Service Tax Case Law Update - October 2013

 

1.1  Malabar Gold Pvt. Ltd. vs. CTO. Kozhikode 2013 (32) STR 3 (Ker.)

 

The appellant in this case trading in jewellery under its Trade Mark “Malabar Gold”. They have received Royalty from franchisees for use of Trade Mark and Service Tax paid on it under category of Franchise Service. Under the agreement, the franchisee was licensed to use Trade Mark and transfer of its use was not to exclusion of the appellant, who retained right to transfer it to others also. The appellant having other franchisees with same type of agreement with other also. The agreements inter alia, stipulated (i)  provision of various services by appellant to franchisees including feasibility studies, project plan, selection of site, design of interiors and operation of showrooms, (ii) franchisee had no right to sub-let/lease, sell, transfer, discharge, distribute or delegate or assign rights under the agreement to third party, (iii) on termination of agreement, franchisee forfeited all rights and privileges conferred on them by agreement and they were not entitled to use trade name or materials of “Malabar Gold”. The High Court after going through the agreements held that, terms of franchisee showed that appellant retained right, effective control and possession of their Trade Mark and it was not a case of transfer of possession of exclusion of transferor. Allowing use of trade mark by franchisees on products did not give franchisees effective control of trade mark. Franchisee’s rights were limited and they were bound to sell products of the appellant. The said franchisee agreements are liable to service tax and not under VAT as transfer of right to use any goods.

 

 

1.2  Delhi Public School Society vs. CST, New Delhi 2013 (32) STR 179 (Tri-Del.)

 

The appellant in this case having brand image and experience in establishing and managing schools that provide quality education. They have entered in to Education JV agreement with other parties for setting up schools. The Tribunal after going through the various clauses of agreement held that, entire financial burden of establishing and maintaining of the school was on the other party, and remaining assets on determination of agreement would revert to them. In totality of circumstances neither indicia of partnership nor joint venture was discernible. It was especially so there was neither contribution of assets nor a sharing of profits and /or losses. The dominant component of enterprise was provision of service by the appellant of four ingredients of franchise service. Therefore, the impugned transaction falls more appropriately within the framework of taxable franchise service.

 

Cargo Handling Service:

 

1.3  Anupama Coal Carriers Pvt. Ltd vs. CCE, Raipur 2013 (32) STR 41 (Tri.-Del.)

 

The appellant in this case engaged in movement of coal from mine surface to tip head within mine area by deploying pay loaders.  Further, railway sidings were used within geographical territory of mining area. The Tribunal held that, entire activity to discharge obligation of assessee, which was for merely loading of coal within mining area. These activities are not adjunct to actual transportation of coal, and did not amount to Cargo Handling service, even if coal was brought to railway siding.

 

Copyright Service:

 

1.4  AGS Entertainment Private Limited vs. UOI 2013 (32) STR 129 (Mad.)

 

In this case, the producer of film owning its intellectual property rights, to distributor or any other person, who in turn directly or indirectly agreeing with sub-distributor, area distributor, exhibitor or theatre owner. The distributor get only few positive prints or cubes of picture for exhibition of picture in specified area and the effective control remains with producer. Further, distributor was not free to use them for other works like satellite rights, TV channels, exploitation of songs, audio/video, DVD etc.  The High Court on the basis of above facts held that, distributor cannot make use of film according to his wishes, but there was only temporary transfer or permission to use or enjoyment for limited period in specified area, for consideration as per terms of agreement. The exclusive right of copyright vested in producer of film. Service provider was producer, who was owner of Intellectual property and service receiver was distributor who temporarily got right to use them. The said transaction was liable to service tax as it was temporary transfer or permitting use or enjoyment of copyright. 

 

 

2. Interest/Penalties/Others:

 

2.1 Larsen & Toubro Ltd. vs. CCE, Vadodara-II 2013 (32) STR 113 (Tri-Ahmd)            

 

In this case, two units of assessee located in SEZ carried out work in house for its unit located in DTA. The department sought to demand service tax on SEZ units on the ground that units located in SEZ and DTA units of the appellant are separate legal entities and services provided by SEZ units are taxable service. The Tribunal held that, SEZ units do not have separate balance-sheet and audited accounts and they are considered as division of L&T for all statutory and SEZ purposes. Merely because invoices have been issued and agreement has been entered into, SEZ unit do not become separate legal entities. In terms of definition of person, it cannot be said that the units in SEZ and DTA units can be considered as separate person.

 

2.2 Bhayana Builders (P) Ltd. vs. CST, Delhi 2013 (32) STR 49 (Tri-LB.)                       

 

The Larger Bench of Tribunal in this case held as under;

