Brief facts of the case

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OIO NO. 06/STC-AHD/ADC(AS)/2013-14 Page of

BRIEF FACTS OF THE CASE :
M/s. Surya Construction Co., Ahmedabad, 2/C, Hasubhai Park, Nr. Jodhpur Village, Satellite, Ahmedabad (hereinafter referred to as “the said assessee”) are engaged in providing taxable services under the categories of “Construction of Commercial and Industrial Services”, “Goods Transport Service by Road”, “Construction of Residential Complex”, and “Work Contract Service”, and are registered with Service Tax Department under Registration Number AAQFS6802GST001.
2. During the course of audit, the records of the said assessee were verified and it was noticed that the said assessee had filed ST-3 returns regularly for Goods Transport Services showing the taxable value as “nil”. However, on scrutiny of the Balance Sheets, it was noticed that they were showing expenditure under the head “transportation charges”. It indicated that they had availed services of goods transport and neither the service provider nor the service receiver of goods transport service had paid service tax on the value of goods transport services. The service provider i.e. the said assessee in the instant case, had shown in their Ledger Accounts as well as in the Balance Sheets for the years 2007-08 to 2010-11, an amount of Rs. 2,25,37,766/- as expenditure towards transportation charges.
3. As per sub-clause (v) of rule 2(1)(d) of the Service Tax Rules, 1994, persons liable for paying service tax are as under :

  1. Where the consignor or consignee of goods is ‘specified persons’, the person liable for paying service tax shall be ‘any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage’.

  2. Where the consignor or consignee of goods does not fall in category of ‘specified persons’, goods transport agency shall be liable to pay service tax.

3.1. In the instant case, the said assessee is a partnership firm and falls under the category of ‘specified persons’. Hence, the said assessee was liable to pay service tax for the transportation of such goods by road in a goods carriage.
4. The said assessee in the instant case, had shown expenses towards transportation charges during years 2007-08 to 2010-11 and the service tax liability on the said charges is as under:-

Table -1

Sr. No.

Year

Amount of transportation charges shown in Balance Sheet as well as in Ledger (Rs.)

Abatement (Rs.)

Taxable Value (Rs.)

Service Tax Payable(ST+EC.+SHEC) (Rs.)

1

2007-08

70,39,155/-

52,79,366/-

17,59,789/-

2,17,510/-

2

2008-09

79,91,982/-

59,93,987/-

19,97,995/-

2,46,952/-

3

2009-10

37,35,541/-

28,01,656/-

9,33,885/-

96,190/-

4

2010-11

37,71,088/-

28,28,316/-

9,42,772/-

97,106/-




Total

2,25,37,766/-

1,69,03,325/-

56,34,441/-

6,57,758/-

Therefore, the said assessee failed to discharge their service tax liability on transportation of goods, hence, the service tax of Rs.6,57,758/- appeared recoverable from them for the period 2007-08 to 2010-11 along with applicable interest under Section 75 of the Finance Act, 1994.


5. The said assessee vide a reply vide letter dated 04.10.2012, had stated that the expenditure shown as transportation of goods related to purchase of consumable material. However on going through the Balance Sheets of the said assessee duly certified by Chartered Accountant, it appeared that they have shown expenses towards purchase during the years 2007-08 to 2010-11 separately in each financial year amounting to Rs.98,18,177/-, Rs.1,13,58,834/-, Rs.59,69,661/- and Rs.1,19,24,152/- respectively as well as transportation charges details as mentioned above. Therefore, it appeared that figures shown in the above table are nothing but expenditure towards transportation of goods, hence their submission cannot be considered.
6. Further, during the course of audit and on verification of records, it was further noticed that the said assessee had discharged their Service Tax liability less during the year 2007-08 to 2010-11, on some portion of the taxable value which has been noticed on reconciliation of figures of taxable income as appearing in their Balance Sheets / Profit & Loss Accounts vis-à-vis taxable values declared in their Half Yearly ST-3 returns filed. It was also noticed that the said assessee had followed Mercantile System of Accounting and payment of service tax was made by them on realization basis.
The details of short payment of service tax were calculated as below:

Table-2

Period/Year

Taxable Value as per Books of A/c (Inc. S.T)

Taxable Value as per ST-3 Returns (Inc. S.T)

Difference of taxable value

(Inc. S.T)



Service Tax payable/short paid

1

2

3

4 = (2-3)

