BRIEF FACTS OF THE CASE : M/s. Hazira LNG Pvt Ltd, 101-103, Abhijeet-II, Mithakhali Circle, Ellisbridge, Ahmedabad- 06 [hereinafter referred to as “the said assessee/the said service provider”) is engaged in Erection Commission & Installation, Scientific and Technical consultancy, Test inspection certification, consulting engineer, Clearing & forwarding agent, Man power Recruitment agency service, Maintenance & repair service, Online information & data, Design Service, Sponsorship service, Business support service, Commercial training & coaching and Goods Transport Agency Service for which they are having Service Tax Registration No. AAACH9143CST001.
2. During the course of audit and on verification of records of M/s Hazira LNG Pvt. Ltd. Ahmedabad it was observed that during the year 2005-06, M/s Hazira LNG Pvt. Ltd. had made payment of Rs. 56,47,142/- in foreign currency to M/s Shell Global Solutions International BV, Netherlands towards services received from them for project implementation as per construction service arrangement. From the invoices received from the services provider, it revealed that the said service provider had provided advice and support for construction and implementation of Project viz. services relating to detailed engineering, project management and support, construction support etc. and further they again made payment of Rs. Rs. 76,51,562/- in foreign currency for support service viz. Navigation & Operation study, Marine Design support service, operation readiness review in respect of Hazira Terminal. The service received by M/s Hazira LNG Pvt. Ltd. from outside India is taxable under the category “Consulting Engineer Services” defined under Section 65(31) of the Finance Act, 1994. The assessee has received advice and support services from M/s Shell Global Solutions International BV, Netherland for operation of their project at Hazira. The services received by the assessee are taxable under Consulting Engineer service.
As per Section 65(31) of the Finance Act, 1994,”Consulting Engineer” means any professionally qualified engineer or anybody corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in one or more disciplines of engineering.
3. As per Rule 2(1)(d)(iv) of Services Tax Rules, 1994 existed during the relevant time, ”person liable for paying service tax” means, in relation to any taxable service provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India, and such services provider does not have any office in India, the person who receives such service and has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence in India.” The said service provider was not having office in India and hence person liable for paying service tax as recipient of service viz. M/s Hazira LNG Pvt. Ltd. The assessee had not paid service tax on services received by them. The service tax payable comes to Rs. 13,56,601/-.
4. The assessee contended that applicability of Service tax to recipient of service is with effect from 18/04/2006 when Section 66A is inserted as held by Supreme Court of India in the case of National Ship Owners V/s UOI reported at 2009-TIOL-SC-ST. The assessee’s contention is not acceptable as facts of the case referred by them are different from the case of the assessee.
5. Statement of Shri Sujal Shah, Manager taxation of M/s Hazira LNG Pvt Ltd was recorded on 4-10-2010 wherein he interalia stated that during the year 2005-06 M/s Hazira LNG Pvt Ltd had made payment of Rs.56,47,142/- and Rs.76,51,562/- in foreign currency to M/s Shell Global Solutions International BV – Netherlands towards services received from them. He further stated that in their view they were not liable to pay service tax on the above amount as per the provisions prevailing at that time and the audit objection was raised by applying different interpretation of provisions of the act.
6. The CBEC vide letter F. No. 275/7/2010-CX8A dated 30-06-2010 has clarified that in case of taxable service provided by a non-resident, not having office/establishment in India, and received in India, the service tax liability arises w.e.f. 01-01-2005, on reverse charge basis on the recipient of service in India. In case of taxable services received outside India by a person, who is resident in India or has place of business/business establishment in India, the service tax liability arises w.e.f. 18-04-2006, as in the case of INSA, where services were received outside India for use in the ships and vessels located outside India.
7. It was observed that the said assessee had not discharged their Service Tax liabilities and they had suppressed the facts from the department.
8. As per the Section 68 of Finance Act 1994 read with Rule 6 of Service Tax Rules 1994 as amended time to time, the assessee was required to pay the Service Tax on the total value of Rs. 56,47,142/- and Rs.76,51,562/- paid to M/s Shell Global Solutions International BV, Netherlands for the Year of 2005-06 towards Consulting Engineer Service received the taxable services from foreign based service provider who has not office in India in terms of Rule 2(1)(d)(iv) of Service Tax Rules, 1994. However the assessee has not paid the service tax for the services received regarding Consulting Engineer Service as mentioned above and therefore they were required to pay up the amount of service tax.
9. From the above facts, it appeared that the said assessee had contravened the provisions of Section 68 of the Finance Act, 1994; read with Rule 6 of the Service Tax Rules, 1994 in as much as they had failed to determine and pay the service tax & Ed. Cess; for the taxable services received from foreign based service provider who has no office India during the year 2005-06.
10. Section 70 of the Finance Act, 1994 (32 of 1994) read with Rule 7 of the Service Tax Rules 1994 in as-much-as they had failed to self assess their nature and value of service and also failed to make payment well in time.
11. All the above acts of contravention on the part of the said assessee appeared to have been committed deliberately by way of suppression of facts with an intent to evade payment of service tax and, therefore, the said service tax not paid was required to be demanded and recovered from them under the proviso to section 73(1) by invoking extended period of five years. All these acts of contravention of the provisions of Section 68 & 70 of the Finance Act, 1994 read with rules 6 & 7 of the Service Tax Rules, 1994 respectively appeared to be punishable under the provisions of the erstwhile and Section 76, 77 and 78 of the Finance Act 1994.
12. Moreover, in addition to the above contravention, omission and commissions on the part of the said service provider as stated in the foregoing paras, it appeared that, they had willfully suppressed the facts, nature and value of service provided by them with an intent to evade the payment of Service Tax, rendering themselves liable for penalty under Section 78 of the Finance Act, 1994.