• Free supplies to construction service provider are outside taxable value or gross amount charged, within meaning of expression section 67 of FA, 1994. Section 67(1)((ii) applies where taxable service is provided for consideration which is not either wholly or partly, for money and hence, non-monetary consideration must still be a consideration, accruing to benefit of service provider, from the service recipient and for service provided. “Free supplies”, incorporated into construction, even on extravagant inference, would not constitute non-monetary consideration remitted by service recipient to service provider for providing service, particularly since no part of goods and materials so supplied accrues to or is retained by service provider.
• Value of “Free supplies” by construction service recipient, for incorporation in construction would neither constitute non-monetary consideration to service provider nor form part of gross amount charged for service provided. Hence, the contrary conclusion in Jaihind Projects Ltd. 2010 (18) STR 650 (T) found to be incorrect, proceeding on flawed interpretation of section 67.
• Goods/Materials supplied/provided/used by service provider for incorporation in construction, which belongs to provider and for which service recipient is charged and corresponding value whereof received by service provider, to accrue to his benefit, whether independently specified as attributable to specific material/goods incorporated or otherwise. The said value alone constitutes gross amount charged. However, the exemption notification cannot enjoin condition that, value of free supplies must also go into gross amount charged for valuation of the taxable service. If such intention is to be effectuated, phraseology must be specific and denuded of ambiguity. Mere enlargement of contours of ‘gross amount charged’ in condition incorporated in Exemption Notification could not amount to bringing to tax net value which is not taxable under section 67.
• The expression ‘used’ in explanation appended to Notification No. 15/2004-ST  is preceded by expressions ‘supply’ and ‘provided’ and all the three expressions are interspersed by disjunctive ‘or’ to define the meaning of gross amount charged. The expression ‘used’ has multiple connotations and bears different meaning depending upon the context. Hence, ‘used’ is per se ambiguous or obscure and for the potential meaning of ‘used’ noscitur principle has to be applied. Etymologically supplied and provided are closely associated words and meaning of ‘used’ is to be ascertained from the associated words.
• In the absence of definition of consideration in statute its meaning as in section 2(d) of Contract Act, 1872 could be considered, which is defined to mean reasonable equivalent for other valuable benefit passed on by promisor to promisee or by transferor to transferee.

 

2.3 Gopinath & Sharma vs. CESTAT Chennai 2013 (32) STR 172 (Mad.)                      

 

The appellant in this case applied for condonation of delay in filing appeal before Commissioner on the ground that, appeal filed before wrong forum by mistake. However, the lower authorities observed that, there is no entry in the IC register of Service tax Commissionerate of the receipt of appeal. The High Court held that, once the period of limitation has run itself out, the appellate authority does not have power to condone the delay in filing the appeal beyond the maximum period prescribed under the Act.

 

2.4 Vippy Industries Ltd. vs. CCE&ST, Indore 2013 (32) STR 213 (Tri-Del.)                   

 

The appellant in this case claimed refund of service tax paid on onward transportation of containers of specified goods for export and return of empty containers to factory premises under Notification No. 17/2009-ST. The department sought to reject refund of charges attributable to return of empty containers to factory premises. The Tribunal relying on Tata Coffee Ltd 2011 (21) STR 546 (Tribunal) and other decisions held that, refund claimed in entirety is admissible in terms of Notification No 17/2009-ST.

 

2.5 Surya Consultants vs. CCE, Jaipur-I 2013 (32) STR 217 (Tri-Del.)                            

 

The appellant in this case relied upon Punjab and Haryana High Court decision in First Flight Courier Ltd. 2011 (22) STR 622 (P&H) to set aside penalty under section 76, whereas Revenue relied upon Kerla High Court decision in Krishna Poduval 2006 (1) STR 185 (Ker). The Tribunal held that, Delhi benches covered under P&H High Court jurisdiction therefore, bound by declaration of law by High Court. Further, the P&H High Court decision is in later point of time and both decisions have been discussed in Mittal Technopack Pvt. Ltd. 2012-TIOL-1507-Cestat-Kol and therefore, order imposing penalty is set aside.  

 

3. Cenvat Credit:

 

3.1 Oil & Natural Gas Corpn. Ltd. vs. CCE, ST& Cus. Raigad 2013 (32) STR 31 (Bom.)

 

The High Court in this case inter alia held that, the expression “used whether directly or indirectly” in the definition of input service has wide import. Service need not be a service which is directly used in manufacture of final product. Use which is indirect and in or in relation to manufacture of final product is sufficient. Further, the expression “in or in relation to” has widened scope and purview of entitlement. The expression “directly or indirectly” and “in or in relation to the manufacture of final products” used in conjunction is indicative of comprehensive sweep and ambit of rule 2(l) of CCR, 2004.

 

3.2 Lyka Labs Ltd. vs. CCE, Surat 2013 (32) STR 79 (Tri-Ahmd.)

 

The appellant in this case proposed to enter into manufacturing of herbal products, for which they had engaged services of consultant for ascertaining the market requirement, research requirement, standardization of materials and preclinical studies and claimed Cenvat credit of service tax paid on such services. However, subsequently, the appellant abandoned the idea of venturing into the manufacturing of herbal products due to business exigencies. It is held that, having abandoned the plan of diversification in the manufacturing herbal products, the services rendered by consultant on these specific products, credit of service tax paid would not be available. It is further held that, since the appellant was under bona fide belief no penalty is imposable under rule 15 of CCR, 2004.

 

3.3 Endurance Technologies Pvt. Ltd. vs. CCE, Aurangabad 2013 (32) STR 95 (Tri-Mumbai.)

 

The appellant in this case availed Cenvat credit of service tax paid on Mandap Keeper services availed to celebrate the Annual Day function of their company which was attended by employees and their family members as well as the employees of their sister units. The Tribunal held that, Annual Day function of the appellant company is an integral part of the business activity and it is also found that appellant is the manufacture of assessable goods therefore entitled to Cenvat credit.

 

3.4 Goodluck Steel Tubes Ltd. vs. CCE, Noida 2013 (32) STR 123 (Tri-Del.)

 

The Tribunal in this case held that, Cenvat credit of service tax paid on Air Travel Agent Service is admissible as air travel is performed for company business.

 

3.5 Heubach Colour Pvt. Ltd. vs. CCE, Surat 2013 (32) STR 225 (Tri-Ahmd.)

 

In this case, department denied Cenvat credit of service tax paid on outdoor catering service for buyers delegation and conference. The Tribunal held that, it cannot be said that providing lunch/dinner is not a part of business promotion and the activity is relatable to manufacture of goods and therefore, Cenvat credit is admissible.