BRIEF FACTS OF THE CASE - Central Excise, …sevakarahmedabad.nic.in/doc/ADDL/OIO36-11.doc · Web...

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45

BRIEF FACTS OF THE CASE

M/s P.C.Snehal Construction Co., Pravesh Appt. Mahadevnagar Society, Nr. Sardar Patel Statue, Stadium road, Naranpura, Ahmedabad- 380014 (hereinafter referred to as the “the said assessee” for the sake of brevity) is engaged in providing taxable service viz. “Commercial and Industrial Construction Services” as defined under clause 25(a) of section 65 of the Finance Act, 1994. They have taken service tax registration bearing STC No. AACFP6233AST001 from the Service Tax Commissionerate, Ahmedabad, under the service category of ‘Construction Services’ in respect of Commercial or Industrial Buildings and Civil Structures.

2. An intelligence was gathered by the Directorate General of Central Excise Intelligence, (hereinafter referred to as DGCEI for the sake of brevity) Ahmedabad Zonal Unit, [AZU] that the said assessee had provided Commercial and Industrial Construction Services to M/s Torrent Power Limited, Ahmedabad (here-in-after referred to as M/s TPL for the sake of brevity) and had not paid appropriate service tax leviable thereon. The said assessee appeared to have wrongly availed the benefit of exemption Notification No. 15/2004- S.T. as amended and Notification No. 1/2006 S.T. dated 01.03.2006 as amended, by incorrectly availing 67% abatement from the value of the “Commercial or Industrial Construction Services” provided by it, without satisfying the conditions of the said exemption Notification. It appeared that they have not fulfilled the condition pertaining to inclusion of the value of all the goods and materials, supplied or provided or used by it, in the gross amount charged from the clients, for providing the commercial or industrial construction services. Investigation against the said assessee was initiated under summons proceedings.

3. Provisions of levy of Service Tax:-

3.1 Service Tax on construction services was introduced w.e.f 10.09.2004 by the Finance Act 2004. During the period 10.09.2004 to 15.06.2005, the service was called as the construction services, which was defined under Section 65(30a) of the Act. As per Section 65(30a)

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45during the said period, the definition of the construction services reads as:-

‘Construction Service’ means;-

a. repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure. which is ;-

(i) used, or to be used, primarily for; or (ii) occupied, or to be occupied, primarily with; or (iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services pre vided in respect of roads, airports, railways, transport terminals, bridges, tunnels, long distance pipelines and dams,’

3.2 With effect from 16.6.2005, the scope of construction service was expanded and service was rechristened as ‘Commercial or Industrial Construction Service’. Section 65(25b) inserted by the Finance Act, 2005 defines the service as follows :- commercial or industrial construction service” means ;-

a. construction of a new building or a civil structure or a part thereof; or b. construction of pipeline or conduit; or c. completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or d. repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure pipeline or conduit, which is- (i) used, or to be used, primarily for; or (ii) occupied, or to be occupied, primarily with; or (iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways,

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45transport terminals, bridges, tunnel- and dams,;

3.3 Further, the definition of taxable service under the Clause (zzq) to sub-section 105 of Section 65 read as under (during 10.09.2004 to 15.06.2005) :-

“taxable service means an service provided to any person, by a commercial concern, in relation to construction service”

However, this definition of taxable service was substituted by Section 88 of the Finance Act, 2005 w.e.f 16.06.2005, so as to read as under:-

“taxable service means any service provided to any person, by a commercial concern, in relation to (commercial or industrial) construction service”

3.4 The value of taxable service shall be the gross amount charged by the service provider of such service provided or to be provided by him.

3.5 The Central Government issued a Notification No.15/2004 Service tax dated 10.09.2004 which exempted the taxable service provided by a commercial concern to any person in relation to commercial or industrial construction services from so much of the service tax leviable thereon under section 66 of the said Act as in excess of the service tax calculated on a value which is equivalent to thirty three percent of the gross amount charged from any person by such ‘commercial concern’ for providing the said taxable service. The said exemption was not applicable in cases where:- (i) the credit of duty paid on inputs or capital goods has not been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the commercial concern has not availed the benefit under the notification of No. 12/2003-Service Tax dated 20.06.03. (iii) the taxable services provided are only completion and finishing service in relation to a building or civil structure referred

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45to in sub- clause( c) of clause 25b of Section 65 of the Act.

3.6 An explanation to the aforesaid Notification was inserted by Notification No. 4/2005 dated 01.03.2005, which reads as follows:-

Explanation - For the purpose of this Notification, the gross amount charged shall include the value of goods and material supplied or provided or used by the provider of the construction service for providing such services”.

3.7 The Central board of Excise & Customs vide its Circular 80/10/2004 dated 17.09.04 clarified as:-

“The gross value charged by the building contractors includes the material cost, namely, the cost of cement, steel, fittings and fixtures, tiles etc. Under the Cenvat Credit Rules, 2004, the service provider can take credit of excise duty paid on such inputs. However, it has been pointed out that these materials are normally procured from the marker and are not covered under the duty paying documents. Further, a general exemption is available to goods sold during the course of providing service (Notification No. 12/2003-ST) but the exemption is subject to the condition of availability of documentary proof specially indicating the value of the goods sold. In case or a composite contract, bifurcation of value of goods sold is often difficult. Considering these facts, an abatement of 67% has been provided in case of composite contracts where the gross amount charged includes the value of material cost. (refer notification No.15/04-ST, dated 10.09.2004) This would, however, be optional subject to the condition that no credit of input goods, capital goods and no benefit (under notification no. 12/2003-ST) of exemption towards cost of goods are availed”.

3.8 The Notification No.15/2004 S.T dated 10.09.2004 as amended was rescinded vide notification No.2/2006 -ST dated, 01.03.2006 and a new notification No.1/2006 - Service Tax dated 01.03.2006 was issued allowing abatement from the gross amount charged on the construction service. The new notification allowed exemption of abatement on the same conditions and explanation as provided in

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45Notification No.15/2004 S.T dated 10.09.2004. In the Notification No.1/2006 S.T. dated 01.03.2006, an additional provision was added for availing abatement which is reproduced as under:-

“Provided that this notification shall not apply in cases where, -

(i) the CENV AT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of the CENVAT Credit Rules, 2004;”

Thus from 01.03.2006, the service provider was also not eligible to avail Cenvat on input services.

3.9 Thus, Notification No.15/2004-ST dated 10.09.04 provided an abatement of 67% from the levy of Service Tax on account of the value of materials used in the construction service in case of composite contracts. A composite contract involves the sale of goods along-with the provision of services. The aforesaid exemption Notification was issued on the presumption that in composite contract for the construction of a building or a civil structure, the ‘supply element’ constitutes 67% of the total value of the contract and the service element 33% of the total value of the contract. In a composite contract, the service provider has to supply all the goods and materials used for providing construction service. The Notification also stipulates that no Cenvat credit on inputs or capital goods should be taken by the service provider. Generally, the service provider purchases the inputs such as cement and steel from the open market. In a composite contract all the inputs are to be supplied by the service provider. If service provider has received such inputs free of cost from the clients, the cost of such inputs needs to be added for arriving at the value of composite contract and 33% of such value should consider the cost of all free supplies materials used in the construction services for charging Service Tax.