5

2007-08

2,34,00,444/-

2,18,15,446/-

15,84,998/-

1,74,355/-

2008-09

1,77,93,088/-

1,69,13,892/-

8,79,196/-

96,715/-

2009-10

1,78,07,231/-

1,74,74,758/-

3,32,473/-

31,047/-

2010-11

9,43,37,521/-

9,37,43,836/-

5,93,685/-

55,439/-










Total

3,57,556/-

7. Thus, short paid service tax appeared recoverable from the said assessee along with applicable interest. On being pointed out, one of the partners of the said assessee stated that he agreed with the point but he had to consult it with other partners before making the payment. Till date, they have not informed regarding payment of short paid service tax as pointed out above. Therefore, the short paid service tax amounting to Rs.3,57,556/- which was not paid by the said assessee appeared recoverable from them under Section 73 of the Finance Act, 1994 alongwith applicable interest under Section 75 of the Finance Act, 1994.


8. The said assessee vide letter dated 04.10.2012 submitted to the audit that during reconciliation of value stated that deduction of VAT had not been allowed. In fact in this case, the said assessee opted for 67% abetment under Notification No. 15/2004-S.T., dated 10.09.2004 and therefore, they were not entitled for deduction of VAT. They had also stated during audit that they had paid service tax on bill basis during 2006-07, but they could not produce sufficient evidence, hence opening debtors (Taxable service related) were taken in reconciliation of value for the year 2007-08.
9. It appeared that the said assessee had obtained service tax registration under the service category of Goods Transport Agency Services but were filing Nil return for the same showing nil value of the same even though they were rendering taxable services under the said category, which was evident from the expenses shown towards transportation charges in their books of accounts, and this act on the part of the said assessee had resulted in short payment of service tax to the tune of Rs.6,57,758/- during the period from 2007-08 to 2010-11 as discussed above.
10. It also appeared that the said assessee had discharged their Service Tax liability less during the year 2007-08 to 2010-11, on some portion of the taxable value which had been noticed by the audit party on reconciliation of figures of taxable income as appearing in their Balance Sheets / Profit & Loss Accounts vis-à-vis taxable values declared in their Half Yearly ST-3 returns filed, and resulted in short payment of service tax to the tune of Rs.3,57,556/- during the period 2007-08 to 2010-11.

11. Section 68 of the Finance Act, 1994 provides that

every person providing taxable service to any person shall pay service tax at the specified rates and in such manner and within such period as may be prescribed.”

Further, Rule 6 of the Service Tax Rules, 1994 stipulates that

service tax shall be paid to the credit of the Central Government, by the 5th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services.

12. As per Section 70 of the Finance Act, 1994

every person liable to pay service tax is required to himself assess the tax due on the services provided by him and thereafter furnish a return to the jurisdictional Superintendent of service tax by disclosing wholly & truly all materials facts in ST-3 returns.”
13. As per the provisions of Section 73(1) of the Finance Act, 1994

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 service tax which has not been levied or paid of 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 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 the reasons of

    1. Fraud; or

    2. Collusion; or

    3. Willful mis-statement; or

    4. Suppression of facts; or

    5. 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 service tax or his agent,

13.1 It appeared that the said assessee had not disclosed full, true and correct information about the value of the service provided by them during the years 2007-08 to 2010-11. Had the department not audited the records of the said assessee, the said taxable value would have escaped assessment and might have resulted in short payment of service tax. The said assessee is registered under service tax and are well aware of the Rules & Regulations as laid down under Service Tax Rules, 1994. They knew the facts regarding payment of service tax on the above services rendered by them but have not paid or have not disclosed before the department. It appeared that the suppression of material facts & figures on part of the said assessee was with an intent to evade payment and therefore, the proviso to Section 73(1) of the Finance Act, 1994 is applicable in the instant case. It also appeared that the said assessee has not shown the actual liability of Service Tax and not paid the same, thus failed to assess the correct tax liability by way of willful suppression of facts regarding actual liability of Service Tax. Therefore, the service tax which had not been paid appeared recoverable from them under Section 73(1) of the Finance Act, 1994.

  1. As per Section 75 ibid,

every person liable to pay the tax in accordance with the provisions of Section 68, or rules made there-under, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed is liable to pay simple interest (as such rate not below ten per cent and not exceeding thirty six per cent per annum, as is for the time being fixed by the Central Government, by Notification in the Official Gazette) for the period by which such crediting of the tax or any part thereof is delayed.”