13. The failure on the part of the said assessee to make the payment of service tax attracts penalty under Sec. 76 in addition to the interest payable under Sec. 75 of the Finance Act, 1994. Therefore, the said firm had failed to disclose the value of taxable services as discussed supra and also failed to file return as required under Section 70 of the Finance Act, 1994 for the period referred to herein above and thereby they have rendered themselves liable for penalty under Section 77 of the Finance Act.1994 as amended by the Finance Act, 2004.
14. The Government has from the very beginning placed full trust on the service provider so far service tax is concerned and accordingly measures like self assessment etc., based on mutual trust and confidence are in place. Further, a taxable service provider is not required to maintain any prescribed, statutory or separate records under the provision of Service Tax Rules as considerable amount of trust is placed on the service provider and private records maintained by him for normal businesses purpose 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.
15. As per Rule 2(1)(b) of Service Tax Rules, ‘assessment’ includes self assessment of service tax by the assessee, reassessment, provisional assessment, best judgment assessment and any order of assessment in which the tax assessed is NIL; determination of the interest on the tax assessed or reassessed.
16. The Finance Act, 2001 has introduced self assessment procedure in respect of services provided by the service provider.
17. Assessment is a term of very comprehensive meaning and it can comprehend the whole procedure for ascertaining an assessing liability on the tax payable – Kalawati Devi Harilal Kalawati Vs. CIT (1967)66 ITR 680 (SC).
18. Thus now, it was the duty of the service provider to make self assessment of tax due in respect of services provided by him in a particular period and pay the tax on the basis of self-assessment. In self assessment, service tax provider has been made responsible for maintaining the records, proper accounting and assessment of correct service tax/education cess on the basis of records maintained by service provider for the amount billed and received for the services rendered by them on which tax is to be paid. The service tax payable is to be self assessed considering the CENVAT Credit/Exemptions/abatements, if any, availed.
19. The word ‘assessment’ bears different meaning and in one sense it comprehends the entire course of computation of levy of the tax. – Additional ITO Vs. E. Alfred (1962) 44 ITR 442 (SC). 20. The term ‘assessment’ includes the proceedings for imposition of penalty also. Penalty is an additional tax imposed on a person in view of his dishonest or contumacious conduct. – CIT Vs. Bhikhaji Dadabai & Co. (1961)42 ITR 123 (SC). 21. From the evidence, it appeared that the said assessee had not taken into account all these incomes received by them for rendering taxable services for the purpose of self assessment and payment of applicable service tax and thereby not complied with their tax liabilities. It appeared that it was a deliberate efforts to mis-declare the value of taxable service in ST-3 Returns and not to pay the correct amount of service tax is utter disregard to the requirements of law and breach of trust deposed on them, is certainly not in tune with Governments efforts in the direction to create a voluntary tax compliance regime.
22. Therefore, M/s. Hazira LNG Pvt Ltd, 101-103, Abhijeet-II, Mithakhali Circle, Ellis bridge, Ahmedabad- 06 were issued with a show cause bearing F.No. STC/4-74/O&A/10-11 dated 12.10.2010 issued by the Additional Commissioner, Service tax, Ahmedabad, Excise Bhavan, Ambawadi, Ahmedabad as to why:-
Services received by them from foreign based service provider who has no office in India should not be considered as taxable service under the category of Consulting Engineer Service as defined under Section 65 of the Finance Act, 1994 and Rs.1,32,98,704/- (Rs. 56,47,142/-+ Rs. 76,51,562/-)should not be considered as taxable value and the Service Tax amounting Rs. 13,56,601/- (Rupees thirteen lakhs fifty six thousand six hundred and one only) under the category of Consulting Engineer Service should not be demanded and recovered from them under the proviso to Section 73 (1) of the Finance Act, 1994, invoking the larger period of five years as discussed herein above.
Interest at the applicable rate on the amount of their service tax liability should not be recovered from them for the delay in making the payment under Section 75 of the Finance Act, 1994.
Penalty should not be imposed upon them underSection 76 of the Finance act, 1994 for the failure to make payment of Service Tax payable by them within the time stipulated.
Penalty should not be imposed upon them underSection 77 of the Finance act, 1994 for the failure to file prescribed service tax return within the stipulated time.
Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994.
23. In reply to the above SCN, the said service provider submitted their written submissions DATED 20.04.2011 regarding the issues raised in the SCN as under:
24 “Corporate Bodies” were not included in the definition of “Consulting Engineer” at relevant time
A.1 The said service provider had availed the services from a foreign company namely M/s. Shell Global Solutions International BV registered in the Netherlands. Further, the demand under present show cause notice has been raised under the category of “Consulting Engineer” services. The period involved in the present case is 2004-05.
A.2 Vide Section 65 (31) of Finance Act, 1994 defines who is Consulting Engineer. During the relevant time Section 65(31) of Finance Act, 1994 defined Consulting Engineer as under:
Consulting Engineer means any professionally qualified engineer or an engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering.
The said definition was further amended with effect from 01.05.2006 as under:
Consulting Engineer means any professionally qualified engineer or any body corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering
A.3 It may be noted from the above changes that the words any body corporate or any other firm were specifically brought in to the definitions. If the words engineering firm would have covered the body corporates also then in that case there was no need to amend the definition and include the words body corporate. Thus, the intention of the law is very clear that the body corporate who has provided consulting engineer service is included in the tax net with effect from 01.05.2006 only.
A.4 As mentioned above, the entire period covered by the present show cause notice was prior to 01.05.2006 and the services are provided by body corporate which was not covered under the definition of consulting engineer. Therefore, in such a case where the services are provided by a body corporate, no tax can be demanded.