3.10 The explanation in Notification No.15/2004. ST dated 10.09.04 added vide Notification No.4/2005-ST dated 01.03.2005 and Notification No.1/2006-ST dated 01.03.2006, gave the effect that the gross amount charged shall include the value of goods and materials

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45supplied or provided or used by the provider of the commercial or industrial construction services for providing such service. The words used are ‘supplied or provided or used’ which implies that the gross amount charged shall include the value of all the goods and materials used for providing such construction service. The materials supplied by the clients are also used by the service provider for providing construction service. Therefore, the value of goods and materials supplied by the client free of cost should be included in the gross amount charged on 33% value of which service tax is to be levied.

3.11 In case the service providers fails to comply with the conditions of a Notification, the benefit of abatement under the above Notifications is not available to the service provider.

4. Information provided gathered from the service provider and service recipients:-

4.1.1 The said assessee vide their letter dated 27.11.2006, submitted the copy of their ST-3 returns for the financial year 2005-06. The returns revealed that there was no mention in the returns regarding the benefit of Notification claimed by them. In case the said assessee was availing of benefit of concessional abatement, he was required to show the same in the returns.

4.1.2 The said assessee was asked to inform the name of the clients to whom the taxable services were provided by them. The said assessee vide their letter dated 07.11.2008 informed the names of the clients to whom the taxable services were provided by them from September, 2004 to March, 2008. The information revealed that they had provided such services to two clients viz. M/s Torrent Power Limited and M/s AIA Engineering Limited. They also informed that they had paid service tax amount after availing benefit of Notification No. 1/2006. The information provided revealed that the said assessee was providing taxable services to M/s Torrent Power Limited. In case of M/s AIA Engineering Limited, it was informed that service tax was paid without availing benefit of Notification No.15/2004-ST or Notification No.1/2006 S.T.


4.2. The said assessee had not fulfilled the conditions of Notification No. 1/2006- ST dated 01.03.2006, they were asked to pay service tax short paid by them. The said assessee vide their letter 12.11.2008 informed that in their letter dated 07.11.2007, gross amount of services received is included material value which is used, provided and supplied in construction Service, and provided the break up details. The break up showed that they had received Rs.4,44,38,423/- towards taxable services and Rs.92,23,989/- was shown towards cost of material.

4.3.1 To verify the validity of the contents of the said assessee, information was called from M/s TPL, who provided information of details of work-order wise value of material given by them to the said assessee alongwith item wise breakup of quantity and amount of the material given.

4.3.2 Following information was again called by DGCEI from M/s TPL regarding the said assessee:-

i. Copies of the bills raised by the said provider from September, 2004 to March, 2008. ii. Copies of the work orders specifying the nature of work and details of material to be consumed by service provider and provided by the service provider in completion of the work order. iii. Quantity and Amount of the free issue material supplied to the contractor to be used in the work order. iv. Copy of ledger print out

4.3.3 M/s TPL vide their letter dated 21.02.09 and 21.04.09 provided information regarding the said assessee which revealed that seven work orders were issued by M/s TPL in which cement, steel and bricks were supplied by M/s TPL which were used by the said assessee to carry out the construction work. The details are summarized as under:-

Material supplied by M/s TPL to the client M/s P C Snehal Construction Co., till March 2008Work Order No. Description

of workValue of Cement

Value of Steel

Value of Bricks

Total

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45SCCVL/0030/09-07 Vastral sub

station 4484688 8543929 746684 13775301

SCCVL/0037/06-07Sub station at Apparel Park

1313749 1832255 324256 3470260

SCCVL/0043/06-07 Sub station at Gota 1304185 1621432 321798 3247415

SCCVL/0046/06-07

Pile foundation for tower line from Nikol -1 to Nikol - 2

123653 0 0 123653

POMD/0923/06-07 Sub station at Raipur 1338719 1949070 370158 3657947

POMD/0508/06-07

Pile foundation for tower line from Sabarmati to Airport

1409872 60411 64256 2078238

POMD/0812/06-07

Pile foundation for shifting of GETCO Tower Line

205384 1023545 0 1228929

TOTAL 10180250 15574341 1827152 27581743

4.4.1 As the information received by DGCEI from M/s TPL did not tally with the information submitted by the said assessee, they were summoned to make statement on correctness of the facts, and the information received from M/s TPL was sent to them vide letter dated 21.04.09. They were informed that as per the information received from M/s TPL it appeared that they are not eligible for the benefit of Notification No. 1/2006-ST. The summon was replied by the said assessee vide their letter dated 18.05.09, requesting time for submission of their reply.

4.4.2 As per their reply another summon dated 23.07.09 was issued asking them to appear on 06.08.2009, the said assessee informed that their consultant and advocate is out of station and requested time for another 10 days. The said assessee vide their letter dated 19.08.2009 submitted with regard to payment of service tax in connection with Commercial or Industrial Construction Services, they have awarded contracts to various sub-contractors on back to back basis, and have asked information regarding payment of service tax from various sub- contractors and they require further five days to submit the details.

4.4.3 As per their request another summon dated 04.09.2009 was

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45issued asking them to appear on 12.09.2009, in reference to summons dated 04.09.2009, they informed that they have been provided copy of letters of Torrent Power Limited dated 21.02.2009, the said details are not showing details of quantity, rates or site/contract. Therefore, they are unable to reconcile with the details given by their letter dated 07.11.2008 and 12.11.2008. The said assessee also submitted that they have tried to get the break up of details from M/s TPL, but they could not get it. They also submitted that the value of material freely supplied is not required to be added and supply of the information is without prejudice to any such contention.

4.4.4 Further summon was issued on 14.09.2009 for appearance on 21.09.2009 and summon dated 03.11.2009 was issued for appearance on 05.11.2009 and to submit the copies of ST -3 returns file by them. The said assessee vide their letter dated 06.11.2009 informed that they have been repeatedly issued summons for same purpose without noticing their letter dated 16.09.2009 wherein they had explained their position, wherein they have not been supplied the details required by them. It is pertinent here to mention that in the summons referred above they were only asked to submit the copies of ST-3 returns filed by them and to make a statement.

4.5.1 As the assessee had not responded to summons and furnished copies of ST- 3 returns filed by them, DGCEI, collected the copies of ST-3 returns from the jurisdictional service tax office. The Deputy Commissioner, Service Tax Division- III, Service Tax Commissionerate, Ahmedabad vide his letter No.STC/DEM/Misc/82/Div-lII/09-10 dated 16.11.2009 informed that the said assessee has been filing returns from October, 05 and forwarded copies of ST-3 returns filed by the said assessee from October, 05 to March, 2009.

