Service Tax Case Laws Update

. Services:

1.1  Idea Mobile Communication Ltd. vs. CCE&C, Cochin. 2011 (23) STR 433 (SC)

The Supreme Court in this case held that SIM card is not having any intrinsic sales value and is supplied to customer for providing Mobile service. The dominant position of transaction is to provide service and not to sell cards. Value of SIM cards forms part of activation charges as no activation is possible without a valid functioning of SIM card and value of taxable service is calculated on the gross total amount received by the operator from the subscribers. It is further held that, wrong payment of sales tax on value of SIM card would not absolve the assessee from service tax liability.

1.2  Alstom Projects India Ltd. vs. CST, Delhi 2011 (23) STR 489 (Tri-Del.)

The Tribunal in this case held that Erection Installation or Commissioning service, Commercial or Industrial Construction service and Construction of Residential Complex service, which involve transfer of property in goods on which tax as sale of goods is leviable is liable to service tax even prior to introduction of Works Contract service w.e.f. 01/06/2007. Works Contract composition scheme and valuation rules only provides a new machinery provision for assessment of Service tax on contract involving transfer of property in goods on which sales tax/Vat is chargeable.

It is further held that, Works Contract service is more like Heading 98.01 of Customs Tariff Act, 1975 pertain to project imports, which provides a separate assessment of custom duty on number of machines and other goods imported for initial setting up of a plant or substantial expansion of existing plant.

It is also held that, a preposition that a works contract cannot be vivisected and part of it cannot be subjected to tax in various Tribunal decision such as Daelim Industrial Co. Ltd, L&T Ltd and Petrotac International Ltd is fallacious. The question of vivisection of an indivisible contract is relevant only in the context of charging Sales tax on the transfer of property in goods involved in providing service, for which by 46^th Constitutional amendment Article 366(29A) contained extended definition of “Tax on sale or purchase of goods” was introduced. But there is no need to invoke the legal fiction of Article 366(29A) for charging service tax on a works contract.

1.3  Retailers Association of India vs. Union of India 2011 (23) STR 561 (Bom.)

The High Court in this case upheld the levy of service tax on Renting of Immovable Property service. It is further held that, Parliament has power to legislate with retrospective effect and upheld the constitutional validity of retrospective amendment carried out by the Finance Act, 2010.

1.4  CMC Ltd. vs. CCE, Hyderabad 2011 (23) STR 586 (Tri-Bang.)

The appellant in this case under agreement with subscribers lend its Modular part-time course leading to Diploma in advance software technology. The course has been conducted through franchisee and appellant paid service tax on fixed amount received on execution of agreement. The department sought to tax royalty amount of 25% of course fees under Franchise service. The Tribunal observed that, royalty is recurring in nature and perpetual nature till validity of agreement and therefore liable under Franchise service.

1.5  National Building Construction Corporation Ltd. vs. CCE& ST, Patna 2011 (23) STR 593 (Tri-Kolkatta)

The appellant received order for executing site formation and clearance and distributed same among sub-contractors. They have supervised work undertaken by sub-contractors to ensure conformity with terms of contract. The department sought to levy tax on margin retained by the appellant as main contractor under Business Auxiliary service.           The Tribunal held that, margin retained as main contractor is not consideration notionally received back from sub-contractors and therefore not liable to service tax. It is further held that, no service is rendered by sub-contractor to NTPC on behalf of the appellant i.e. main contractor and no tax is demandable as case of revenue neutrality and the appellant has paid tax on entire amount received from NTPC.

1.6  CCE &ST, Kanpur vs. Devika Security Services vs. 2011 (23) STR 606 (Tri-Del.)

The assessee in this case was paying tax on keeping vehicles on behalf of some banks and finance agencies under Business Auxiliary service w.e.f. 01/06/2006. The department sought to tax them under Storage and Warehousing service for period prior to 01/06/2006. The Tribunal held that, Revenue having taxed assessee from 01/06/2006, their stand that prior to said date, same activity amounted to storage and warehousing is not acceptable.

1.7  Hindustan Aeronautics Ltd. vs. CST, Bangalore 2011 (23) STR 607 (Tri-Bang.)

The Tribunal in this case observed that, it is necessary to find whether word “sold” used in exemption Notification No. 12/2003-ST includes any “deemed sale”. Since there are divergent views by Tribunal and Courts on point in issue, matter is referred to Larger Bench.