A.5 That their view was further fortified by the recent decision of Hon’ble Karnataka High Court in case of CCE Vs. Toyoda Iron Works Co. Ltd. 2010 (STR) 802 (Kar). The Hon’ble High Court of Karnataka held as under:
We have perused the judgment impugned in this appeal and also the earlier orders passed by this Court in CEA No. 11/2007 and CEA No. 12/2007, wherein it is stated that the definition of the ‘Consulting Engineer’ as per Section 65(31) of the Finance Act, 1994, which has been amended w.e.f. 1-5-2006 and the charge of service on service received from out side India, which is under Section 66-A of the Act, has been amended w.e.f. 18-4-2006.
8.In view of the admitted facts that the respondent herein is a foreign company who is a service provider and only from the date of the aforesaid amendments, the service receiver would be liable to pay the service tax and that the respondent/assessee is not liable to pay any tax prior to amendment i.e., for the period in question 1-4-1999 to 31-3-2001. Following the decisions of this Court in CEA No. 11/2007 and CEA No. 12/2007, we hold that the substantial questions of law raised in this appeal are to be answered against the revenue.
A.6 As the demand under present show cause notice was also under the taxable category of Consulting Engineer service and the period is also prior to 01.05.2006, the entire demand was liable to be set aside on this ground.
25. No service tax is payable on services rendered from outside India as Section 66A was brought in to effect from 18.04.2006 B.1 That they humbly submit that the provisions contained in Section 64 of the Finance Act, 1994 extend to the whole of India and not beyond India. Section 64 of the Finance Act, 1994 provides as under:
"Extent, commencement and application:
This Chapter extends to the whole of India except the State of Jammu and Kashmir. It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. It shall apply to taxable services provided on or after the commencement of this Chapter.
B.2 From the perusal of the above, it was clear that service tax was leviable only on specified services as defined in the Finance Act, 1994 and that the Act extends to whole of India, excluding the State of Jammu and Kashmir. The above section does not make any specific mention about the Finance Act having extra territorial applications.
B.3 They respectfully submit that service tax is leviable only when the activity of rendering of the prescribed service takes place in the taxable territories of India. In this regard they would like to refer to the decision of the Constitution Bench of the Hon'ble Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar, (1955) 2 SCR 603, which stated that the laws of a nation apply to all its subjects and to all things and acts within its territories.
B.4 The Constitution bench observed the inappropriate application of the nexus theory as settled and applicable to income tax provisions for interpreting the sales tax provisions and went to the extent of calling it an evil amongst others which was finally sought to be remedied by the Parliament by enacting Article 286 of the Constitution.
B.5 The Hon'ble Supreme court observed that to counter the evil regarding application on nexus theory on the taxing aspect of sale the Parliament substituted nexus theory with situs theory keeping in view the concept that there can be only one situs of sale unlike nexus theory where a sales transaction was being broken up into its constituents and tax was being collected by various States by creating a nexus with any of the constituents of sale.
B.6 They submit that the above observations by the Constitution Bench of the Hon'ble Supreme Court in the context of sales tax provisions and legal history pertaining thereto is squarely applicable on the taxing aspect and statutory provisions for service tax also.
B.7 Section 64 uses the phrase 'This Chapter extends to the whole of India except the State of Jammu and Kashmir' which is identical to section 1(2) of the MRTP Act. They submitted that the said phrase has been examined by the Hon'ble Supreme Court in Haridas Exports v. All India Float Glass Manufacturers' Assn., (2002) 6 SCC 600 wherein it held as under:
“In our opinion, the MRTP Commission has no extraterritorial jurisdiction. The action of an exporter to India when performed outside India would not be amenable to jurisdiction of the MRTP Commission. The MRTP Commission cannot pass an order determining the export price of an exporter to India or prohibiting him to export to India at a low or predatory price”.
B.8 It was respectfully submitted that the services provided by a person located outside India and received by a person in India could not be subjected to the levy of service tax during the period prior to 18.04.2006 as the Act does not have extra territorial jurisdiction and service tax is not chargeable on the services rendered abroad.
B.9 As mentioned above, as per section 64 of the Finance Act, 1994, the Act extends to the whole of India except the State of Jammu and Kashmir. Further, as there is nothing contrary to this in the Act, it would be presumed that service tax is leviable only when the activity of rendering of the prescribed service takes place in the taxable territories of India. They submitted that this view is also supported by the following Department clarifications/Notifications.
B.10 CBEC in its Circular No.36/4/2001-CX dated 8.10.2001 has reiterated that the services provided beyond the territorial waters of India are not liable to service tax. The situation that service tax is applicable only in India has been further addressed by the Department vide the Notification 1/2002-service tax dated 1st March 2002 which reads as:
“In exercise of the powers conferred by clause (a) of Section 6, and clause (a) of sub Section (7) of Section 7 ,of the Territorial Waters, shelf, Exclusive Economic Zone of India and other Maritime Zones Act,1976 , the central Government hereby extends the provisions chapter V of the Finance Act to the designated areas in the Continental shelf and Exclusive Economic Zone of India as declared by the Notifications of the Government of India in the Ministry of External Affairs Nos. S.O. 429(E) dated the 18th July 1896 and S.O. 643 (E) ,dated the 19th September ,1996 with immediate effect.” B.11 They further submitted that a plain reading of the above extract makes it clear that even on the Continental Shelf & Exclusive Economic Zone this Act for levy of service tax has been made applicable only after issue of this notification. Hence clearly service tax is not having extra-territorial operations except to the extent indicated in the notification of 1st March 2002.