4.5.2 The returns revealed that the said assessee have discharged their service tax liability from October, 2005 to March, 2008 under Commercial or Industrial Construction Service claiming abatement under Sr. No. 7 of Notification No. 01/2006- ST.

4.5.3 They have discharged their service tax liability from April- 2008

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45March, 2009 under the Works Contract Service.

5.1. From the above discussion it is evident that the said assessee did not include the value of free issue material in the gross amount as defined and clarified in explanation in Notification No.15/2004-ST inserted by Notification No.4/2005- ST dated 01.03.2005 and as provided in explanation to Notification No.1/2006-ST dated 01.03.2006. The explanation clarifies that the gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of the commercial or industrial construction service for providing such service. Here the words are ‘supplied or provided or used’, which implies that the gross amount charged shall include the value of all the goods and materials used for construction service. The materials supplied by the client are also used by the service provider for providing construction service. Therefore, the value of goods and materials supplied by the client free of cost should also be included in the gross amount charged for the purpose of payment of Service Tax.

5.2 An exemption notification has to be strictly construed. The conditions for taking benefit have to be strictly followed. It is a settled law that to avail the benefit of a notification, the unit must strictly comply with the conditions of the notification. It is the cardinal rule of the interpretation of the exemption notification that where a notification provides that a particular thing should be done in a particular manner, it should be done in the manner prescribed and not in any other way. It is also a settled law that the notification has to be interpreted in terms of the wordings. In the case of M/s Sarabhai M Chemicals vs. CCE 2005(179) ELT 3 (SC), it was observed by the Apex Court that it is well settled that an exemption notification has to be strictly interpreted. The conditions for taking the benefit of the exemption have to be strictly interpreted.

5.3. In the instant case, explanation to Notification No.15/2004-ST dated 10.09.2004 [superseded by Notification No.1/2006-ST dated 01.03.2006] provides: “For the purpose of this notification, the gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of the commercial or

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45industrial construction service for providing such service. Thus, the meaning of the wordings of the Notification is very clear and unambiguous that for the purpose of this notification, the gross value shall include the value of materials used by the provider of the commercial or industrial construction service for providing such service. This meaning of gross value is only for the purpose of this notification. The exemption can not be claimed as a matter of right when conditions subject to which exemption is admissible are not complied with. Here, the notification has laid down a condition that for claiming the benefit of abatement under the notification, the ‘gross amount charged’ shall include the value of goods and materials supplied or provided or used by the provider of the commercial or industrial construction service for providing such service. The ‘inclusive meaning of the ‘gross amount charged’ is only for the purpose of this notification which is also evident from the wordings ‘for the purposes of this notification’.

5.4 The availment of the benefit under an exemption Notification is optional. The following options are given by the Government to a Service provider providing services in relation to “Commercial or Industrial Construction Service”:- (i) Avail CENVAT credit for the duty paid on the goods and materials (input and capital goods) and on the input services used in the construction and pay service tax on 100% value of the service charges, Or(ii) Avail benefit of the general exemption available in respect of goods sold during the course of providing service (Notification No.12/2003-ST) subject to the condition of availability of documentary proof particularly indicating the value of the goods sold. Or

(iii) Avail abatement to the extent of 67% of the gross value of the services (under Notification No.15/2004-ST dated 10-09-2004) subject to the non-availment of CENVAT credit on inputs and non-availing of general exemption under Notification No.12/2003 ST. While exercising this option, the value of goods supplied free of cost by the service provider or the recipient of the service shall be includible in the gross value of service charges.


5.5 The said assessee has opted for the third option in respect of service provided to M/s TPL as is evident from their submission. Accordingly, they were required to fulfill all the conditions of the said notification. Once the option of availment of exemption under a particular notification is exercised by a service provider, all the conditions under said option are to be fulfilled by him. Since they had failed to fulfill the conditions of notifications, they were required to pay service tax on the full value charged by them. Thus the assessee was not eligible for the benefit of Notification No.15/2004 S.T dated 10.09.2004 as amended and Notification No.1/2006 ST dated 01.03.2006 since they had not fulfilled the conditions stipulated in the Notifications.

5.6 The Service tax liability of the said assessee in respect of “Commercial or Industrial Construction Service” on the gross amount charged for the period from October, 2005 to Match, 2008, wherein they had discharged their service tax liability claiming abatement, prepared on the basis of their information and value declared in their ST-3 returns is tabulated as below:-

Month

Gross Amt. of Services received as per ST 3 returns

Total Service Tax paid in Cash

Paid through Cenvat Credit Value of

materials shown as additional consideration

S.Tax E. Cess

H.E. Cess S.Tax Edu.

CessH.E. Cess

Oct. 05 1359866 135987 2719 0 0 0 0 0Mar. 05 103366 0 0 0 10337 207 0 0Aug. 06 454000 0 0 0 54480 1090 0 0Sept. 06 100000 0 0 0 12000 240 0 0Mar. 07 15533597 206251 8313 0 482015 9640 0 3106179Apr. 07 2865005 10802 212 106 125543 2511 1255 573001May 07 5869389 60167 1203 602 218747 4375 2187 1173877June 07 3826198 31664 631 316 150257 3005 1503 765239Jul. 07 336303 799 16 8 15182 304 152 67261Aug. 07 1735101 8802 176 88 73650 1473 736 347020Sept. 07 3770564 51477 1030 515 127701 2554 1277 754113Oct. 07 2003080 2136 43 21 93050 1861 931 400616Nov. 07 1765724 21306 426 213 62601 1252 626 353145Dec. 07 2157031 11794 236 118 90708 1814 907 431406Feb. 08 2953328 137196 2744 1372 3146 63 31 590666Mar. 08 1623103 77130 1543 771 0 0 0 324621Total 46455655 755211 19292 4130 1519417 30389 9605 8887144

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45 It is evident from the above table that the said assessee claiming the benefit of abatement under Notification No.15/04-ST dated 10.09.2004, as amended and Notification No.1/2006-ST dated 01.3.2006, discharged their service tax liability on taxable value of Rs.4,64,55,655/-. They have added additional consideration i.e. value of free supply material of Rs.88,87,144/- only, whereas their client M/s TPL have informed that they have supplied free value of goods of Rs.2,75,81,743/- as discussed in Para 4.3.3 supra. Thus, they have mis-declared the value of free issue material. The assessee was asked to explain the difference between the value of the supplied material included by them and the value furnished by M/s TPL. However, they could not furnish the reason for the difference. As it is the material supplied by M/s TPL, they know the correct value of the material. Accordingly, the value of the free supply material furnished by M/s TPL had been taken into account to work out the service tax liability. The said assessee had also availed Cenvat Credit on input services against the proviso to Notification No. 1/2006 ST dated 01.03.2006. As the party failed to include full value of material supplied to work out the “gross value”, and took Cenvat credit on inputs they were not entitled to the benefit of Notification No. 15/2004 as amended and Notification No. 1/2006-ST. dated 01.03.2006. They were thus required to pay service tax of Rs.38,53,888/- (Rs.37,61,888/- as Service Tax and Rs.71,049/- as Education Cess and Rs.20,951/- as higher education cess) short paid on the “Commercial or Industrial Construction Services” provided by them as detailed in Annexure -A to the show cause notice. The value declared for the month of October, 2005 in their ST-3 return do not tally with information submitted by them vide their letter dated 12.11.2007, hence the value declared in their letter dated 12.11.2010 was taken for quantification of service tax short paid by them.