15. It also appeared that the said assessee had not declared the correct value received by them for rendering taxable services and not discharged their service tax liability on the said amount for “Construction of Commercial and Industrial Services, Goods Transport Service by Road, Construction of Residential Complex” and thereby, they had contravened the provision of section 67 of the Finance Act, 1994 in as much as that they failed to determine the correct value of taxable service provided by them, Section 68 of the Finance Act, 1994 read with rule 6 of the Service Tax Rules 1994, in as much as that they failed to determine and pay the correct amount of service tax.


16. Though a taxable service provider is not required to maintain any statutory or separate records under the provisions of Service Tax Rules, private records maintained by him for normal business purposes are accepted, practically for all the purpose of Service tax. All these operate on the basis of honesty of the service provider. Therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on the service provider, no matter how innocently. From the evidence, it appears that the said assessee has not taken into account all the incomes received by them for rendering taxable services for the purpose of payment of service tax and thereby sought to minimize their tax liability. The deliberate efforts to mis-declare/suppress the value of taxable service and not paying the correct amount of service tax in utter disregard to the requirements of law and breach of trust deposed on them such outright act in defiance of law appears to have rendered them liable for stringent penal action as per the provisions of Section 78 of the Finance Act, 1994 for suppression or concealment or furnishing inaccurate value of taxable service with intent to evade payment of service tax.
17. All the acts of contravention on the part of the said assessee appeared to have been committed with an intent to evade payment of Service Tax and therefore, the said Service Tax not paid appeared recoverable from them under the proviso to Section 73(1) of the Finance Act, 1994 alongwith interest under Section 75 ibid. All these acts of contravention of the provisions of Section 68 & 70 of the Finance Act, 1994 read with Rules 6 and 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 76, 77 and 78 of the Finance Act, 1994.
18. Thus, it appeared that the said assessee had contravened the provisions of:

  1. Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, in as much as that they failed to ascertain correct taxable value properly and make payment of Service Tax total amounting to short paid of Rs.10,15,314/- [Rs.6,57,758/- for non-payment of Service Tax on GTA service and Rs.3,57,556/- being the short payment of Service Tax noticed due to reconciliation of their statement vis-à-vis their ST-3 returns] as mentioned in the foregoing paras, for the period 2007-08 to 2010-11 within the time limit prescribed;

  2. Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 in as-much-as they failed to file prescribed quarterly/ half yearly ST-3 returns properly within the stipulated time limit.

19. Accordingly, a show cause notice dated 22.10.2012 was issued to the said assessee calling upon them to show cause as to why :-



  1. the differential amount of Service Tax of Rs.10,15,314/- [Rs.6,57,758/- for non-payment of Service Tax on GTA service and Rs.3,57,556/- being the short payment of Service Tax noticed due to reconciliation of their statement vis-à-vis their ST-3 returns] not paid / short paid, should not be demanded and recovered from them under proviso to Section 73(1) of the Finance Act, 1994;

  2. Interest as applicable rate should not be charged and recovered from them, under Section 75 of the Finance Act, 1994;

  3. 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 in prescribed time limit;

  4. Penalty should not be imposed on them under Section 77 of the Finance Act, 1994, for the failure to self assess the taxable value in their ST 3 returns filed;

  5. Penalty should not be imposed on them under Section 78 of the Finance Act, 1994 as amended, for suppressing and not disclosing the value of the said taxable service provided by them before the department with an intent to evade payment of service tax as mentioned above;


DEFENCE :

20. The said assessee vide their letter dated 10.11.2012 raised various defence plea, inter alia, stating that the SCN is issued in sheer disregard of facts on record which clearly show that Demand of service tax on goods transport agency service & under works contract service without going to the basic definition, circular & clarification of the board only by any stretch of imagination and accordingly the demand under the SCN is not sustainable on merit ; that there is no fraud, or collusion or willful misstatement or suppression of facts or contravention of any of the provisions of the Act, or the rules made there under with intent to evade payment of service tax on our part and hence the demand is not sustainable on the ground of limitation also as the SCN is issued after a limitation period of one year from the relevant date ; that they are registered with dept. under “Goods Transport operator service , Construction of residential complex, Construction of commercial & industrial services and works contract service” ; that they also filed ST-3 return regularly with the dept ; that despite these facts being clearly in knowledge of dept since 2007 & onwards, saddling with the SCN issued in the year 2012 alleging suppression of the fact is itself a ground on which the SCN is illegal, unfair and uncalled for ; that regarding the applicability of service tax on so called transportation expenses , which in fact the amount for the purchase amount of consumable material only i.e. sand, greets, kapachi etc only ; that for the classification of expenses under the coverage of transportation service, following condition need to be fulfilled :-



