasons for finding in para 4.7 without contradicting the claims of the Appellant as recorded in 3.9 of the order. If the entire matter could be decided just by resolving this faulty finding we would have gone ahead to do so. Since the matter requires examination of other facts and laws we refrain from giving any finding on this issue at this stage.

18. This case needs to be re-examined in the light of our observations in paras 15 to 17 above. So the impugned order is set aside and the matter is remitted to the adjudicating authority to take into consideration the arguments of the Appellants and to decide whether the impugned activity carried out by the Appellant will fall within the definition of “Maintenance and Repair” as it stood at the relevant time. The Appellant is given the permission to adduce any fresh evidence that the Appellant wants to produce and to claim any exemption that the Appellant could have legally claimed at the relevant point of time. The adjudicating authority may keep in view the views expressed in this order in paras 15 to 17 above and pass a fresh speaking order after giving an opportunity to the Appellant to produce fresh evidence and for personal hearing.

19. The Appeal is disposed of as per above terms.


(Pronounced in open Court on 25-5-2011)

_______

2011 (22) S.T.R. 159 (Tri. - Mumbai)

IN THE CESTAT, WEST ZONAL BENCH, MUMBAI

Shri S.K. Gaule, Member (T)

RUBITA GIDWANI

Versus

COMMISSIONER OF SERVICE TAX, MUMBAI

if the appellant is held to be a sub-contractor the appellant will be liable to pay duty only from 23-8-2007, the date on which the circular was issued. The learned counsel also pointed out to para 3 of Ministry of Finance (D.R.) letter No. 11/3/98-TRU dated 7-10-1998 which clarified that service tax would be required to be paid in a case where sub-contracting is to a different service category and the appellant was not providing any service of this kind. In support of their contention the appellant have also cited the Tribunal decision in the case of Urvi Construction v. Commissioner of Service Tax, Ahmedabad - 2010 (17) S.T.R. 302. The appellant contended that service tax in this case has been paid by Ambience. They have also produced a certificate dated 15-11-2007 to this effect before the Commissioner (Appeals). The appellant have also cited the decisions of the Tribunal in the case of BBR (India) Ltd. v. Commissioner of Central Excise, Bangalore-III 2006 (4) S.T.R. 269 and Oikos v. Commissioner of Central Excise, Bangalore-III - 2007 (5) S.T.R. 229.

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