ST - Income from dividend, interest, income tax refund cannot be part of consideration: CESTAT
By TIOL News Service
NEW DELHI, JUNE 14, 2017: THIS is a Revenue appeal.
The respondent is engaged in supplying aircraft/helicopter to various entities for their use. While providing the said aircraft on chartered hire, the respondent supplied its own crew including pilot and other flying staff along with the aircraft.
The department noticed that the respondent incurred expenditure in foreign currency on account of purchase of spare parts and maintenance of their aircrafts. The department was of the view that such expenditure incurred by the respondent in foreign currency will fall under the Management, maintenance and repair services rendered to foreign aircraft and liable to service tax under the reverse charge mechanism in terms of provisions of section 66A of FA, 1994.
So, SCN came to be issued demanding service tax under the category of "Supply of tangible goods for use? and under "Management, maintenance and repair service". The total amount of Service Tax demand was to the extent of Rs.30,51,99,845/-.
The Commissioner passed the following order -
(i) The supply of aircraft on hire basis will be classified under supply of tangible goods for use service, under section 65 (105)(zzzj).
(ii) The demand of service tax confirmed to the extent of Rs.15,40,30,674/-.
(iii) The demand for service tax amounting to Rs.15,11,69,171/- was dropped against the assessee.
No penalty was imposed under various sections of the Finance Act, 1994.
In appeal, Revenue has taken the following grounds -
+ AA has confirmed the service tax demand by invoking the extended period of limitation u/s 73(1) of the FA, 1994 but refrained from imposing any penalty on the respondent by taking a view that the extended period of limitation is not applicable.
+ Since the demand has been confirmed by invoking the suppression clause of Section 73, in terms of provisions of section 73(1A) ibid, the proceedings cannot be concluded unless the duty demand, the interest as well as 25% penalty u/s 78 is paid within a period of one month from the date of issue of SCN. In the present case, only a part of the service tax demand has been paid by the respondent within a period of one month and consequently, the penalty equal to the service tax demand will be liable to be imposed on the respondents.
+ Commissioner has reduced the demand raised under Supply of tangible goods from Rs.24,68,70,939/- to Rs.15,40,30,674/- without substantive evidence and verification; that he has allowed adjustment of CENVAT credit amounting to Rs.7,25,86,249/- without supportive documents.
+ AA has dropped the demand of Service Tax of Rs.5,83,28,905/- raised under the category of management, maintenance and repair under reverse charge basis without duly verifying the supportive evidence or Chartered Accountant certificate.
The respondent supported the order of the AA and inter alia placed reliance on the decision in Amaravati Peoples Co-Op Bank Ltd. = 2014-TIOL-565-CESTAT-MUM .
The CESTAT inter alia observed -
Supply of tangible goods for use
++ The reasoning cited by the Commissioner (for reducing the demand from Rs.24,68,70,939/- to Rs.15,40,30,674/-) is that the original demand included amount received by the respondent by way of various other incomes which do not pertain to above services such as dividend income, interest or income tax refund, FDR interest, discount or expenses, profit on sale of mutual funds/ fixed assets, cost of fuel and cost of tickets purchased from IATA Agent etc. For quantification of demand, he has relied upon certificate given by the Chartered Accountant pertaining to the years 2008-2009 to 2011-2012.
++ When we look at the nature of incomes excluded by the adjudicating authority for arriving at the taxable value, we note that these are in the nature of income from dividend, interest, income tax refund etc. which cannot be part of the consideration for rendering of service under supply of tangible goods. Hence in principle, there can be no case for inclusion of such income in the taxable value .
++ The adjudicating authority has given relief in the service tax only to the extent of amounts which are not to be considered as part of the consideration. The fact that he has taken the support of Chartered Accountant certificate for verification of the figures cannot by itself be taken as a ground for holding that the impugned order is incorrect or bad. Consequently, we find no reason to interfere with the decision of adjudicating authority to restrict the demand.
++ We note that adjudicating authority has allowed adjustment of the total Service tax paid by respondent and reported in periodic ST-3 returns. There is nothing on record challenging the figures in the ST-3 returns. Tax already paid under a wrong category can always be considered towards the liability under the new category. Hence, we find no infirmity in the finding of the Commissioner.
Management, maintenance and repair service
+ After scrutiny of documents, Commissioner has concluded that none of the remittance has been effected by the respondent for importing any taxable service including management, maintenance and repair service. … Consequently, we find no reason to interfere with the finding of the Commissioner dropping the demand of Service Tax in this category.
Penalty:
The CESTAT observed that the entire service tax demand has also been paid by the respondent along with interest partially through cash and partially by availing cenvatcredit which has been regularized by the Commissioner in the impugned order.
After extracting the reasons given by AA for not imposing the penalty under the FA, 1994, the Bench further observed -
"…The supply of tangible goods service was introduced with effect from 16.5.2008. We note that the demand for service tax in this case has arisen for the periods immediately after the introduction of this service when the activities covered under these services were being debated and settled by various judicial forums. We also note from the records of the case that the respondent has disputed the classification of their activity under the supply of tangible goods service. However, during the course of investigation they were convinced and they have discharged the entire service tax liability along with interest. Keeping these circumstances in view, we are convinced that this is a fit case to waive all the penalties under the provisions of section 80."
The impugned order was upheld and the Revenue appeal was rejected.
(See 2017-TIOL-2005-CESTAT-DEL)