  1. There should be transaction for the transportation of goods.

  2. Transportation service has been provided by the agency.

  3. Goods are in receipt under the cover of consignment note as per service tax rule 4A of service tax rules-2002.

  4. There are to be declaration regarding the service tax payable by the consignor.

  5. There was payment of transportation charges by the noticee. where as noticee has made payment of material only.

that no one criteria has been fulfilled by them consumable material bill purchase invoices ; that no one bill has mention the details of transportation charges, k.m. to be transported , place of origin to destination ; that all the bill are in the nomenclature mentioning the supply of consumable material i.e. brass of greet/kapachi multiply rate of material ; that there were no ingredients of transportation, but only supply of material during the course of trade only ; that they had purchased material from the supplier on FOR basis from time to time ; that while transporting such material, supplier has been availing service of individual / owner tanker holder for transportation of goods ; that reliance was placed on the Hon’ble Supreme Court’s decision in the case of K.P. Varghese v. ITO - 1981 (131) ITR 597 (S.C.) ; that the service provider under Section 65(50b) of the Act is “goods transport agency” and not “goods transport operator/owner”. In other words, there must be services rendered by a GTA (under a contract of agency) and if the truck is provided by a goods transport operator or owner himself, then there would be no Service Tax, since the charge would fail. This is because what is tax is the services rendered by a goods transport agency in relation to transport of goods by road. It was submitted that the department has ignored this aspect of law, which is a cardinal importance and departmental appeals are liable to be dismissed ; that the provisions of the taxing statute especially the charging section has to be interpreted strictly and there is no scope for any intendment. In the case of Hemraj Gordhandas v. H.H. Dave - 1978 (2) E.L.T. J350 (S.C.), the Hon’ble Apex Court held that there is no room for intendment in any taxing statute. The words of a statute shall be strictly construed; that service receipt were not liable for service tax on service avail from the individual or truck owner; that they have never availed any service from goods transport agency; that it is revenue neutral situation, .if notice had paid service tax , they were eligible for the CENVAT credit of such service against his output service tax liabilities. So it is revenue neutral situation. There were no loss to revenue; that they have relied on following :-

(i) 2010 (18) S.T.R. 493 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE S/Shri M.V. Ravindran, Member (J) and P. Karthikeyan, Member (T) POPULAR VEHICLES & SERVICES LTD. Versus COMMISSIONER OF C. EX., KOCHI Final Order Nos. 79-80/2010, dated 1-2-2010 in Appeal Nos. ST/92 & 95/2008

Business Auxiliary Services - Marketing - Promotion of vehicle loans and insurance policies by appellant-dealer - Service tax contended as paid by subsidiaries of manufacturer on commission paid for such activity - Purchasers can avail services of other service providers unless suggested by dealer to approach such subsidiaries/companies - Appellant not promoting service provided by subsidiaries to insurance and finance companies - Service tax paid on commission under Insurance Auxiliary Service and Business Auxiliary Services by manufacturer and liability absent on any work by intermediary contributing to same outcome - Incidental assistance by appellant without rendering any taxable service - Situation revenue neutral if tax paid as credit admissible to companies - Impugned orders set aside - Section 65(19) of Finance Act, 1994. [paras 1, 5, 7, 8.1, 8.3 ]

Appeals allowed

(ii) 2010 (18) S.T.R. 39 (Tri. - Ahmd.) IN THE CESTAT, WEST ZONAL BENCH, AHMEDABAD [COURT NO. II] Shri B.S.V. Murthy, Member (T) DINESHCHANDRA R. AGARWAL INFRACON PVT. LTD. Versus C.C.E., AHMEDABAD Final Order No. A/2188/2009-WZB/AHD, dated 19-10-2009 in Appeal No. ST/173/2009

Demand and penalty - Default in tax payment - Non-payment of Service tax by recipient of Goods Transport Agency service - Suppression or misdeclaration to evade tax - Revenue neutrality - When appellant can take credit and utilize it further for tax payment he would not get any benefit by not paying tax - Extended period could not have been invoked - Tax liability not disputed - Once it is held that there is no suppression or misdeclaration, tax with interest paid becomes final and no further action required - Section 80 of Finance Act, 1994 invocable - Penalties set aside - Sections 73, 76, 78 and 80 ibid. [paras 2, 3]