5.7 The said assessee is registered with Ahmedabad Service Tax Commissionerate for “Commercial or Industrial Construction Service”. They have provided “Commercial or Industrial Construction Service” to M/s TPL. Initially, they have neither declared the Notification No. under which service tax has been paid by them nor the actual gross amount in their periodical returns. They were fully aware that the gross amount

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45charged for the purpose of abatement under Notification No. 15/2004-ST. as amended and Notification No. 1/2006-ST includes the value of material used during provision of services. This is evident from the fact that they have added part value of the supply materials in the gross value. However they did not ascertain correct value of materials. As they failed to pay Service Tax on the correct “gross value” of services rendered, they were not eligible for the exemption provided under Notification No. 15/2004 as amended and Notification No. 1/2006 ST dated 01.03.2006 and hence they are not entitled for 67% of abatement from the gross value provided in the Notification. Thus, they were liable to pay service tax on the gross value received by them without abatement. Consequently they had short paid service tax of Rs.38,53,888/- short paid by way of willful suppression of facts, mis-statement and in contravention of provision of Finance Act, 1994 relating to levy and collection of Service Tax and Rules, made thereunder with an intent to evade payment of Service Tax. The Service Tax short paid by them is therefore recoverable from them by invoking extend period of five years as per first proviso to sub- section (1) of Section 73 of the Finance Act, 1994. They were also liable to pay interest at appropriate rate for the period from due date of payment of Service Tax and Education Cess till the actual date of payment, as per provision of Section 75 of the Finance Act, 1994.

6.1 Section 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the specified rates and in such manner and within such period as may be prescribed. Rule 6 of the Service Tax Rules, 1994 stipulates that service tax shall be paid to the credit of the Central Govt., by the 5 th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services.

6.2 Section 70 of the Finance Act, 1994, provides that every person liable to pay the service tax, shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such a frequency as may be prescribed. Rule 7 of the Service Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly return in form

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45ST-3 or ST-3A, as the case may be, alongwith a copy of the form TR-6, in triplicate for the months covered in the half-yearly return. Further sub-rule [2] thereto also states that “every assessee” shall submit the half yearly return by the 25th of the month following the particular half-year.

6.3 In view of the above, it appeared that the said assessee had contravened the provisions of :-

Section 68 of the Finance Act, 1994, read with Rule 6 of the Service Tax Rules, 1994, in-as-much as they have failed to make the payment of service tax as detailed above to the credit of the Government account; Section 70 of the Finance Act, 1994, read with rule 7 of the Service Tax Rules, 1994, in as much as they had not declared the correct amount of charges paid by them in lieu of taxable services received by them from their clients.

6.4 It also appeared that the said assessee did not pay Service Tax on the services rendered by them during the relevant period as discussed above and thus contravened the provisions of Section 68 of the Finance Act, 1994 and hence rendered themselves liable to penal action under Section 76 of the Act, ibid. The said assessee was fully aware that the services provided by them to M/s TPL is a taxable service and when they have availed a conditional notification, they have to fulfill all the conditions of the said notification. The Service Tax was not paid by them by way f suppression of facts, willful mis-statement and contravention of the provisions of Finance Act, 1994 relating to Service Tax and Rules made thereunder with intent to evade payment of Service Tax. It therefore, appeared that the said assessee is liable to penal action under Section 78 of the Act, ibid.

7 Accordingly M/s P.C. Snehal Construction Co. Ahmedabad were issued a Show Cause Notice by Additional Director, DGCEI, AZU, Ahmedabad bearing F.No. DGCEI/AZU/36-112/09-10 dated 17.12.2009 asking them as to why:

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45(i) the Service Tax amounting to Rs.38,53,888/-[Rupees thirty eight lakhs fifty three thousand eight hundred eighty eight only] (Rs.37,61,888/- as Service Tax and Rs.71,049/- as Education Cess and Rs.20,951/- as higher education cess) short paid by them, should not be recovered from them under the provisions of Section 73 of the Finance Act, 1994 by invoking the extended period of five years as per proviso or clause (a) of Sub-Section (l) of Section 73, as the case may be; (ii) Interest at the appropriate rates as prescribed under Section 75 of the Finance Act, 1994 should not be recovered from them from the due date on which the Service Tax was liable to be paid till the date on which the said Service Tax is paid; (iii) Penalty as prescribed under Section 76, and 78 of the Finance Act, 1994 should not be imposed upon them for non-payment of Service Tax during the relevant date and for suppressing and concealing the value of 'Construction and Industrial Construction Service' provided by them.

DEFENCE REPLY8.1 The assessee filed their defence reply vide their letter dated 12.08.2010, wherein; they denied the charges and allegations leveled in the Show Cause Notice and submitted that they have not violated the conditions of the said Notification during the disputed period and therefore, there is no requirement for payment of disputed Service Tax; that in terms of the said Notification, whatever the amount of Service Tax was required to be paid, had been paid through cash without availment of Cenvat Credit during the disputed period; that since there is no violation of the conditions of the said Notification, the charges and allegations made in the Show Cause Notice cannot be sustained and therefore, the same is required to be dropped in the interest of justice.

8.2 They further submitted that during the disputed period, they had received the Work Orders from M/s Torrent Power Ltd., and M/s AIA

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45Engineering Ltd., for real estate construction in terms of various Works Orders; that in respect of services provided to M/s AIA Engineering Ltd, it is stated that they paid Service Tax without availment of benefit of Notification No.15/2004-ST dated 10.09.2004 and/or Notification No.1/2006-ST (supra); that there is no dispute in respect of the said services provided to M/s AIA Engineering Ltd; that in the present case, dispute is in respect of services provided to M/ s. Torrent Power Ltd. (hereinafter referred to as "TPL"); that out of 7 (seven) contracts, they awarded 4 contracts to various sub-contractors on back to back basis on which the sub-contractors paid Service Tax; that they crave leave to refer to and rely upon the documents in respect of payment made by the sub-contractors towards service tax as and when required; that the Show Cause Notice alleges that one of the conditions of the said Notification is that the service provider should not avail Cenvat credit of duty paid on inputs or capital goods and Service Tax paid on input services; that since they availed the Cenvat credit in respect of Service Tax paid by the sub-contractors, it is alleged that they have violated the condition of the said Notification; that as stated above, out of 7 contracts, they themselves did work of constructions for 3 contracts and provided services to M/s TPL without awarding the contracts to Sub-Contractor; that in these 3 contracts, they had not availed the CENVAT Credit of service tax paid by Sub-Contractors and therefore, there is no violation of the conditions of the said Notification; that in respect of the rest of the contracts, they had awarded the contract to their Sub-Contract who paid service tax under the said Notification; that as per the said Notification, the Assessee is required to pay Service Tax on 33% of the gross value of the Contact; that the said amount of Service Tax needs to be paid through cash without availment of CENVAT credit; that in the present case, service tax was paid on 33% of value of the Contract out of cash without taking into consideration of CENVAT Credit; that they attached a Copy of the statement showing calculation of service tax paid by them and Sub-Contractors through cash as Annexure-I to the defence reply which shows that service tax has been paid as per the said Notification; that intention of the Legislature for introduction of the said Notification is that when the assessee is not in position to bifurcate the amount material and services, the assessee is given an option to go into