B.12 They also placed reliance on Paragraph C (iii) of the Trade Notice No.5/98 – Service Tax of the Indore Commissionerate dated 14th October 1998, which reads as under:
“An issue has been raised whether service tax is payable in respect of services rendered to foreign clients in India, and in respect of such services rendered abroad. It is clarified that service tax is payable on all taxable service rendered in India, whether to an Indian or foreign client. However, services rendered abroad shall not attract service tax levy as service tax extends only to services provided within India.”
B.13 When the service provider is located outside India, service receiver is located in India and the services are used in India, it doesn’t mean that the services are rendered in India. Reliance is placed upon the following case-laws, where it has been held that the deciding factor is not where the user of the services is located but where the operations connected with the rendering of these services are carried out: –
1)Carborandum Co. v. CIT (1977) 108 ITR 335 (SC)
2) Addl. CIT v. New Consolidated Goldfields Ltd. (1983) 143 ITR 599 (Patna)
3) CIT v. Toshuku Ltd 1980 (Supp) SCC 614 (SC)
B.14 They submitted that from the above authorities, the scope of application of service tax in general may be interpreted to be as under:
(a) Service tax is attracted only in respect of service rendered in the taxable territories of India and not outside it.
(b) Where the services are rendered will depend on where the activities relating to the services take place and not where they are put to use.
B.15 In this regard, they placed reliance on the following:
1. CCE., Ludhiana v. Bhandari Hosiery Exports Ltd. – 2008 (11) STR 151 (Tri Del) [Confirmed by Hon’ble P&H High Court 2010 (18) STR 713 ( P&H)]
B.16 It was further submitted that it is only with effect from 18.4.2006 that the mechanism for taxing services received from outside India was provided. Previously there was no such mechanism and thus the services rendered outside India were not at all exigible to service tax in India.
B.17 Reliance was placed on the notes on clauses of the Finance Bill, 2006 which provided that the new section 66A is inserted with a view to levy service tax on taxable services provided from outside India and received in India. Also, the marginal note to section 66A of the Act reads as “Charge of service tax on services received from outside India”. It clearly shows that the intention behind section 66A of the Act is to cover only those services which are provided from outside India and received in India. The relevant text is reproduced as under:
Notes on clauses of the Finance Bill, 2006 relating to insertion of section 66A in the Act:
Clause 68 of the Bill seeks to amend Chapter V of the Finance Act, 1994, relating to service tax in the manner, namely:-..
(3) ‘sub-clause (C) seeks to insert new section 66A with a view to levy service tax on taxable services provided or to be provided from outside India and received in India’.
B.18 They also submitted that the CBEC has issued a Circular F. No. B1 / 4/2006-TRU dated 19.4.2006 after introduction of section 66A and Import of Service Rules. The abovementioned Circular clarifies that for the purpose of levy of service tax the service provider must be located outside India and the service receiver must be located in India and such services must be received in India. The relevant extract of the Circular is reproduced herein under:
4.2 Taxation of Services (Provided from outside India and received in India) Rules, 2006
4.2.3 In the Budget for 2006-07, Explanation to clause (105) of section 65 providing for charging of service tax on taxable services received from outside India has been omitted and for this purpose a new section 66A has been incorporated in the Finance Act, 1994. Section 66A is to be read with the Taxation of Services (Provided from outside India and Received in India) Rules, 2006. It may be noted that only services received in India are taxable under these provisions.
4.2.4 All taxable services are chargeable to service tax under this section. The service provider should be outside India and the recipient of service should be in India. However, taxable services received by an individual from outside the country other than for the purpose of use in business or commerce, are not chargeable to service tax. In other words, taxable services received by individuals from outside the country for non-business purposes are not leviable to service tax.
B.19 Section 66A of the Act came into force only from 18.04.2006, which reads as under:
“Charge of service tax on services received from outside India
66A. (1) Where any service specified in clause (105) of section 65 is,-
(a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who ha his place of business, fixed establishment, permanent address or usual place of residence, in India,
such service shall, for the purposes of this section, be the taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply:
Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply:
Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.
(2) Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section.
Explanation 1. – A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.
Explanation 2. – Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.”
B.20 Simultaneous to the above introduction of Section 66A, vide Notification No. 11/2006-ST dated 19.04.2006, the Taxation of services (Provided from outside India and received in India) Rules, 2006 (hereinafter referred to as the ‘import of service rules’) were introduced. Thus, it was submitted that the import of services has been made taxable only with effect from 18.04.2006, since the charging section 66A of the Act has been made effective from.
B.21 In this regard, they placed reliance on the decision of the CESTAT in the case of M/s Foster Wheeler Energy Limited v. Commissioner of Commissioner of Central Excise, 2007 (7) STR 0443 (Tri – Ahm). The decision upholds the argument being placed above. The tribunal herein held that:
“6.9. Service Tax circular No.36/4/01 dt. 8/10/2001 holds that service provided beyond the territorial waters will not attract service tax. This circular will be relevant till the amendment brought out in service tax laws by insertion of Section 66A w.e.f. 18/4/2006.Therefore, the appellant's contention that the demand on services relating to identified offshore services cannot be subjected to service tax during the relevant period is acceptable.” And also held that
“a. The appellant has been rendering the services of consulting engineers to PLL. The services rendered by them under the category of on-shore services are liable to service tax and the services under the category of off-shore services are not taxable for the period prior to 18/4/2006.”