Appeal allowed

(iii) 2009 (14) S.T.R. 694 (Tri. - Chennai) IN THE CESTAT, SOUTH ZONAL BENCH, CHENNAI S/Shri P.G. Chacko, Member (J) and P. Karthikeyan, Member (T) SAKTHI AUTO COMPONENTS LTD. Versus COMMISSIONER OF C. EX., SALEM Stay Order No. 947/2008, dated 28-10-2008 in Application No. S/PD/174/2008 in Appeal No. S/211/2008

Stay/Dispensation of pre-deposit - Goods Transport Agency service - Exemption under Notification No. 34/2004-S.T. - Appellant stating that Cenvat credit on input service admissible even if Service tax liability upheld - Situation becoming revenue-neutral if demand sustained - Pre-deposit waived - Recovery of Service tax and penalties stayed - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994.

Stay granted



So from the above case law it is very much clear that no service tax liabilities has been arise on revenue neutrality & proceeding may be dropped in the interest of justice ; that VAT has been excluded while calculation of service gross value. So deduction of vat tax amt has to be allowed from the gross value. Demand to be dropped in the interest of justice.; that during the year 2006-07 they had already discharged service tax on mercantile (bill ) basis, So while calculating service tax reconciliation for the year 2007-08 audit team contention to include the opening debtors was unsustainable ; that they clearly indicated in ST-3 returns furnished by them that they were availing the benefit of Notification/circular No.32/2004-ST. Therefore, question of any suppression, wilful misstatement on their part does not arise ; that the department issued circulars clarifying the scope of the services & applicability of service tax to the sub contractor and in all the circulars, it is specifically mentioned that the kind of the services provided by them were not taxable in the hands of service provider, therefore, the question of any wilful suppression, misstatement does not arise in the present case ; that for imposing penalty under section 77 of the Act it has to be established that there was a short payment of service tax by reason of fraud, collusion, wilful mis-statement, suppression of facts or contravention of any provisions of the Act or rules made there under with intent to evade payment of service tax ; that the show cause notice merely alleges baldly that there is suppression on their part Hence no case has been made out on the ground of suppression of facts or wilful misstatement of facts with the intention to evade the payment of service tax. Hence penalty under section 78 of the Act cannot be imposed ; that they rely on Hon’ble Gujarat High Court decision in case of Steel Cast Ltd. 2011 (21) STR 500 (Guj) ; that the penalty under Section 76 is not imposable since there is no short payment of service tax ; that there should be an intention to evade payment of service tax on their part ; that they have placed on the decision of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v The State of Orissa reported in AIR 1970 (SC) 253. The above decision of the Apex Court, was followed by the Tribunal in the case of Kellner Pharmaceuticals Ltd. Vs CCE, reported in 1985 (20) ELT 80, and it was held that proceedings under Rule 173Q are quasi-criminal in nature and as there was no intention on the part of the Noticees to evade payment of duty the imposition of penalty cannot be justified. The ratio of these decisions squarely applies in all force to the present case ; that the present case is a fit case to be covered under section 80 of the Act, which expressly provides that no penalty shall be imposed under section 76 and 77 if the Noticee has a reasonable cause for default ; that penalties under section 76 and 77 of the Act cannot be simultaneously imposed. Penalties under section 76 and 77 are mutually exclusive ; that it is a settled principle of law that if a dispute is arising out of interpretation of the provisions of statute or exemption notification, no penalty can be levied. If at all it is held that the service tax is payable as demanded by the Show Cause Notice, then also it can be said that it is a dispute arising out of interpretation of the provisions of the law and not because of any intentional avoidance of tax. They have placed reliance on the following case laws in this regard:

a) Bharat Wagon & Engg. Co. Ltd. v. Commissioner of C. Ex., Patna, (146) ELT 118 (Tri. – Kolkata),

b) Goenka Woollen Mills Ltd. v. Commissioner of C. Ex., Shillong, 2001 (135) ELT 873 (Tri. – Kolkata).

c) Bhilwara Spinners Ltd. v. Commissioner of Central Excise, Jaipur, 2001 (129) ELT 458 (Tri. – Del.),


21. In their further written submissions dated 08.02.2013, the said assessee has submitted that they have rightly claimed deduction of opening debtors in the year 2007-08 while reconciling as under :-

Year

Gross contract receipt

Govt contract receipt

Net taxable value

Tax payable


2006-07

26391717

1975680

24416037

1021076

22. During the year 2006-07 they had already discharged service tax on mercantile (bill ) basis amounting to Rs.10,21,076/-, in this support they have submitted ledger of contract income & service tax paid challans and pleaded that while calculating service tax reconciliation for the year 2007-08 audit team contention to include the opening debtors was unsustainable, so demand for the same has to be dropped.


