2019-TIOL-NEWS-113 Part 2, Dated: Tuesday, May 14, 2019

ST - The appellant-company is a 100% subsidiary company of M/s Subway System International BV which is a Netherland-based company - Upon audit for the relevant period, the Revenue noted that the appellant entered into a master license agreement with SIBV for developing franchise and service Sandwich shops to be known as franchise to SSIPL - It also noted from the agreement that each franchise was to pay weekly royalty & an amount equal to 8% of total gross sales, advertising fee @ 4.5% of gross sales and further royalty @ 35% of all fee & royalty received from the franchise, being equal to 8% of total gross sales - It was observed that tax was unpaid on amount received being equal to 4.5% of weekly gross sales towards contribution referred to as Subway Franchise Advertisement Fund Trust - SCN was issued proposing to raise duty with interest & penalty - a) under RCM on account of services received, b) non-payment of tax on withholding tax value, c) non-payment of tax on Franchise Advertisement Fund & d) on unidentified amount shown in balance sheet - On adjudication, the demands were confirmed on account of unidentified amount received and for non-payment of tax on Franchise Advertisement Fund - Duty for EC was raised too, with interest & penalty being confirmed - These findings were confirmed by the Commr.(A) - Hence the present appeal.

Held - Unaccounted liability shown in balance sheet - The appellant concedes that such liability has been discharged - The only issue to be settled pertains to the value given by the Franchise to the appellant/Franchiser in the name of Franchise Advertisement Fund - Value is derived from the price and value is the function of price themselves & the same is governed by Section 67 of the Finance Act 1994 & whatever is included in the section has to be considered as the value for taxable service - From perusal of Section 67, it becomes clear that both before & after amendment, the value on which service tax is payable must satisfy that (i) the value is the gross amount charged i.e. the entire contract value between the service provider and the service recipient without deduction of any expenses ; (ii) the amount charged should be for "for such service provided" that the gross amount charged by the service provider has to pay for the service provided - Also considering relevant clauses of the licensing agreement, it is concluded that mere mention that for master licensee 33% of all the fees collected shall exclude advertising fee does not takes that amount out of the tax net of the amount received from franchisees for providing them the 'Franchise Service' - The sole reason of this advertisement fee is also part of the contract value - Such value is the amount out of his income from the sales passed on to the service provider SSIPL in lieu of the franchise agreement between the two - Hence the 'Franchise Advertisement Fund' is despite a different nomenclature of being a different fund, but actually is the value received by the appellant for providing franchise service to its franchisees - Moreover, the amount of weekly gross sales @ 4.5% but for franchise advertisement fund is nothing but the part of gross value of the contract for providing the franchise service and, hence, was equally taxable as 8.5% of the said weekly gross sales is taxable - Lastly, the appellant's claim to be acting merely as a pure agent is also unsustainable because it being the franchiser is simultaneously getting benefit out of the advertisements: CESTAT (Para 4,5,7,8.2)

Held - Limitation - The bifurcation of weekly gross sales by the appellant is a mere strategy to cut short its tax liability - Hence the element of mis-representation is very much apparent on part of the appellant that too with intent to evade payment of tax - Hence the Revenue is justified in invoking extended period of limitation - Hence the O-i-A being challenge merits being upheld: CESTAT (Para 9.2)

ST - Services provided by the appellant in respect of the projects executed by them for the period prior to 1.6.2007 being in the nature of composite Works Contract cannot be brought within the fold of 'Commercial or Industrial construction service' or ‘Construction of complex service' - In respect of any contract which is a composite contract, service tax cannot be demanded under CICS / CCS for the periods also after 1.6.2007 - appeal is allowed with consequential relief: CESTAT [para 5.1, 5.2, 6]

ST - Show Cause Notice dated 06.02.2013 - It is the case of the Revenue that the appellant assessee being one of the seven specified categorized persons and having paid freight charges is liable to pay service tax on "Transport of Goods by Road Service" received - Adjudicating Authority confirmed the demand of Rs.1,44,349/- for the period October, 2007 to 2011-2012 and imposed equal penalty - as order upheld by Commissioner(A), appeal to CESTAT.