B.22 The above view is affirmed by the Hon’ble High Court of Mumbai in the case of Indian National Shipowners Association v. Union of India – 2009 (13) STR 235 (Bom) [ Confirmed by Hon’ble Supreme Court 2010 (17) STR J57 (SC)] and by the Hon’ble High Court of Delhi in the case of Unitech Limited v. CST, Delhi – 2009 (15) STR 385 (Del)
B.23 They further placed reliance on the recent decision of CESTAT in the case of Anant Mills v. CCE, Bhopal – 2009 (14) STR 184 (Tri – Del) wherein the Hon’ble Delhi Tribunal held that services provided outside India are liable to service tax only w.e.f 19.04.2006 i.e. when Section 66A was inserted in the Finance Act, 1994. The Hon’ble tribunal also held that the Decision of Hon’ble Larger Bench in the case of Hindustan Zinc Limited v. CCE, 2008 (11) STR 0338 (Tri Del) [Confirmed by Hon’ble Supreme Court 2009 (14) STR J125 (SC)] relates to only one of the issues on the taxability of off-shore services i.e. from which date the recipient of a Foreign Service provider shall be liable to pay service tax. The issue whether off-shore services per se are liable to service tax or not was decided only in the case of Foster Wheeler Energy India (supra) and that such services are taxable only when Section 66A was inserted in the Finance Act, 1994.
B.24 It was further submitted that CBEC has recently compiled FAQs i.e. frequently asked questions on service tax. In the FAQs, it is clarified at para no. 13 that Section 66A of the Finance Act, 1994, inserted with effect from 18.4.2006, provides that where any taxable service is provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and is received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall be taxable service. Therefore, prior to 18.04.2006, no service received from abroad was taxable as the statutory provision was not enacted to levy such services. Relevant extract of the FAQs is reproduced hereinafter:
“13. Service Tax on receipt of services from outside [Import of services]
13.1. What is the statutory provision regarding taxing of services provided from outside India and received in India?
Section 66A of the Finance Act, 1994, inserted with effect from 18.4.2006, provides that where any taxable service is provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and is received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall be taxable service.”
B.25 In view of the above, they submitted that the services received by them from outside India are not liable to service tax.
Rule 2(1)(d)(iv) in itself cannot create a levy
B.26 That the Present show cause notice had alleged that vide Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 (hereinafter referred to as the Rules), introduced on 16.08.2002, a recipient of service, receiving services from outside India, is liable to pay service tax. In other words, the show cause notice alleges that Rule 2(1)(d)(iv) imposes service tax levy on the import of services by them.
B.27 It was submitted that Rule 2(1)(d)(iv) read with Section 68(2) of the Act and Notification 36/2004-ST only cover a situation when the foreign service providers come to India and provided services within India to service receivers situated in India. In such cases, though the levy fell on the Foreign Service providers as they provided the services in India; liability of payment of service tax was shifted to the service receivers situated in India. The aforesaid provisions contemplate a situation where the services are provided within India by Foreign Service providers who come to India to provide the service. In such a situation, liability of payment of service tax was shifted on the service receiver situated in India. The rule never contemplated a situation where the services were provided outside India but the service receiver was situated in India.
B.28 They humbly submitted that in the instant case, all the services are provided to them outside India. Thus, the provision or rendition of services was done outside India and cannot be subject to service tax in terms of Rule 2(1)(d)(iv) of the Rules.
B.29 From the above it was clear that as the services are provided outside India, Rule 2(1)(d)(iv) read with Section 68(2) of the Act is not in a position to make them liable for payment of service tax
B.30 They further submitted that the charging section with regard to imposing a tax on the import of services was introduced only on 18.04.2006 and the import of services rules were introduced simultaneously. It is submitted that there can be no levy of a tax, as proposed by the present show cause notice, in the absence of a charging section and the existence of a rule in absence of the levy is irrelevant.
B.31 It was submitted that Rule 2(1)(d)(iv) merely prescribes that the service receiver in India is the person liable to pay service tax where the taxable services are provided by a non-resident from outside India who does not have any office in India. In other words, the notification only specifies who is supposed to pay service tax in respect of a service which is otherwise taxable. This rule cannot create a liability in respect of a service which is otherwise held to be not taxable in the first place. Therefore, services rendered from outside India, which became taxable only with effect from 18.4.2006 in view of section 66A, cannot be said to be liable to service tax by relying on rule 2(1)(d)(iv) of the Rules.
B.32 Further, the Hon’ble Bombay High Court has decided in Indian National Shipowners Association v. Union of India – 2009 (13) STR 235 (Bom)[Now confirmed by Hon’ble Supreme Court 2010 (17) STR J57 (SC)] that services rendered from outside India became liable to service tax only from 18.4.2006 after the introduction of section 66A of the Act. The Bombay High Court further held that such liability did not arise by introduction of rule 2(1)(d)(iv) of the Rules with effect from 16.8.2002 (or 1.1.2005) or by introduction of explanation to section 65(105) of the Act with effect from 16.6.2005. Thus, the ratio that services rendered from outside India became liable to service tax only from 18.4.2006 has attained finality.
B.33 The Hon’ble CESTAT in the case of Anant Spinning Mills v. CCE 2009 (14) S.T.R. 184 (Tri. - Del.) held in that case that the issue of taxability of services rendered from outside India was never before the Larger Bench in the case of Hindusthan Zinc and hence, it was incorrect to conclude that services rendered outside India became taxable from 1.1.2005 itself. On the other hand, the CESTAT held that the ratio laid down in Foster Wheeler case was still valid and that overseas services became liable to service tax only from 18.4.2006 after the introduction of section 66A.
B.34 It was submitted that the fact that the services in the present case were rendered outside India has been nowhere disputed by the department even in the show cause notice. In such a situation, the present show cause notice demanding service tax under consulting engineer services is liable to be set aside on this ground alone.
Gross amount paid by them is to be considered as cum-tax
C.1 Without prejudice to the above submissions, it is submitted that even if they are liable to pay any service tax on the amount received from their service receivers, the tax calculation itself is incorrect.
