By TIOL News Service

MUMBAI, MAY 12, 2014: APPELLANTS are engaged in the activities of technical inspection and certification of seeds produced by seed producers in Maharashtra State as per the Seeds Act, 1966 (Act No. 54 of 1966) and the Seeds Rules, 1968. They are an Autonomous Body registered as a society under the Societies Registration Act, 1860.

The appellants charge fee for the said certification as prescribed under the said Rules.

A new Service titled as “Technical Inspection and Certification Service” became leviable to Service Tax with effect from 1.7.2003. As per Section 65(108) of the Finance Act, “Technical Inspection and Certification” means inspection or examination of goods or process or material or any immovable property to certify that such goods or process or material or immovable property qualifies or maintains the specified standard, including functionality or utility or quantity or safety or any other characteristic or parameters, but does not include any service in relation to inspection and certification of pollution levels.

Further, Section 65 (109) of the said Act defines ‘technical inspection and certification agency' as follows:-

"Technical inspection and Certification Agency” means any agency or person engaged in providing service in relation to technical inspection and certification."

The appellant did not take registration for providing the said service nor collected the service tax. They started collecting the service tax for the said service only with effect from 1.4.2005 but did not deposit the same with the exchequer.

The seeds of litigation were sown in the form a demand notice dated 27.11.2006 demanding service tax on the services provided by them during the period 1.7.2003 to 31.3.2006 & invoking the extended period of limitation.

It was also alleged in the said SCN that the service tax collected from clients attract the provisions of Section 11D of the CEA, 1944 and, therefore, proposed to recover the service tax amounting to Rs.77,12,518/- collected by them during the period 2005-06. The notice also proposed to recover interest under Section 11DD on the said amount.

The case was adjudicated by the impugned order wherein the CCE, Nagpur confirmed the demand, confirmed recovery of Rs.77,12,518/- under Section 11D, interest under Section 11DD & interest on the demand of Rs.1,52,53,807/- u/s 75 of the FA, 1994. Penalties under Section 76, 77 and 78 of the Finance Act, 1994 were also confirmed.

Before the CESTAT, the appellant inter alia submitted that they were doing the certification work as envisaged under the Seeds Act, 1956 and the Rules made thereunder. Inasmuch as the appellants are doing statutory functions no tax is leviable on the services provided by them in view of the clarification offered by the Board vide Circular No. 89/7/2006-ST dated 18.12.2006.

Following case laws are also cited to support their stand -

(i) CCE, Indore vs Ankit Consultancy Ltd.- 2006-TIOL-1793-CESTAT-DEL

(ii) CC, CE & ST, Hyderabad II vs. C.S. Software Enterprises Ltd. - 2008-TIOL-336-CESTAT-BANG

(iii) Central Power Research Institute vs CCE, Bangalore II - 2006-TIOL-1131-CESTAT-BANG

(iv) Electrical Inspectorate, Government of Karnataka vs. CST, Bangalore - 2007-TIOL-2175-CESTAT-BANG

(v) Commissioner of Customs & Central Excise, Hyderabad II vs CMC Ltd. 2007-TIOL-803-CESTAT-BANG

It is also submitted that the larger period of limitation cannot be invoked as there was confusion in the mind of even the departmental officers in the sense that the Commissioner Service Tax, Ahmedabad vide his letter dated 1.8.2006 had clarified to Gujarat State Seeds Certification Agency that no service tax is leviable. With effect from 1.4.2005 even though they were of the view that service tax is not leviable, the appellant started collecting the same and kept the entire amount in a separate bank account and the amounts so collected along with interest has already been deposited with the Revenue and which shows that there was no willful intention to evade service tax. That being a Government agency there cannot be any intent to evade payment of duty. Even the certification charges are decided by the Government and as a Certifying Agency they cannot change the same without the approval of the Government.

The Revenue representative submitted that the Board Circular No. 89/7/2006-ST dated 18.12.2006 is very specific to the sovereign and public authorities and is relating to mandatory and statutory functions and the same cannot be applied by the appellant as the services provided cannot be considered as a mandatory and statutory function, nor the appellant is a sovereign/public authority. It is also submitted that it is only vide Notification No. 10/2010-ST dated 27.2.2010 that the Government has decided to grant exemption to taxable services provided by the Central or State Seeds Certification Agencies; that the clarification issued by the Commissioner of Service Tax, Ahmedabad vide letter dated August 01, 2006 and referred by the appellant was withdrawn on 27.10.2006 itself.

The Bench adverted to the Board Circular No. 89/7/2006-ST dated 18.12.2006 and observed that the Activities of the appellant cannot be considered as mandatory and statutory functions provided by a sovereign/public authority and, therefore, the benefit of the said Circular is not applicable. The clarification provided in paragraph 2.5 of Circular 59/8/2003-ST dated 20.06.2003 was also referred to and it was concluded that the Bench had no hesitation in holding that the activities of the appellant are not covered by the said Circular dated 18.12.2006 and are chargeable to Service Tax under the Technical Inspection and Certification Service as enumerated in para 2 above.

The case laws cited by the appellant were also held to be not applicable to the facts of the case.

In the matter of limitation, the CESTAT held -

++ In view the fact that the service became chargeable to service tax only with effect from 1.7.2003, the fact that appellant is an organization controlled by the Government of Maharashtra, the certification of the seed is done by the appellant as per the provisions of the Seeds Act, 1966 read with Seeds Rules, 1968, the said Act provides for regulating the quality of certain seeds for sale, we do not find that ingredients of proviso to Section 73 of the Finance Act, 1994 are present in the facts and circumstances of the case. Therefore, the demand within the normal period of limitation is only upheld and that beyond the same is set aside.

In the matter of penalty and interest, the Bench observed -

++ We set aside the penalty under Sections 76, 77 and 78 under Section 80 of the Finance Act, 1994. We also observe that part of the demand of tax under Section 11D (3) would be overlapping with the demand under Section 73. We therefore confirm the demand which is within the normal period of limitation under Section 73 and the remaining amount collected during 1.4.2005 to 31.3.2006 under Section 11D(3) of the Central Excise Act, 1944 is upheld. The interest payable both under Section 75 of the Finance Act, 1994 and Section 11DD of the Central Excise Act, 1944 are upheld.

The appeal was disposed of in above terms.

(See 2014-TIOL-748-CESTAT-MUM)