Held: Amendment of notfn. 43/97-ST that a factory being registered under the State Government as SSI Unit need not pay Service Tax confused them about the non-taxability - appellants have paid service tax demand alongwith interest for the period 2011-2012 and also for the period April-June, 2012 - On perusal of records, Bench does not find any element of fraud or collusion or willful miss-statement or suppression of facts or contravention of any of the provisions with the intent to evade payment of service tax - demand for the extended period is accordingly set aside as barred by limitation - penalty is also set aside invoking the provisions of s.80 of FA, 1994 - appeal disposed of: CESTAT [para 5, 6]

CX - Rule 6 of CCR, 2004 - Trading of goods - Reversal of credit - Closing credit in the CENVAT credit account was much more than the total amount of credit as wrongly availed and further the said credit was not utilized by the appellant - Settled law that if the CENVAT credit wrongly availed is reversed before utilization, then the assessee is not liable to pay interest and penalty - impugned order imposing penalty and interest set aside and appeal allowed: CESTAT [para 6]

CX - Valuation - Section 4 of the CEA, 1944 - Appellant cleared some quantity of Electrical Accumulators to Exide Products Ltd. (EPL) who further sold the goods to independent customers - Appellant also sold goods at factory gate and also stock transferred the same to their depots for further sale - Price of the goods sold at factory gate was adopted as the price for sale to EPL - Revenue contends that EPL being a related party, the price at which EPL sold to their customers should be adopted as the basis for determining duty - differential duty demand for the period 01.12.1998 to 31.03.1000 confirmed and upheld by Commissioner(A) along with imposition of mandatory penalty u/s 11AC of CEA, 1944 - appeal to CESTAT.

Held: There is no evidence led in by the department to show that the relationship has influenced the price for the same to be rejected - It is undisputed that the goods are also sold to unrelated buyers at more or less the same price at which it was sold to EPL - there cannot be said to any arrangement between the appellant and EPL to sell the goods below normal price so as to avoid payment of tax and the transactions are tainted - impugned order is, therefore, not sustainable, hence set aside and appeal allowed with consequential relief: CESTAT [para 10, 11]

CX - Second show cause notice dated 30.03.1988 which had been issued on the same set of facts as show cause notice dated 03.04.1987 cannot justifiably again invoke the extended period of limitation - order of adjudicating authority upholding the demand relating to show cause notice dated 03.04.1987 is sustained; Penalty and RF imposed is also upheld - however, proceedings pertaining to show cause notice dated 30.03.1988 are set aside as only the normal period of limitation of six months survives and no demand is covered by the six-month period - Appeal partly allowed: CESTAT [para 7, 8]

CX - Rule 2(l) of CCR, 2004 - Whether Rent-a-Cab Service, Clearing and Forwarding Agent, Courier Agency, Maintenance and Repair Service, Works Contract Service, Catering Services, Photocopier Services, Business Support Services, Commission Agent Services, Chartered Accountancy Services, Business Auxiliary Services, Advertisement, Printing Agency and Management Consultancy Services are Input services - Adjudicating authority dropped the proceedings but in Revenue appeal the Commissioner(A) remanded the case back to the file of the Original Authority to verify the eligibility of each of the services for the purpose of availing Credit since, according to him, the adjudicating authority had not given any finding regarding the nature of service provided in each case as well as the applicability of case-laws relied upon - assessee in appeal before CESTAT.

Held: Revenue allegation is that impugned services were not used in relation to the manufacture of final product - Eligibility of the impugned services has more or less been settled but when statutory notices are issued to an assessee, it is the duty of such assessee to respond to such notices and explain how and where those services were used - courts have always addressed the facts first and then given a finding on the eligibility thereof, which means that the facts are required in the first place and hence, it is always the duty of the assessee to place the facts first on record - while sustaining the remand order, Bench deems it proper to modify the directions of Commissioner (Appeals) and direct that the adjudicating authority restrict himself to the doubts entertained in the Show Cause Notice and pass a fresh adjudication Order in accordance with law - appeal dismissed: CESTAT [para 5 to 8]

CX - CENVAT - Rule 2(l) of CCR, 2004 - M/s. Sunmar Constructions had constructed roads for the appellant, a passenger car manufacturer, inside the factory premises - Service tax was paid by M/s Sunmar Constructions under CICS and collected from appellant, who availed credit - Revenue alleged that constructions of roads is specifically excluded from the definition of CICS and, therefore, no tax ought to have been paid and credit availed by appellant - demand confirmed by Commissioner, LTU and, therefore, assessee is in appeal.