C.2 It was submitted that the amount paid by them to Foreign Service providers has to be treated as inclusive of the amount of service tax payable. In the case of excise duty also, it has been held that the amount received should be taken as cum-duty price and the value should be derived therefrom, by excluding the duty alleged to be payable as required under section 4(4)(d)(ii) of the Central Excise Act. In support of this they relied on the Larger Bench decision in the case of Sri Chakra Tyres reported in 1999 (108) ELT 361. The said decision of the Larger Bench has been affirmed by the Hon’ble Supreme Court as the departmental appeal has been dismissed vide Order dated 26th Feb. 2002 reported in 2002 (142) ELT A279 (SC). We also rely on the Apex Court judgment in the case of CCE v. Maruti Udyog Limited reported in 2002 (49) RLT 1 (SC), wherein it has been held that the deduction under section 4(4)(d)(ii) is allowable, even in situations where no duty was paid at the time of removal. Thus, for service tax calculation, the amount paid by the service receiver should be considered as cum tax payment and service tax should be calculated accordingly.
C.3 Reliance was also placed on the Trade Notice No.20/2002 dated 23.5.2002 of Delhi-II Commissionerate, which is reproduced below:
“The liability to pay the service tax remains with the service provider in the current scenario. Failure to realise or even charge the 5% service tax does not negate this statutory liability. In event of any such failure, the amounts realised from client in lieu of having rendered the service(s) will be taken to constitute amounts inclusive of service tax. Accordingly, the amount of service tax will be determined and required to be deposited to the credit of the Central Government”. C.4 The legislature has further clarified the legal position in respect of the value of the taxable service by incorporating Explanation No. 2 in section 67 of the Act by virtue of the Finance Act, 2004. The said Explanation is reproduced as below:
“Explanation No. 2 Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged.”
C.5 Reliance was placed on the following judgments of the Hon’ble CESTAT:
(a) Rajmahal Hotel v CCE 2006 (4) STR 370 (Tri-Del)
(b) Gem Star Enterprises (P) Ltd. v. CCE 2007 (7) STR 342 (Tri.-Bang.)
C.6 Therefore it was submitted that the gross amount paid by them to the service provider outside India must be treated as cum tax for the computation of service tax.
Extended period was not invokable. The Demand was time barred.
D.1 It was submitted that as per section 73(1) of the Act, a SCN can be issued at any time within one year from the relevant date. Proviso to section 73(1) of the Act provides that SCN can be issued at any time within 5 years from the relevant date, if service tax was not paid or levied by reason of fraud or collusion or willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or Rules with intent to evade payment of service tax. Thus, the extended period of limitation is applicable only if any of the ingredients specified above exist.
D.2 It was submitted that the SCN is dated 12.10.2010 whereas the time period covered for the purpose of demanding service tax is 2004 to 2005. It is submitted that the SCN has sought to invoke the extended period of limitation inter alia on the ground that they have willfully suppressed the fact that they were receiving Consulting Engineer services. The department came to know of it only after an audit enquiry was initiated by it. They suppressed the said facts from the department with the intention to evade payment of service tax and did not file ST- 3 returns. Therefore, extended period is invokable. As per following table, out of total four invoices, the demand for following invoice is for the period prior to 01.01.2005 which is in any case time barred)
Amount (in Rs.)
Construction (CSA)/ Operating Service (OSA) Agreement
Service period as mentioned in the invoices is ‘1/4/2004 – 30/11/2004’ i.e. prior to 01/01/2005.
Copy of the aforesaid invoice mentioning the period of service is already enclosed at Annexure-2.
No suppression of facts by them
D.3 It was further submitted that they have never suppressed any fact relating to the activities carried on by them with an intention to evade payment of service tax. They were under the bona fide belief that service tax on the said activities provided by overseas service providers is not taxable under “Consulting Engineer services” based on the reasons mentioned above. In this regard they also submitted that the allegation that there was suppression and non disclosure of information is completely baseless. They have always cooperated with the Department in their proceedings and have always provided the details asked for by the Department. They have provided all the details of payments made by the them to the Foreign Service providers. Thus, they did not suppress any material information from the department with an intention to evade payment of service tax. Therefore, they had no intention to evade payment of service tax.
D.4 Thus, the department was very well aware of their activities and therefore, no suppression can be alleged by the department against them from the time the period of initiation of enquiry.
Mere non-registration or non-filing of returns does not amount to suppression
D.5 They submitted that mere non-registration or non-filing of returns or non-payment of service tax, without any deliberate intention to withhold/ suppress information from the Department, cannot justify the invocation of the extended period of limitation. In this regard, reliance is placed on the following cases:
(i) Padmini Products v. CCE 1989 (43) ELT 195 (SC)
(ii) CCE v. Chemphar Drugs & Liniments 1989 (40) ELT 276 (SC)
D.6 In this regard they reiled on the judgment of the Hon’ble Supreme Court in the case of M/s Anand Nishikawa Co Ltd v. Commissioner of Central Excise, Meerut reported at 2005-TIOL-118-SC-CX, wherein the court held as under:
“28. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. vs. Collector of Central Excise, Bombay, [1995 Suppl. (3) SCC, 462], we find that "suppression of facts" can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty, when facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to section 11A of the Act. We are, therefore, of the firm opinion that where facts were known to both the parties, as in the instant case, it was not open to the CEGAT to come to a conclusion that the appellant was guilty of "suppression of facts”…..”
D.7 It was humbly submitted that the Hon’ble Supreme Court in the case of Padmini Products Limited v CCE reported at 1989 (43) ELT 195 (SC) held as follows in this regard:
“It was observed by this Court that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability beyond the period of six months had to be established. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful mis-statement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case.”