1.8  Aggarwal Colour Advance Photo System vs.  CCE, Bhopal 2011 (23) STR 608 (Tri-LB)

The appellant in this case claimed deduction for value of papers, consumables and chemicals used to bring photograph into existence under Notification No. 12/2003-ST. The Tribunal observed that, recipient of photographs does not go to buy these items, does not make separate payments for them. He only expects photographs. The Larger Bench of Tribunal held as under;

• The value of goods/materials used in production of photographs found to be immaterial and value of photograph to include all elements used to bring it to deliverable state. Service tax found to be leviable on gross value of photographic service and more so as it is not a composite contract of sale of goods and service.
• The agreement between the parties do not affect incidence of Service tax. It is insignificant in law as to the manner recipient and provider of taxable service mutually arranges their affairs for their benefit to deal with consideration.
• All cost to make services reach consumer are includible in valuation of service, since Service tax is destination based consumption tax.
• The term “sold” in Notification No. 12/2003-ST has to be read with “sale” in CEA, 1944 and it does not include “deemed sale”. In that view, only value of goods/materials sold separately by service provider are covered by Notification No. 12/2003-ST

1.9  Kopran Ltd. vs. CCE, Raigad 2011 (23) STR 627 (Tri-Mumbai)

The department in this case sought to levy tax on transfer of brand name/trade mark, knowhow for manufacture of bulk drugs and technical knowhow to make tablets (formulations) under Scientific or Technical consultancy service. The Tribunal held that, none of the transaction can be conceptually reduced to mere advice, consultancy or scientific technical assistance. They involve permanent transfer of intellectual property in one form or another and covered by Intellectual Property service.

2. Interest/Penalties/Others:

2.1 Prompt Services vs. CCE, Bolpur 2011 (23) STR 523 (Tri.-Kolkata)

The Tribunal in this case held that penalty under section 76 and 78 are mutually exclusive and once penalty is levied under section 78, no penalty is to be imposed under section 76.

2.2 CCE, Trichy vs. IOC Ltd. 2011 (23) STR 625 (Tri-Chennai)

In this case, the assessee provided services to a company (IBP), which amalgamated subsequently, but with retrospective effect from 01/04/2004. The Tribunal observed that, amalgamation order issued by Ministry of Petroleum dated 30/04/2007 and Order of approval dated 02/05/2007 by Registrar of Company mentioned date of amalgamation as 01/04/2004. Further, the assessee has taken over assets and liabilities of erstwhile IBP w.e.f. 01/04/2004, in view of amalgamation. The Tribunal held that, transaction after 01/04/2004 between two companies are not between service provider and recipient and the assessee is stepping into the shoes of erstwhile IBP can claim the refund.

2.3 CST, Kolkata vs. P. D. Prasad & Sons Pvt. Ltd. 2011 (23) STR 667 (Tri-Kolkata)

The Tribunal in this case held that, section 35A of CEA, 1944 has been amended whereby power to remand by Commissioner (Appeals) has been withdrawn. The reliance to this effect has been placed on Apex Court decision in MIL India Ltd. 2007 (210) ELT 188 (SC) and Punjab & Haryana Court decision in B. C. Kataria 2008 (221) ELT 508 (P&H).

2.4 Andhra Ferro Alloys Ltd. vs. CCE, Visakhapatnam 2011 (23) STR 670 (Tri-Bang.)

The Tribunal in this case held that time limit is envisaged in Notification No. 40/2007-ST granting refund on export of goods and authorities do not have power to condone the delay in filing refund claim even though the delay was of 3 days.

3. CENVAT Credit:

3.1 CCE, Bangalore-III  vs. Stanzen Toyotetsu India (P) Ltd. 2011 (23) STR 444 (Kar.)

The High Court in this case allowed cenvat credit of service tax paid on canteen services, Rent a cab services for transportation of workers and Insurance/Health policy of employees. It is further held that, the definition of Input service is inclusive and services mentioned therein are only illustrative and not exhaustive. In order to become Input service, the test is whether service utilized is for manufacture of final product directly or indirectly or used in relation to activities relating to business. Once any of these two tests is satisfied, service falls within the definition of Input service and manufacturer is entitled to avail credit.

3.2 Meghchem Industries vs. CCE, Ahmedabad 2011 (23) STR 472 (Tri-Ahmd.)

The Tribunal in this case allowed cenvat credit of service tax paid on Custom House Agents services used for goods exported out of India as goods exported on FOB basis and hence place of removal to be taken as port. It is further held that, courier services used for sending documents are an activity relating to business and therefore allowed the credit.

3.3 Imagination Technologies India P. Ltd. vs. CCE, Pune-III 2011 (23) STR 472 (Tri-Ahmd.)

The department in this case denied credit of service tax paid on input services received prior to registration. The Tribunal held that, there is no dispute that input services were used for providing taxable output service and service tax thereon was paid. Further, there is no provision in Cenvat credit rules for denial of credit on tax paid on such services.

It is also held that, cenvat credit of service tax paid on repair of coffee machine for employees round the clock in IT Company is admissible as it is in the nature of catering service, which is essential for employees.