Held: In an analogous situation, wherein credit was availed on inputs, when the process does not amount to manufacture, the Courts have consistently held that the credit cannot be denied at the receiver's end - CENVAT scheme allows the manufacturer or service recipient to avail the credit of duty to the extent that has been paid by the supplier or provider and shown in the invoices, in full, unless the same is restricted or barred by some other legal provision - demand cannot sustain, therefore, impugned order is set aside and appeal is allowed with consequential relief: CESTAT [para 5 to 8]

2019-TIOL-1370-CESTAT-ALL

CCE & ST Vs Brindavan Beverages Pvt Ltd

CX - As fruit pulp based product namely 'Maaza' is exempted from duty, Revenue entertained a view that as machine in question was being used only for manufacture of the said product and as such in terms of provisions of Sub-rule (4) of Rule 6 of the Cenvat Credit Rules, 2004, no cenvat credit would be available to them - Commissioner, in remand proceedings, in his impugned order, while holding the availability of Cenvat Credit of Rs.1,64,08,716/- to the respondents has taken into consideration various documents available on record; has observed that inasmuch as the machine is designed to handle carbonated/aerated soft drinks by software changes and minor adjustment, the objective can be achieved without any modification and as such the assessee has to be held as admissible to cenvat credit - appeal to CESTAT.

Held: Findings of the Adjudicating Authority stand made on examination of various documents indicating that the assessee always had the intention to use the said machine for manufacture of aerated waters as also for exempted fruit pulp drinks - AA has also examined the certificate issued by the makers of the machine which is to the effect that machine can be used for manufacture of aerated water without there being any modification - said findings stand arrived at by the Adjudicating Authority in the light of the observation and directions made by the Allahabad High Court - Revenue has not advanced any justifiable ground to interfere in the said order of the Commissioner, which simplicitorly decided the issue in the light of the direction of the High Court and had examined all the various documents - Revenue' s appeal lacks merit, hence rejected: CESTAT [para 9, 10]

- Appeal rejected: ALLAHABAD CESTAT

2019-TIOL-1369-CESTAT-CHD

Malva Engineering Vs CCE & ST

CX - The assessee is engaged in fabrication of large size Chemical Storage Tank, Reactors and Reservoirs/Tanks out of duty paid Steel Plates, Angles, Challans and other duty paid consumables items - It was alleged that the assessee has cleared finished goods involving a Central Excise duty to the tune of Rs. 2,45,32,743 - It was also observed that as assessee is carrying out the job work of fabrication storage tanks, therefore, they are liable to pay service tax under category of "erection and commissioning'' services - Admittedly, no finished goods has been fabricated by assessee in their factory, in these circumstances, as the fabrication has done at site which become immovable property, therefore, no duty is payable by assessee as the same is not excisable, therefore, the demand confirmed by way of impugned order is not sustainable - With regard to demand of service tax, assessee has executed the work along with material and the same has been admitted by Revenue - In these circumstances, the activity merits classification under the category of "works contract service" as held by Apex Court in case of Larsen & Toubro Ltd. 2015-TIOL-187-SC-ST , whereas, in this case, the demand has been confirmed against assessee under category of "erection and commissioning services" - Therefore, the demand under category of erection and commissioning is not sustainable - On going through all the invoices issued by assessee for their fabrication activity of chimney/chimney parts, it is found that the assessee has not charge any service tax from their client and not recovered any amount towards service tax - The observation made by Commissioner in impugned order is without any basis and no such allegation has been made against assessee in SCN - Revenue failed to produce any evidence with regard the recovery of service tax by assessee from their client - Accordingly no service tax has been retained by assessee, therefore, is not payable by them to the Department - The impugned order is set aside: CESTAT

- Appeal allowed: CHANDIGARH CESTAT

CBIC substitutes 16th May by 16th June in third proviso to Notification No 50/2017

Cus - Assessee have imported the capital goods at concessional rate of duty under EPCG license as per Notfn 97/2004 - Cus. and saved the duty amount - Further, as per the said Notfn, assessee was required to discharge the export obligation but they have failed to comply with the conditions of Notification as a result of which both the authorities have confirmed the demand and short-levy along with applicable interest - The Doctrine of Promissory Estoppel is not applicable because the assessee have admittedly failed to discharge export obligation as required under said Notification - In the absence of not discharging export obligation, Commissioner (A) has rightly confirmed the demand: CESTAT

Cus - The disputed duty involved in this case is below the monetary limit of Rs.10 lakhs which has been notified by the Government vide Circular 390/Misc./163/2010-JC and F.NO.390/Misc./116/2017-JC - Accordingly, the appeal is dismissed under National Litigation Policy - Stay Petition also gets disposed off: CESTAT