Extended period cannot be invoked where Department proceeds on information contained in public documents like Balance Sheet and Profit & Loss account
D.8 In this regard it was submitted that the entire proceedings are based on the information disclosed in their Balance Sheet . It was submitted that it has been consistently held by the courts that the Balance Sheet and Profit & Loss account of a company are public documents and therefore, they cannot be said to have suppressed any facts. As a result, the extended period of limitation is not invokable in this case.
D.9 In this regard reliance is placed on the following case law:
Anantpur Textiles Ltd. v. CCE 1994 (72) ELT 48 (Tri.)
Hindalco Industries Ltd. v. CCE 2003 (161) ELT 346 (Tri.)
Paro Food Products Vs Commissioner of Central Excise, Hyderabad 2005 (184) E.L.T. 50 (Tri. - Bang.)
U.T. Ltd. Vs. CCE-2001 (130) ELT 791 (T)
D.10 That they still are of the bona-fide belief that the services provided by the foreign service providers are not taxable under consulting engineer services and service tax liability, if at all, arises only w.e.f 19.04.2006. Hence, there was no intention on its part to evade payment of service tax. Further, there can be no ground to allege any suppression or concealment of information where everything was disclosed in the Balance Sheet. The question thus of evading the liability to pay service tax cannot arise.
Demand based on audit objections, therefore extended period is not invokable
D.11 They further submitted that the present demand is pursuant to an audit objection raised by the audit team. All the details and documents were verified by the audit team. Further, any queries raised by the audit team were properly answered by them. Thus, there is no question of any suppression of facts or intent to evade payment of duty to invoke the extended period of limitation.
D.12 In support of the above, it was submitted that when the demand is based on audit objection, there cannot be any suppression on their part . They relied on the following judgments which have consistently held that when the duty demand is based on audit objection, there cannot be any allegation of suppression.
(iv) Haryana Co-op Sugar v. State - 1997 (107) STC 103
(v) Indian & Eastern Newspaper v. CIT - 1979 (4) SCC 248
(vi) Bharat Agriculture & Mechanical Engg Co. v. State of Bihar -
2006 (148) STC 372 (Patna)
(vii) Shree Uma Foundries Pvt. Ltd. v. CCE - 2008 (222) ELT 317
The Noticees had a bonafide belief that the services received by it are not liable to service tax under “Consulting Engineer Services”
D.13 Without prejudice to the above argument and presuming there has been a contravention of provisions as alleged it was submitted that any contravention by them has been solely on account of their bona fide belief that the transaction in question did not attract service tax under “Consulting Engineer Services”. Such bona fide belief was based on the reasons stated above. The contravention if any was not with the intention to willfully evade payment of service tax. Reliance is placed on the judgment of the Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals Company v CCE reported at 1995 (78) ELT 401 (SC).
The Issue involves interpretation of law
D.14 It was submitted that the issues raised in the show cause notice involves interpretation of complex provisions of the service tax law. Therefore, in such a situation, the invocation of extended period of limitation is not justified.
D.15 They relied on the following judgments in support of the contention that suppression cannot be alleged when the matter involves interpretation of legal provisions:
(ii) NIRC Ltd. v. CCE 2007 (209) ELT 22 (Tri.-Del.)
(iii) Chemicals & Fibres of India Ltd. v. CCE 1988 (33) ELT 551 (Tri.)
(iv) Singh Brothers v. CCE, Indore – 2009 – TIOL – 189 – CESTAT – DEL
(v) Homa Engineering Works V. Commissioner Of C. Ex., Mumbai – 2007 (7) STR 546 (Tri – Mum)
D.16 Based on the reasons given above, it is submitted that the allegation of the department that they have suppressed the facts about their activities from the Department, with an intention to evade payment of service tax, is incorrect. Hence, the extended period of limitation cannot be invoked in the present case and the entire demand is time barred.
D.17 The show cause notice is liable to be discharged on this ground itself.
Interest is not chargeable and penalty is not imposable.
E.1 The show cause notice had proposed charging of interest under section 75 of the Act on the service tax allegedly not paid by them. The show cause notice has also proposed to impose penalty under sections 76 & 78 of the Act.
E.2 It was submitted that no interest was payable as the service tax itself is not payable. Further, the question of imposing penalty also does not arise in view of the fact that service tax demand itself is not sustainable. It was humbly submitted by them that they were under a bonafide belief that the services received by it are not liable to service tax under “consulting engineer services” and cannot be subject to service tax as import of services for the period prior to 19.04.2006 for the reasons discussed in the foregoing paragraphs.
E.3 It was submitted that for imposing penalty, there should be an intention to evade payment of tax, or there should be suppression or concealment. The penal provisions are only a tool to safeguard against contravention of the rules. It is humbly submitted by them that they had no intention to evade payment of service tax. The present proceedings are based on their balance sheet and profit and loss account . Further, they had already discharged its service tax liability as service recipient on the payments made by them to foreign service providers w.e.f 19.04.2006. Therefore, they had no intention to suppress any information from the department or evade payment of service tax. Hence, no penalty can be imposed on them.
E.4 In support of the above view, reliance was 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. v. 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 Assessee to evade payment of duty the imposition of penalty cannot be justified. The ratio of these decisions applies in all force to the present case. In the present case, there was no intention to evade payment. In view of the foregoing, no penalty can be imposed on them.
E.5 It was submitted that penalty under section 78 of the Act can be imposed only for reasons identical to those required for invoking extended period of limitation. As discussed under the earlier ground, they have never suppressed any fact with an intention to evade payment of service tax. Therefore, penalty under section 78 of the Act cannot be imposed.