PERSONAL HEARING :

23. Shri Vipul Kandhar, Chartered Accountant and Shri Sunil Mandan, Partner of the said assessee firm appeared for personal hearing on 01.02.2013 and Shri Kandhar explained that they have not availed GTA services as the vendors were individuals and they supplied their own materials, such as, sand, water, bricks, etc so the demand of Rs.6,57,758/- is not legal. Shri Kandhar stated that the value of goods supplied on which the VAT is paid is to be excluded from the gross amount of Work Contract, so the demand of Rs.3,57,556/- is also unlawful and should be dropped.


DISCUSSION & FINDINGS :

24. I have carefully considered the facts on record and all the submissions made by the said assessee.


25. The demand in the show cause notice is on two counts (i) demand of Rs.6,57,758/- for transportation charges expenses shown by the said assessee in their books of accounts for the years 2007-08 to 2010-11 whose bifurcation is discussed in the initial part of this order and (ii) demand of Rs.3,57,556/- on short payment of service tax noticed on reconciliation of value shown by them in their books of accounts and ST-3 returns filed by them with the department during the same period.

26. The main defence plea of the said assessee in regard to demand of Rs.6,57,758/- is that they have made expense towards transportation charges for purchase of materials from the vendors. However, it is already mentioned in the show cause notice that they had also raised this plea earlier and it has been found that in the balance sheets which are duly certified by their Chartered Accountant they have shown expenses towards purchase during these years separately. Therefore, it is evident that the amount of Rs.2,25,37,766/- shown by them as transportation charges in their balance sheet as well as ledger is pertaining to the expenses rendered by them under Goods Transport Agency service and since the said assessee does not deny that they themselves were falling within the category of “specified person” as per sub-clause (v) of Rule 2(1)(d) of Service Tax Rules, 1994, the liability to pay service tax on GTA lied on the said assessee as their vendors were individuals.


27. The demand of Rs.3,57,556/- is proposed on the differential taxable value shown in their books of accounts and on the value on which they have paid service tax and shown in ST-3 returns. The defence plea of the said assessee is that the deduction of VAT has not been allowed and therefore this differential service tax has arisen. They have also pleaded for extending them the benefit of cum-tax value. I find that so far as their plea regarding deduction of VAT having not been allowed, the said assessee has opted for 67% abatement under Notfn.No.15/2004-ST dt.10.09.2004 i.e. they have paid service tax only on the service portion and not on the value of materials, therefore, they are not entitled for deduction of VAT paid by them on the material value. Regarding their plea of opening debtors, I find that the show cause notice clearly states that the said assessee could not produce any sufficient evidence of opening debtors relating to value of taxable service, hence, they were not allowed any deduction. During the course of personal hearing, the said assessee has submitted copy of their ledger account of contract income, however, from this also it is not becoming clear as to what is the amount of opening debtors for the year 2006-07 relating to taxable services already provided by them. Regarding their plea of extending them the benefit of cum-tax value, I find from the Table-2 in show cause notice that service tax has been calculated after extending the benefit of cum-tax value to them. There is a mistake of showing the value as including service tax in Table-2. For e.g. the formula for determining the cum-tax value is
Assessable value = cum-duty selling price (-) permissible deductions

1+ rate of duty

100

Assessable value = 1584998



1.1236

= Rs.14,10,643/- and on this value service tax @ 12.36% is Rs.1,74,355/- which is the service tax demand mentioned in column no.5 of Table-2.


28. Regarding their arguments on the demand being time barred on the ground that there is no suppression of facts ; that they had mentioned in their ST-3 returns that they are availing benefit of Notfn.No.32/2004-ST, I find that the demand has been raised on non payment of service tax on GTA service. This fact ipso facto cannot become the matter of knowledge of the department about non payment of service tax by them. This could at the best may lead the department to believe that transport agency was paying the service tax. The fact of non payment of service tax has been revealed by audit of their records when it was found that they had made expenses towards transportation charges and thorough investigation lead to evasion of service tax on transportation of goods by road by the said assessee. In this regard, I rely on the decision delivered by the Hon’ble Supreme Court of India in the case of appeal filed by the department in the case of M/s Mehta & Co. cited as 2011(264) ELT 481 (SC) wherein in identical issue was decided reversing the decision of CESTAT. Relevant para is reproduced below:-