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45composition scheme and pay Service Tax after availment of benefit of the said Notification; that the purpose of the said Notification is that service tax should be paid by way of cash without availment of CENVAT Credit; that in the present case, service tax paid by them through cash including paid by Sub-Contractor, it comes to service tax which is equivalent to service tax on 33% of the gross value of the Contract.

8.3 They further submitted that the Show Cause Notice discussed three options under which service provider can pay Service Tax in relation to “Commercial or Industrial Construction Service”; that in the present case, service tax has been calculated in terms of Option No. (i) set out in Para No.5.4 of the Show Cause Notice; that since it was a new service which came into force w.e.f. 10.09.2004 and their Accountant under ignorance of the law availed the CENVAT credit based on the invoices given to them by the Sub-Contractors; that there was no mala fide intention on their part to violate the condition of Notification; that after receipt of the Show Cause Notice, they collected all the relevant documents which show the amount of materials used in the above referred contracts; that Notification No.12/2003-ST dated 20.06.2003 provides that the value of goods and materials sold by the Service Provider to the recipient of service is exempt from service tax subject to the condition that credit of duty paid on goods and materials has not been taken under the provisions of the Cenvat Credit Rules, 2004; that they are entitled to get benefit of the above referred Notification since they have not availed the CENVAT credit on the materials used for providing the above service; that based on these materials, Option No (ii) is more beneficial to them and therefore, in terms of Option No. (ii), their liability of the Service Tax comes to Rs.5,84,736/-which they have paid alongwith interest; that they have attached Copies of challan and GAR-7 showing the proof of payment of Service Tax and interest; that they have also attached a statement showing calculation of Service Tax in terms of Option No.(ii); that they submitted that documents in respect of materials used for the above contracts are also annexed separately but the same are not attached with their defence reply; that they requested to depute any person for examination of the above documents.


8.4 They further submitted that Show Cause Notice has erred in stating that the value of materials supplied by the TPL at free of cost should be included while computing the value of gross receipts in terms of the explanation to the said Notification; that in terms of the following decisions, the value of material supplied by the service receiver at free of cost should not be included while computing Service Tax in terms of Notification:

Cemex Engineers Vs. CST 2010 (17) STR 534 (T) Era Infra Engineers Ltd Vs UOI 2008 (11) STR 3 (T) Larsen & Toubro Ltd Vs UOI 2007 (7) STR 123 (Mad) 8.5 They further submitted that the Show Cause Notice is barred by limitation; that the SCN sought to invoke the extended period of limitation under the proviso to Section 73(1) of the Act; that the SCN raises a demand for Service tax not paid for the period from October 2005 March 2008; that in terms of settled law, the extended period of limitation can be invoked only where an evasion of tax has been occasioned by the suppression, omission or failure to disclose wholly or truly all material facts required by the assessee or when the assessee had an intention to evade the payment of tax; that the extended period of limitation can be invoked only on those grounds which are specifically provided under the Statute; that if the Department sought to invoke the extended period of limitation on grounds other than those mentioned in the Statute, then such an invocation of extended period of limitation is bad in law; that in the present case, larger period has been invoked on the premise that they had not declared the said Notification No. under which service tax has been paid nor the actual gross amount in the periodical return field by them; that the allegation is baseless, incorrect and frivolous since they declared the Notification No. in the return filed by tem from time to time; that they also mentioned the amount of Cenvat credit availed by them for discharging the Service Tax liability in the said returns; that despite the above disclosures, the Department had never objected and denied

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45the benefit of Notification; that they submitted the copies of the returns for the disputed period which shows the correct position; that in respect of gross amount charged, there are various decisions in which it is held that value of free supply materials cannot be included in the gross amount in terms of the Explanation to the said Notification; that in these circumstances, they had not shown the value of goods supplied free of cost by Torrent Power Limited in the returns; that the above facts shows that there was no mala fide intention on their part for not to pay Service Tax in terms of said Notification; that in view of the above facts and circumstances, larger period cannot be invoked.

8.6 They further submitted that the proviso to Section 73 of the Finance Act, 1994 is in pari materia with Section 11A of the Central Excise Act, 1944; that reference in this regard is made to the decision of this Hon’ble Tribunal in Mahakoshal Beverages Pvt. Ltd. vs. Commissioner of Central Excise, Belgaum reported in 2007 (6) STR 148, wherein it has inter alia been held that the proviso to Section 73 of the Act was promulgated by Finance Act 2004 but adding proviso which is in pari materia with Section 11A of the Central Excise Act. The Hon'ble Supreme Court in Pahwa Chemicals Private Limited vs. Commissioner of C. Ex., Delhi reported in 2005 (189) E.L.T. 257 (S.C.) held that mere failure to declare does not amount to willful mis-declaration or willful suppression. There must be some positive act on the part of the party to establish either willful mis-declaration or willful suppression.

8.7 They further submitted that there was no deliberate intention on their part, either not to disclose correct information or to evade the payment of any tax; that there is no positive act on their part to evade the payment of any Service tax nor has any proof towards this end been adduced by the Revenue; that there was no deliberate intention on their part not to disclose correct information or to evade payment of Service tax and hence there arises no question of willful-misstatement by them as alleged in the Show Cause Notice; that as none of the conditions necessary for invoking the extended period of limitation were satisfied in the present case, the extended period of limitation

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45cannot be invoked and the demands are barred by limitation.

8.8 They further submitted that for the reasons set out hereinabove, the entire demand itself is unsustainable, as there can be no liability to Service tax for the period in dispute; that hence the imposition of penalty and interest also cannot be sustained; that in the absence of liability of service tax, penalties cannot be imposed; that in the case of C.C.Ex. Vs HMM Ltd reported in 1995 (76) ELT 497 (BC), it was inter alia held by the Hon'ble Supreme Court that where the demand is unsustainable, the imposition of penalty cannot sustain. It has also been similarly held by the Hon'ble Supreme Court in the case of C.C.Ex. Aurangabad Vs Balakrishna Industries (2006) (201) ELT 325 (SC) and by the Hon'ble Tribunal in the case of Hyva India Pvt. Ltd Vs C.C.Ex reported in 2008 (226) ELT 264 and Godrej Soaps Vs C.C.Ex reported in 2004 (174) ELT 25 (Tri- LB).