Penalty cannot be imposed under both 76 and 78
E.6 Further, it was submitted that penalties under section 76 and 78 of the Act cannot be simultaneously imposed. Penalties under section 76 and 78 are mutually exclusive. Section 78 is applicable if the non-payment of service tax is due to reasons specified therein with an intention to evade payment of service tax. Section 76 is applicable in cases other than those covered under section 78 of the Act. Reliance is placed on the case of The Financers v. CCE, Jaipur - 2007 (8)STR 7 (Tri. Del) and Commissioner of Central Excise, Ludhiana v. Pannu Property Dealer – 2009 – TIOL – 425 – CESTAT – MUM. Further an explanation was inserted in Section 78 with effect from 10.05.2008 stating that no penalty under Section 76 can be imposed when there is a proposal to impose penalty under Section 78 of Finance Act, 1994. For that reason also, penalty under both Section 76 & 78 cannot be imposed.
Section 80 will apply in the present case E.7 Moreover, section 80 of the Act provides that no penalty shall be imposed on the assessee for any failure referred to in sections 76, 77 or 78 of the Act, if the assessee proves that there was reasonable cause for the said failure. Thus, the Act statutorily provides for waiver of penalty. In the present case, there was a bonafide belief on part of their part that their activities are not subject to service tax under “consulting engineer services” and does not amount to import of services, based on the detailed grounds given above. Further, there are various judicial pronouncements favoring the stand taken by them. Therefore, there was reasonable cause for failure, if any, on their part to pay service tax and to file service tax return. Hence, in terms of section 80 of the Act, penalties cannot be imposed under sections 76, 77 and 78 of the Act. In this regard, reliance is placed on the following judgments:
(i) ETA Engineering Ltd. vs. CCE, Chennai, 2004 (174) E.L.T 19 (Tri-LB)
(ii) Flyingman Air Courier Pvt. Ltd. vs. CCE 2004 (170) ELT 417 (Tri.- Del.)
Star Neon Singh vs. CCE, Chandigarh, 2002 (141) ELT 770 (Tri. - Del)
Avian Overseas Pvt. Ltd. v. Commissioner ofCentral Excise , BBSR – Final Order No. A -103/KOL/09 dated 06.03.2009
In view of the above, they prayed that the proceedings initiated in the SCN be dropped against them and grant a personal hearing before taking any decision.
The personal hearing in the matter was fixed on 14 .8.2013 and Ms. Madhu Jain Advocate , of the Service Provider appeared for hearing. She argued that at the relevant time i.e prior to Amendment 5/2006 the said service provider did not fall under the category of consulting Engineers as defined in the Service Tax and therefore the demand of Service Tax under the category of consulting Engineer is not tenable. Secondly prior to 18.4.2006 there was no provision to charge Service Tax on foreign suppliers of Services as has been held in the case of 2009 (13)STR 235 (BOM) National ship Owner’s Association and 2011 (23)STR 15( Guj). She relied on these cases and pleaded for dropping of proceedings. She reiterated the submissions made in their written reply filed in this case.
DISCUSSIONS AND FINDINGS 30. I have carefully gone through the contents of the Show Cause Notice and the defence reply, relevant documents of the case, and written submissions of the said service provider.
31. I find that the issue to be decided in this case is whether the said service provider/the said service recipient, are liable to pay service tax under Rule 2(1)(d)(iv) of Service Tax Rules, 1994, on payments made by them in foreign currency, to M/s Shell Global Solutions International BV, Netherland for the services received in India, [and who does not have a office in India], during the period of 2005-06. The said service provider has received the services such as advice & support for construction and implementation of Projects and for support services like Navigation & Operation Study, Marine Design Support service etc., under the category of “Consulting Engineering Services” as defined in Section 65(31) of the Finance Act, 1994.
32. I find that vide instruction F.No. 275/7/2010-CX-8A, dated 30.6.2010 the Board (CBEC) had clarified that service tax on a taxable service received in India, when provided by a non-resident/person located outside India, would be applicable on reverse charge basis w.e.f 1.1.2005 and the ratio of judgment in M/s Indian National Shipowners Association case would not apply to such cases. However, it has now been clarified by the Board vide instruction F.No. 276/8/2009-CX8A dated 26.9.2011 that the appeals filed by the department before the Hon’ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005, have been dismissed recently subsequent to the issuance of above said instruction dated 30.6.2010. In view of the same the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e. the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position and rescinded the above referred instruction dated 30.6.2010.
33. I find from para 2 of the show cause notice that the said service provider had received services from the foreign based company i.e M/s Shell Global Solutions International BV, Netherland and made payments to them in foreign currency during the F.Y. 2005-06. I find that the period of demand in this case is 2005-06 i.e prior to the cut-off date of 18.4.2006. Therefore, the demand of service tax of Rs. 13,56,601/- is not sustainable. Consequently, the proposals for interest and penalty also do not survive. I observe that Circulars and instructions issued by the Board are binding on the departmental officers as has been held by the Hon’ble Supreme Court in the case of Ranadey Micronutrients Vs 1996(87)ELT19(SC) and Paper Products Ltd Vs CCE 1996(112)ELT 765(SC).
34. In view of the above, I pass the following order:
O R D E R
I drop the proceedings initiated against M/s Hazira LNG Private Limited initiated vide SCN F.No. STC/4-74/O&A/10-11 dated 12.10.2010 .
Service Tax, Ahmedabad.
F.No. STC/4-74/O&A/10-11 Dated 29.10.2013
M/s. Hazira LNG Pvt Ltd,
Ellisbridge, Ahmedabad- 06
The Commissioner, Service Tax, Ahmedabad ( Attn: RRA Cell)
The Assistant Commissioner, Service Tax, Division-II, Ahmedabad.
The Superintendent, Service Tax, AR-VI, Division-II, Ahmedabad.(Along with one extra copy of OIO to be served upon to the party and forward acknowledgement to this office.