24. The cause of action, i.e., date of knowledge could be attributed to the appellant in the year 1997 when in compliance of the memo issued by the appellant and also the summons issued, the hotel furnished its reply setting out the details of the work done by the appellant amounting to Rs. 991.66 lakhs and at that stage only the department came to know that the work order was to carry out the job for furniture also. A bare perusal of the records shows that the aforesaid reply was sent by the respondent on receipt of a letter issued by the Commissioner of Central Excise on 27-2-1997. If the period of limitation of five years is computed from the aforesaid date, the show cause notice having been issued on 15-5-2000, the demand made was clearly within the period of limitation as prescribed, which is five years.”


28.1. I further rely on the following judgments of Hon’ble Supreme Court & Tribunals ;

  • Mathania Fabrics Vs CCE, Jaipur reported in 2008 (221) ELT 481 (SC)

  • CCE, Ahmedabad I Vs M Square Chemicals reported in 2008 (231) ELT 194 (SC)

  • Salasar Dyg & Ptg. Mills (P) Ltd., Vs CCE, Surat reported in 2009 (235) ELT 93 (Tri-Ahmd.)

  • Associated Cement Companies Ltd., Vs CC reported in 2001 (128) ELT 21 (SC)

28.2 The Hon’ble High Court of Gujarat in the case of CCE, Surat – I Vs Neminath Fabrics Pvt. Ltd., reported at 2010 (256) ELT 369 (Guj), while deciding the similar issue in Central Excise, has held that proviso cannot be read to mean that because there is knowledge, suppression which stands established disappears – concept of knowledge, by no stretch of imagination, can be read into provisions – suppression not obliterated, merely because department acquired knowledge of irregularities.

29. Since the said assessee had not discharged service tax liability on the amount of taxable value received demanded under the show cause notice and therefore, they have contravened the provisions of Section 67, 68, of the Finance Act, 1994 and thereby rendered themselves liable to penalty under Sections 76, 77 & 78 of Finance Act 1994.
30. As the said assessee failed to pay the service tax on the correct value in the stipulated period, they have made themselves liable for penalty under Section 76 of the Finance Act, 1944. My conclusion is also based on various decisions of Hon’ble High Courts & Tribunals as mentioned below ;


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

  2. UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)

  3. UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)

  4. Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd)

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

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

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


32. The Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port Officer, reported at 2010 (19) STR 641 (Guj) has now settled the issue of penalty under Section 76.
33. The Hon’ble High Court of Gujarat has further confirmed the above view in the case of CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105 (Guj.) and CCE Vs Bhavani Enterprises reported at 2011 (21) STR 107 (Guj.).
34. I further find that the said service provider failed to file their ST-3 returns correctly for the period covered under the impugned show cause notice & hence they are liable for penalty under Section 77 for non filing of ST-3 returns correctly for the period in dispute.
35. I further observe that the show cause notice also proposes imposition of penalty under Section 78 of the Finance Act, 1994. I find that the contravention of the provisions of the Finance Act, 1994 and the rules made thereunder with intent to evade payment of service tax has been established beyond doubt as discussed and concluded in the earlier part of this order. Accordingly, I hold that the said service provider have rendered themselves liable to penalty under the provisions of Section 78 of the Finance Act, 1994. However, as per the amendment to Section 78 by the budget of 2008 w.e.f. 10.5.2008, the simultaneous penalty under Section 76 is not imposable if penalty is being imposed under Section 78.
36. As it is already proved that the service provider had suppressed the facts and contravened the provisions of the Finance Act, 1994 or the rules made thereunder as specified above, the consequences shall automatically follow. The Hon’ble Supreme Court has settled this issue in the case of U.O.I Vs Dharmendra Textile Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the case of U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Hon’ble Supreme Court has said that the presence of malafide intention is not relevant for imposing penalty and mens rea is not an essential ingredient for penalty for tax delinquency which is a civil obligation.
37. I further observe that recently hon’ble High Court of Punjab & Haryana, in the case of CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal to service tax imposed under Section 78 of the Finance Act, 1994. Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K Vijaya C Rai reported at 2011 (21) STR 224 (Kar.)
38. I also find that penalty under Section 76 ibid is provided for failure to pay service tax whereas penalty under Section 78 ibid is for suppressing value of taxable service. In the instant case, service tax liable to be paid in terms of Section 68 read with Rule 6 of the Service tax Rules, 1994, have not been found paid as well as service tax has not been paid / short paid by suppressing value of taxable service by reason of wilful mis-statement and suppression of facts. Of course these two offences may arise in the course of same transaction, or from the same action of the person concerned. But the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act the penalty is imposable for ingredients of both offences, this aspect was also considered by the Hon’ble High Court of Kerala in the case of Assistant Commissioner, C.Ex. Vs Krishna Poduval – 2006 (1) STR 185 (Ker). I also find that the Hon’ble Mumbai Tribunal in the case of Golden Horn Container Services Pvt. Ltd. v/s Commr. of C. Ex., Raipur reported at 2009 (16) S.T.R. 422 (Tri.-Mumbai), has held that Section 76 provides for a penalty on the person who commits default simpliciter in payment of the tax whereas section 78 is a more stringent penal provision, which provides harsher penalty who commits default with mens rea. Since in this case also, non payment of service tax is deliberate, the decision of the tribunal is squarely applicable.
39. Therefore, I am of the view that in the facts and circumstances of the case, it is justifiable, if the penalty is imposed under the provisions of Section 76 and 78 of the Finance Act, 1994, separately, following the decisions of Hon’ble Kerala High Court and Mumbai tribunal (supra). My views are also further supported by various decisions of tribunals in the cases of ;