8.9 They further submitted that there was no intention to evade payment of Service tax; that in such circumstances, the imposition of penalty is clearly unsustainable; that in the case of Tamil Nadu Housing Board Vs CCE reported in [1994 (74) ELT 9 (SC)], it was held that an intent to evade payment of tax is not a mere failure to pay the tax, it is much more; that the person alleged to have evaded payment of a tax must be proved to be aware of the taxability of the transaction and must deliberately have avoided payment of the tax. The Hon'ble Supreme Court further held that the word evade in the context of the phrase ‘intent to evade’ means defeating the provisions of law of paying the tax, and it is made more stringent by the use of the word ‘intent’. Thus, intent to evade payment of a tax is, in law, much more than a mere failure to pay the tax; that it is settled law, inter alia, by the judgment of the Hon'ble Supreme Court in Hindustan Steel Ltd Vs State of Orissa reported in [1978 (2) ELT 159 (SC)], that in the absence of an intent to evade payment of duty, a penalty should not be imposed; that it is settled law, inter alia, by the various judgments of the Hon'ble Supreme Court, that the burden of establishing intent to evade payment of a tax is that of the Revenue and must be established with cogent, positive evidence; that it does not emanate from a mere preponderance of probability; that in the present case,

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45the Department failed in bringing on record any positive evidence of intent to evade payment of Service tax; that having failed to discharge its burden, the Department cannot place the onus of establishing the lack of intent to evade payment of tax on them; that in any event, there was no intent to evade the payment of tax and hence there can be no imposition of penalty; that in a case where there was no mala fide intent to evade the payment of duty, no penalty should be imposed in terms of Section 76 and 78 of the Act.

8.10 They further submitted that Section 80 of the Act provides that “no penalty shall be imposed ... under Sections 76 and 78, if there was a reasonable cause for the failure of the assessee in complying with the relevant provisions”; that the said provision being constructed by the use of the word ‘shall’ is mandatory, and the Department was bound, in law, to consider the same; that due to bona fide mistake on the part of the Accountant, they discharged liability of service tax after availment of CENVAT credit; that since there was reasonable cause for failure of payment of service tax in terms of the said Notification, they are therefore entitled to the benefit of Section 80 of the Act and no penalty should have been imposed on them; that they relied on the case of ETA Engineering Ltd. vs. Commr. of C. Ex reported in 2006 (3) S.T.R 429, it has inter alia been held that: “Since they were under the bona fide doubt regarding their activity whether covered by Service tax or not, therefore, there was a reasonable cause on their part in not depositing the Service tax in time. Therefore, we are of the view that notwithstanding anything contained in Sections 76 and 78 of the Finance Act, 1994, the appellants are entitled for the benefit of Section 80 of the Finance Act and accordingly, we hold that no penalty should be imposed on the appellants.”

8.11 Lastly, they requested for personal hearing before the case was adjudicated.

PERSONAL HEARING 9.1 Vide this office letter dated 17.02.2011, the assessee was requested to appear for personal hearing on 03.03.2011. Shri Hardik

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 45Modh, Advocate appeared for personal hearing on behalf of the assessee & reiterated the argument communicated vide their letter dated 12.08.2010 and requested to permit them to produce some documents in support of their defence. 9.2 Vide this office letter dated 17.03.2011, the assessee was again requested to produce the documents but till date the same has not been produced by them. Another hearing in the matter was given on 30.05.2011. In response to which Shri Hardik Modh Consultant and Shri Anish Gunvantbhai Patel, Advocate on behalf of the said assessee remained present and they reiterated their earlier written submission dated 12.08.2010.They also requested that they wish to give further written submission within ten days. Accordingly vide their letter dated 27.06.2011, they further submitted the additional submission with some details as under.

9.3 In their additional submission they further submitted that in their defence reply dated 12th August, 2010, out of 7 contracts awarded to them by Torrent Power Ltd (TPL), they had done work of construction for three contracts whereas they had sub-contracted to sub contractors on back to back basis in respect of four contracts. Notification No.12/2003-ST dated 20.06.2003, as amended from time to time, provides exemption from service tax leviable under Section 66 of the Finance Act, 1994 to the extent of value of goods and materials sold by the service providers to the recipients of service. In the present case, TPL awarded composite contracts which include value of materials and services. They and the Sub-Contractors paid VAT under composition scheme to the extent of value of materials consumed in the contracts.

OIO NO. 36/STC-AHD/ADC(MKR)/11-12 of 459.4 They enclosed total paper books 9 (Nine) contain documents viz. purchase invoices, challans and other documents related to the materials consumed in each of the contracts and marked as Annexure II. Each of the paper books contains the above documents contract wise. It is submitted that in respect of Work Order No. SCCVLl0030106-07 of sub-station at Vastral, TPL awarded the contract with projected cost of Rs.2,42,32,335/- (Rupees Two crores, forty two lacs, thirty two thousand three hundred thirty five only). As per contract, service tax was required to be paid at 12.24% on 33% of Work Order. TPL paid Rs.2,13,78,706/- till completion of work inclusive of service tax based upon completion certificate. Since contract involves high value of Aluminum materials cost and labour cost was very low due to structural work, total material cost of Rs.2,06,41 ,610 (Rupees Two Crore Six Lacs Forty One Thousand Six Hundred Ten Only) was involved in total contract value of Rs.2, 13,78,706/-. (Rupees Two Crore Thirteen Lacs Seventy Eight Thousand Seven hundred Six Only) However, they have computed the value of service @ 33% of Rs.2,13,78,706/-. (Rupees Two Crore Thirteen Lacs Seventy Eight Thousand Seven hundred Six Only) Liability of service tax has been computed on value of service of Rs. 8,71,995/-. (Rupees Eight Lacs Seventy One Thousand Nine Hundred Ninety Five Only)

9.5 In view of the above facts, it is submitted that service tax is required to be paid only on the service component and therefore, after issuance of Show Cause Notice, they have computed value of services for the contracts under dispute and paid service tax alongwith interest as per their calculation. A statement showing calculation of service tax has already been enclosed with the defence reply dated 12.08.2010. In the following case laws, benefit of Notification of 12/2003-ST dated 20.06.2003 was extended even though value of materials was not shown separately in the invoices raised to the service receivers. The Hon'ble Court equated the consumption with sale for the purpose of above Notification No.12/2003 and held that value of goods consumed in the provision of service could not be included in the taxable value for levy of service tax:


i. ii. iii. iv.

