2018-TIOL-NEWS-056, Dated: Friday, March 09, 2018

Setting aside of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 by High Court upheld Service Tax - Valuation - inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service - Rule 5(1) of the Service Tax (Determination of Value) Rules - only with effect from May 14, 2015, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax . : Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. - para 21

High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. This position did not change even in the amended Section 67 which was inserted on May 01, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of subsection (1). Mandate of sub-section (1) of Section 67 is manifest, viz., the service tax is to be paid only on the services actually provided by the service provider. - para 24, 25

It is trite that rules cannot go beyond the statute : It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in ‘Taj Mahal Hotel': 'the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. - para 26, 29 - Revenue Appeals Dismissed; In Favour of assessees : SUPREME COURT OF INDIA

ST - Duty demand with interest & penalties were imposed on the assessee-company under heading 'Commercial or Industrial Construction service', in relation to four construction projects undertaken by the assessee - Held - The first project constructed is the Era Business School - Since this institution in imparting education, it cannot be termed as a commercial activity - Thereby, duty demand raised in this regard is not imposable - The next project is National Automative Testing and R& D Infrastracture Projects which is engaged in testing vehicles - Since it is charging money for testing, it is commercial activity - Hence construction of this project is taxable - The third project is the Naya Raipur Development Authority which is engaged in the sale & purchase of land - Since such activity clearly classifies as commercial activity, the assessee is liable to pay tax on its construction - The last project is construction of Hostel for NIT Calicut - This building is for the residence of students studying at NIT Calicut - Hence it cannot be said to be engaged in any commercial activity - Hence the assessee need not pay tax for this project: CESTAT (Para 1,6,7) - Appeal Partly Allowed: DELHI CESTAT

ST - the assessee-company is engaged in separation, isolation, storage and cryo-preservation of Umbilical Cord Blood and Stem Cells - The assessee entered into an agreement for transfer of technology with a foreign firm - For such transfer & use the assessee paid consideration - The Revenue sought to tax the assessee on reverse charge basis - Duty demand was raised under IPR Services, with equal penalty u/s 78 - Held - The issue no longer res integra - It is held in several precedents that for tax liability on reverse charge basis under IPR service, such IPR should be recognized by any law for the time being in force in India - Herein, CBEC Circular No. B2/8/2004-TRU implies such laws as are applicable in India, thereby IPRs covered under Indian law in force at present alone are chargeable to service tax - Hence, duty demand is unsustainable: CESTAT (Para 2,6) - Appeal Allowed: CHENNAI CESTAT

2018-TIOL-777-CESTAT-MUM + Story

CCE Vs Bharat Sanchar Nigam Ltd

CX - Valuation - Section 4 of the CEA, 1944 - Whether after 1st July 2000 the valuation of the goods supplied which does not involve sale should be done under Rule 8 of CER, 2000 or on the basis of cost of production without adding any notional profit - Matter referred to Larger Bench: CESTAT [para 4] - Reference made: MUMBAI CESTAT

2018-TIOL-770-CESTAT-AHM

Prakash Steelage Ltd Vs CCE & ST

CX - Assessee had availed CENVAT credit on M/s Channel, Angle and Beam used in fabrication of capital goods within the factory - Alleging that these items are not eligible to credit, SCN was issued to them - Demand confirmed alongwith interest and equal amount of penalty - Principal Bench at Delhi in Singhal Enterprises Pvt. Ltd 2016-TIOL-2451-CESTAT-DEL in laying down the principle on eligibility of credit on similar items observed that structural items used in fabrication of support structures would fall within ambit of 'Capital Goods' as contemplated under Rule 2(a) of CCR, 2004 hence will be entitled to Cenvat credit - Assessee should establish the said use by adducing evidences - Matter is remanded to adjudicating authority to examine the claim of assessee on the eligibility of credit on aforesaid items and the assessee is free to adduce evidence including the certificate from a Chartered Engineer on its use, and adjudicating authority is directed to decide the issue in the light of principle of law settled by Tribunal in said case: CESTAT - Matter remanded: AHMEDABAD CESTAT

2018-TIOL-769-CESTAT-ALL

Aashirwad Industries Vs CCE & ST

CX - the assessee-company manufactured excisable goods & availed Cenvat credit on various input services - The Revenue alleged that the assessee was not maintaining separate Cenvat account w.r.t. services used for providing taxable services and for exempted services - The Revenue noted that the assessee cleared certain inputs, which the Revenue deemed to be a trading activity, whereupon such clearance of the inputs was to be held as exempted - Thus, in view of the commn accounts, they were liable to pay a particular percentage of the value of the exempted goods under Rule 6(3) of the CCR, 2004 - Held - The matter warrants remand to determine whether or not the amount was reversed by the assessee: CESTAT (Para 2,5,6) - Case Remanded: ALLAHABAD CESTAT

2018-TIOL-768-CESTAT-ALL

Trikoot Iron and Steel Casting Ltd Vs CCE

CX - Assessee engaged in manufacture of M. S. Ingots, which was being consumed captively for manufacture of M. S. Girders - Revenue's entire case is based upon the shortages and excess, detected at the time of visit of Officers - It is well settled law that shortages detected at the time of stock taking cannot lead to conclusion of clandestine removal, in the absence of any corroborative evidence to that effect - Apart from alleged shortages, which are also being contested by assessee as not being factual shortages, there is no other evidence on record to reflect upon the clandestine activities of assessee - Commissioner (A) is giving self-contradictory findings - On one hand, he is admitting that there is no case of clandestine removal in respect of final products and no intention to remove the ingots without payment of duty and on the other hand, he is upholding the demands and confirming the confiscation of goods - Impugned order set aside: CESTAT - Appeal allowed: ALLAHABAD CESTAT