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

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

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

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

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

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

40. All other contentions raised by the said service provider have been examined and except for those already discussed above have not been found to be relevant and hence are not being deliberated upon in detail.


41. In view of the above, I pass the following order :-

O R D E R

  1. I confirm the demand of service tax amounting to Rs.10,15,314/- (Rupees Ten Lakh Fifteen Thousand Three Hundred and Forteen only) against M/s Surya Construction Company, Ahmedabad under first proviso to Section 73(1) of the Finance Act, 1994 for the period from 2007-08 to 2010-11 at the different rates of service tax prevailing from time to time.

  2. I order to recover interest as applicable on the amount of service tax liability of Rs.10,15,314/- under Section 75 of the Finance Act, 1994 as amended;

  3. I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon M/s Surya Construction Company, Ahmedabad per day or at the rate of 2% of the service tax amount per month, whichever is higher, under the provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay Service Tax and Education Cess within the stipulated period as required under the provisions of Section 68(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1944, as amended. The penalty under the Section 76 should be calculated upto 10.05.2008 in view of amendment under Finance Act, 2008. As the actual amount of penalty could be depending on actual date of payment of service tax, however, as per Section 76 of the Finance Act, 1994, penalty will be restricted to the above confirmed amount of service tax liability.

  4. I impose penalty of Rs. 5,000/- (Rupees five thousand only) on M/s Surya Construction Company, Ahmedabad under Section 77 of the Finance Act, 1994 for failure to file prescribed Service Tax Returns correctly within the stipulated time.

  5. I also impose a penalty of Rs.10,15,314/- (Rupees Ten Lakh Fifteen Thousand Three Hundred and Fourteen only) upon M/s Surya Construction Company, Ahmedabad under Section 78 of the Finance Act, 1994 for suppressing the value of taxable services provided by them before the Department with intent to evade payment of service tax. If the service tax amount is paid along with interest payable thereon as confirmed at (i) & (ii) above within 30 days from the date of receipt of this order, then the amount of penalty under Section 78 as per proviso thereto shall be reduced to 25% of Rs.10,15,314/-, the service tax amount, provided that such penalty of 25% is also paid within period of 30 days of receipt of this order.

The SCN No.STC-39/O&A/SCN/SCC/ADC/D-III/2012-13 dated 22.10.2012 hence stands disposed of.



(Amarjeet Singh)

Additional Commissioner,

Service Tax, Ahmedabad.
F. No. STC-39/O&A/SCN/SCC/ADC/D-III/2012-13. Date:13/06/2013

By Hand delivery/RPAD

To,


M/s. Surya Construction Co.,

2/C, Hasubhai Park, Nr. Jodhpur Village,

Satellite,

Ahmedabad.


Copy to :

  1. The Commissioner, Service Tax, Ahmedabad. (Attn. Review Cell)

  2. The Deputy Commissioner, Service Tax, Division-III, Ahmedabad.

  3. Deputy Commissioner of Service Tax, Audit, HQ, Ahmedabad for information and necessary action.

  4. The Superintendent, Service Tax, A.R.-XV, Division-III, Ahmedabad with an extra copy of OIO to be delivered to the assessee and send the acknowledgement.

  5. Guard File.


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