Shobha Developers Vs. C.C.Ex. - 2010 (19) STR 75 (T) Savithri Digital Lab Vs. C.C.Ex. - 2009 (16) STR 462 (T) Chakita Ranjini Udyam Vs. C.C.Ex. - 2009 (16) STR 172 (T) Soma Enterprise Ltd. Vs. C.C.Ex. - 2009 (15) STR 559 (T)

9.6 They further submitted that liability of service tax would arise under the category of "Works Contract" in terms of nature of contracts under dispute. Category of "Woks Contract" was introduced with effect from 1st June, 2007 and all 7 contracts in the present case were awarded to them before 1st June, 2007 and therefore, in view of ABB Ltd Vs CST reported in 2010 (20) STR 610, liability of service tax will not arise on the contracts for service rendered before 1 st June, 2007. In view of the above facts, it is requested that the charges made in the Show Cause Notice may be dropped in the interest of justice.


DISCUSSION & FINDINGS:-

10.1 I have gone through entire records of the case on hand, content of show cause notice, written submission of the said assessee and record of personal hearing.

10.2 The central issue in the case is whether the benefit of abatement of taxable value claimed by the said assessee under Notification No.15/04 ST dated 10.09.2004, as amended and Notification No.1/2006 ST dated 01.3.2006 is correct or not.

10.3 In this regard, I find that there is no dispute with regard to the classification of service in the impugned show cause notice, therefore hence forth the discussion in this order is concentrated with regard to the value of taxable service of “Construction Service” or “Commercial or Industrial Construction Service”.

10.4 With regard to the taxable value, it is alleged in the show cause notice that the said benefit is not available to the said assessee as;

(i) the said assessee have availed Cenvat Credit of the service tax paid on inputs under Cenvat Credit Rules, 2004, and

(ii) the said assessee had not included the value of free issue material which were supplied by their customer on whose behalf construction activities have been carried out by the said assessee.

10.5 As alleged in the show cause notice the aforesaid act on the part of the said assessee is in gross violation of the conditions stipulated in the said notifications and therefore it was proposed in the show cause notice that abatement of 67 % from the taxable value as claimed is not available to them.

10.6 Accordingly, the impugned show cause notice proposed recovery of service tax of Rs. 38,53,888/- i.e. (Rs.37,61,888/- as Service Tax and Rs.71,049/- as Education Cess and Rs.20,9511- as higher education cess).

10.7.1 To examine the issue I would like to have look at the history of the notification No.15/04 ST dated 10.09.2004, as amended and Notification No.1/2006 ST dated 01.3.2006 which is as under.


The text of Notification No. 15/2004-ST dated 10.09.2004:-

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided by a commercial concern to any person, in relation to construction service, from so much of the service tax leviable thereon under section 66 of the said Act, as is in excess of the service tax calculated on a value which is equivalent to thirty-three per cent. of the gross amount charged from any person by such commercial concern for providing the said taxable service :

Provided that this exemption shall not apply in such cases where -

(i) the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or

(ii) the commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003].

10.7.2 The aforesaid notification was amended vide notification No. 4/2005-ST dated 01.03.2005 whereby explanation to the said notification was added. The text of the said notification is as under.

Construction Services — Amendment to Notification No. 15/2004-S.T.

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following amendment in notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 15/2004-Service Tax, dated the 10th September, 2004 which was published in the Gazette of India, Extraordinary, vide number G.S.R. 589 (E), dated the 10th September, 2004, namely :-

In the said notification, the following Explanation shall be added at the end, namely : -

‘Explanation. - For the purposes of this notification, the “gross amount charged” shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.’.

10.7.3 The said notification was further amended vide Notification No. 19/2005-S.T., dated 7-6-2005 as under:-

S. No.

Notification number and date

Amendments

3. 15/2004-Service Tax, dated the 10th September, 2004 [G.S.R. 589 (E), dated the 10th September, 2004]

In the said notification, -

(i) for the words “construction service”, occurring at two places, the words “commercial or industrial construction service” shall be substituted;

(ii)in the proviso, for clause (ii), the following shall be substituted, namely :-

“(ii) the commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503 (E), dated the 20th June, 2003]; or

(iii) the taxable services provided are only


completion and finishing services in relation to building or civil structure, referred to in sub-clause (c) of clause (25b) of section 65 of the Finance Act, 1994.”.

10.7.4 The aforesaid notification rescinded vide Notification No. 2 /2006-S.T., dated 1-3-2006 and in place new notification No. 1/2006 ST dated 01.03.2006 was introduced. The relevant text of the said notification for the purpose of availing benefit of abatement for Commercial or industrial construction service is as under.

S.

No.

Sub-clause of clause (105) of

Section 65

Description of taxable service Conditions Percentag

e

7. (zzq) Commercial or industrial construction service.

This exemption shall not apply in such cases where the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause (c) of clause (25b) of section 65 of the Finance Act.

Explanation. - The gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.

33

Provided that this notification shall not apply in cases where, -

(i) the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of the CENVAT Credit Rules, 2004; or

(ii) the service provider has availed the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503 (E), dated the 20th June, 2003].

[emphasis is provided]

10.7.5 Thus, it is amply clear from the aforesaid history of the governing notifications with regard to the abatement of taxable value for “Construction Service” or “Commercial or Industrial Construction Service” is not available in the following cases:-

In the case if service provider have availed


(i) the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of the CENVAT Credit Rules, 2004;

or

(ii) the service provider has availed the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003-Service Tax, dated the 20th June, 2003.

10.7.6 In addition to the aforesaid stipulations, with effect from 01.03.2005 to till date, impugned notifications contains following explanation with regard to the gross amount charged by the service provider

‘Explanation. - For the purposes of this notification, the “gross amount charged” shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.’.

[emphasis is provided]

10.8 In the instant case it is evident from the Annexure A to the show cause notice that during the period October, 2005 to March, 2008 the said assessee have discharged service tax amounting to Rs.15,59,411/- through Cenvat Credit Account, and Rs.7,86,633/- have been paid in cash against the abated value of Rs.4,64,55,655/-. It is further evident from the show cause notice that they have added additional consideration i.e. value of free supply material of Rs.88,87,144/- only, whereas their client M/s TPL have informed that they have supplied free value of goods of Rs.2,75,81,743/- to the said assessee, however the said value is not included in the taxable value. Thus, it is proved beyond doubt that

(i) the said assessee have availed and utilized Cenvat Credit for the payment of service tax on the abated value, thereby violated conditions stipulated in the impugned notifications, and

(ii) The said assessee have not included value of free issue material supplied by their client in the gross amount of taxable service as envisaged in the explanation to the impugned notifications.

10.9 Therefore, it is absolutely clear that the said assessee have availed benefit of impugned notifications in violation of the condition stipulated in the said notification in as much as they availed cenvat


credit and in violation of the explanation provided below the impugned notifications in as much as they have not included the value of free issue material in the gross value of the taxable service for the purpose of availing benefit under the impugned notification. Therefore, the contention of the said assessee that they have not violated the conditions of the said Notification during the disputed period and there is no requirement for payment of disputed Service Tax is not found to be correct.