2018-TIOL-767-CESTAT-DEL

Ambika Ispat (India) Pvt Ltd Vs CCE

CX - Assessee engaged in manufacture of Sponge Iron and they have installed a coal based kiln with production capacity of 100 M.T. per day of Sponge Iron - During course of search of factory, department has recovered several documents such as transporters bills, consignment receipt, weighment slips etc. showing receipt of sponge iron despatched from assessee's factory as well as records in loose sheets showing the despatch of finished product to various customers - In some of these cases, Central Excise invoices were found to have been issued but in many other cases no Central Excise invoices have been issued indicating, that a large number of consignments have been cleared without payment of duty - On the basis of these incriminating documents recovered by Department, it is evident that large scale evasion of duty has been done by assessee - Principal ground on which assessee has challenged the impugned order is that the adjudicating authority has relied on statements of several persons without extending an opportunity to assessee of cross-examining them - They have relied on several case laws and argued that in terms of the provisions of Section 9D of CEA, 1944, before the statements of any persons are used by Revenue to establish a case, these witnesses will have to be examined during the course of quasijudicial proceedings and an opportunity for cross-examination is required to be extended to assessee - Since the adjudicating authority has failed to do so, it has been argued that impugned order has been passed in violation of principles of natural justice - The applicability of provisions of section 9D of CEA, 1944 in adjudication proceedings before departmental authority was examined by Punjab and Haryana High Court in case G Tech Industries 2016-TIOL-2749-HC-P&H-CX - Impugned order needs to be set aside and matter remanded to adjudicating authority - For satisfying the requirements prescribed in Section 9D ibid, an opportunity for examination and cross examination of witnesses may be extended through an effective hearing to all connected parties : CESTAT - Matter remanded: DELHI CESTAT

CUSTOMS SECTION

2018-TIOL-764-CESTAT-MAD

Soumag Electronics Ltd Vs CC

Cus - Assessee is registered for Project Import on 20.01.1989 and applied for import of Microprocessor based ticketing machine including Access Control Systems - Assessee had also imported computerized PCB in-circuit tester for test bench for ticket office machine which was assessed at concessional rate of duty at 30% + Nil against merit rate - They had also imported validator which was also assessed at concessional rate of duty - Since assessee did not produce installation certificate even after reminder letters, SCN was issued to them - As regards to issue of demand of differential duty on the ground of non-production of installation certificate, requirement to produce certificate was introduced in Regulations only w.e.f. 07.01.1992 - Before the lower appellate authority assessee had produced copies of invoices issued during 13.3.89 to 17.4.89 as evidences of supply of goods manufactured after installing the goods covered by first consignment - Tribunal in case of Creative Industries P. Ltd. 2008-TIOL-2851-CESTAT-BANG had held that non-production of installation certificate for purpose of Regulation (7) of the Project Import Regulations, 1986 is only procedural requirement and not a condition determining the eligibility of impugned goods for the benefit of concessional rate of assessment - Most of Tribunal decisions have placed reliance on the ratio laid down by Supreme Court in case of Mangalore Chemicals & Fertilizers Ltd. 2002-TIOL-234-SC-CX to hold that substantial relief should not be denied for non-satisfaction of a procedural requirement - Non-submission of installation certificates, especially considering that assessee has submitted other proof to establish the installation, cannot then sustain the demand of merit rate of duty in respect of goods imported vide Bill of Entry 25.01.1989 namely computerized PCB in-circuit tester.

Coming to the import of validator by Bill of Entry dt. 24.10.1989, it emerges that assessee had not mentioned or produced evidence for abandoning the goods during the time that they were in bond - Commissioner (A) has also pointed out that assessee had given a double duty bond undertaking at the time of bonding the goods, by virtue of which they are liable to pay duties and interest on warehoused goods - In the event, no infirmity found with decision of Commissioner (A) in respect of these goods.

As regards to issue of interest liability, as goods were imported in 1989 and the legal statutory provisional for enabling charging of interest was introduced only w.e.f 26.5.1995 by FA, 1995, hence no interest can be demanded in respect of imports which was done in 1989: CESTAT - Appeal partly allowed: CHENNAI CESTAT

2018-TIOL-763-CESTAT-DEL

Sony India Pvt Ltd Vs CC

Cus - The crux of dispute is whether the digital still image video cameras imported by assessee are eligible for benefit of nil rate of customs duty during disputed period when explanation was in place under Notfn 25/2005-Cus - The point of dispute is regarding condition capability to record video for as long as 30 minutes in a single sequence using maximum storage - Fact of matter is that the imported digital cameras, can run a single sequence of only less than 30 minutes whereas the cameras have the capability to have a single sequence of much more than 30 minutes - Since the imported digital cameras are capable of recording video with minimum resolution and minimum recording speed for more than 30 minutes in a single sequence; using maximum storage capacity, such cameras will not be entitled to benefit of notification - It is well settled that a person who claims exemption or concession, has to establish that he is entitled to that exemption or that concession - Impugned goods do not fulfill all conditions specified in notification and hence it is an inevitable that benefit of notification is denied to these goods.

All the importers have declared at the time of import that goods under import were capable of video recording of less than 30 minutes - It has further been declared that imported goods are in conformity with conditions laid down in notification - Only during course of investigation by DRI, it came to the light that, while imported goods are capable to record video in a single sequence of more than 30 minutes, it was programmed through firmware to run for less than 30 minutes in a single sequence - It is clear that assessee deliberately did not declare full details of imported goods and cleared the same by wrongly availing the benefit of notification - Hence, this ground advanced by assessee is without merit and is rejected: CESTAT - Appeals dismissed: DELHI CESTAT