10.10 It is further argued by the said assessee that they received the Work Orders from M/s Torrent Power Ltd., and M/s AIA Engineering Ltd., for real estate construction in terms of various Works Orders;- that in respect of services provided to M/s AIA Engineering Ltd, it is stated that they paid Service Tax without availment of benefit of Notification No.15/2004-ST dated 10.09.2004 and/or Notification No.1/2006-ST (supra); that there is no dispute in respect of the said services provided to M/s AIA Engineering Ltd;that in the present case, dispute is in respect of services provided to M/ s. Torrent Power Ltd. (hereinafter referred to as "TPL"); that out of 7 (seven) contracts, they awarded 4 contracts to various sub-contractors on back to back basis on which the sub-contractors paid Service Tax; that they crave leave to refer to and rely upon the documents in respect of payment made by the sub-contractors towards service tax as and when required; that the Show Cause Notice alleges that one of the conditions of the said Notification is that the service provider should not avail Cenvat credit of duty paid on inputs or capital goods and Service Tax paid on input services; that since they availed the Cenvat credit in respect of Service Tax paid by the sub-contractors, it is alleged that they have violated the condition of the said Notification; that as stated above, out of 7 contracts, they themselves did work of constructions for 3 contracts and provided services to M/s TPL without awarding the contracts to Sub-Contractor; that in these 3 contracts, they had not availed the CENVAT Credit of service tax paid by Sub-Contractors and therefore, there is no violation of the conditions of the said Notification; that in respect of the rest of the contracts, they had awarded the contract to their Sub-Contract who paid service tax under the said Notification; that as per the said Notification, the Assessee is required to pay Service Tax on 33% of the gross value of the Contact; that the said amount of Service Tax needs to be paid through cash without availment of CENVAT credit; that


in the present case, service tax was paid on 33% of value of the Contract out of cash without taking into consideration of CENVAT Credit; that they attached a Copy of the statement showing calculation of service tax paid by them and Sub-Contractors through cash as Annexure-I to the defence reply which shows that service tax has been paid as per the said Notification; that intention of the Legislature for introduction of the said Notification is that when the assessee is not in position to bifurcate the amount material and services, the assessee is given an option to go into composition scheme and pay Service Tax after availment of benefit of the said Notification; that the purpose of the said Notification is that service tax should be paid by way of cash without availment of CENVAT Credit; that in the present case, service tax paid by them through cash including paid by Sub-Contractor, it comes to service tax which is equivalent to service tax on 33% of the gross value of the Contract.

10.11 If the aforesaid contention is even accepted, the fact of the case is that at none of the stage while discharging service tax, by availing benefit under the impugned notification, the said assessee have not included the value of the free issue materials in the gross amount charged for the purpose of availing benefit under impugned notification as envisaged in he explanation appended under the said notification. The said explanation states that “ for the purposes of this notification, the “gross amount charged” shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service”. Thus, from the submissions of the said service provider it clearly transpires that they have not given any explanation in this regard. Therefore, abatement availed by the said assessee is again in violation of the conditions read with the explanation appended to the impugned notification.

10.12. With regard to their submission that the Show Cause Notice discussed three options under which service provider can pay Service Tax in relation to “Commercial or Industrial Construction Service”; that in the present case, service tax has been calculated in terms of Option No. (i) set out in Para No.5.4 of the Show Cause Notice; that since it was a new service which came into force w.e.f. 10.09.2004 and their Accountant under ignorance of the law availed the CENVAT credit based on the invoices given to them by the Sub-Contractors; that there was no mala fide intention on their part to violate the condition of Notification; that after receipt of the Show Cause Notice, they collected all the


relevant documents which show the amount of materials used in the above referred contracts; that Notification No.12/2003-ST dated 20.06.2003 provides that the value of goods and materials sold by the Service Provider to the recipient of service is exempt from service tax subject to the condition that credit of duty paid on goods and materials has not been taken under the provisions of the Cenvat Credit Rules, 2004; that they are entitled to get benefit of the above referred Notification since they have not availed the CENVAT credit on the materials used for providing the above service; that based on these materials, Option No (ii) is more beneficial to them and therefore, in terms of Option No. (ii), their liability of the Service Tax comes to Rs.5,84,736/-which they have paid alongwith interest; that they have attached Copies of challan and GAR-7 showing the proof of payment of Service Tax and interest; that they have also attached a statement showing calculation of Service Tax in terms of Option No.(ii); that they submitted that documents in respect of materials used for the above contracts are also annexed separately but the same are not attached with their defence reply;

10.13 I have gone through the aforesaid contention and option (ii) mentioned at para 5.4 of the show cause notice which state as under.

(ii) Avail benefit of the general exemption available in respect of goods sold during the course of providing service (Notification No.12/2003-ST) subject to the condition of availability of documentary proof particularly indicating the value of the goods sold.

10.14 In this regard I would like to have closer look at the Notification No. 12/2003 ST dated 20.03.2003 which is as under.

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.

2. This notification shall come into force on the 1st day of July, 2003.

10.15 However, the said notification was further amended vide notification No. 12/2004 dated 10.09.2004 .The relevant portion of the

notification is as under.


S. No.

Notification number and date

Amendments

6. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003]

In the said notification, in the opening paragraph, the following proviso shall be inserted at the end, namely :-

“Provided that the said exemption shall apply only in such cases where -

(a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or

(b) where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials.”

10.16 Thus, on combined reading of the aforesaid notification it clearly transpires that for the purpose of availing benefit under notification number 12/2003 ST as amended, the said service provider should have not availed Cenvat credit and if availed the same should have been paid before the sale of such goods. Where as from the submission it clearly transpires that they have availed Cenvat credit at the material time for rendering service, hence on this count also such benefit can not be allowed, particularly, after raising the present show cause notice for denial of benefit of Notification No. 15/2006 ST and 1/2006 ST. Further, notification No.15/2006 ST and 1/2006 ST also stipulate that benefit under this notification shall not be available if the service provider availed the benefit of Notification No. 12/2003 ST. Thus, if they intend to avail notification 12/2003 then also benefit of Notification No.15/2006 ST and 1/2006 ST is not available to them. Under the circumstance, denial of benefit of Notification No.15/2006 ST and 1/2006 ST and consequently the demand for the service tax as proposed in the show cause notice is sustained. Thus, their contention in this regard is also not acceptable.

10.17 Further, para 5.4 of the show cause notice only discusses three types of assessment procedures available to the service provider. The contention of that para is that when three options for assessments were available the assessee has to consciously exercise choice over the various options available before they discharge their service tax liabilities. Once they choose the assessment procedure for


the purpose of payment of service tax, and subsequent change in the choice at this stage is not permissible. They have already filed ST-3 returns from time to time indicating taxable value under notification No. 15/2004 ST and 1/2006 ST. Even no revise returns filed within 90 days of filing of such returns, with regard to change of choice of assessment procedure. Therefore, I find that it does not give option to the said service provider at this stage to sideline the proceedings initiated against them for denial of the benefit of Notification No.15/2006 ST and 1/2006 ST under the present show cause notice. Therefore, I find that reference of three options discussed in para 5.4 of the show cause notice is grossly mis-constructed by the said assessee by reading para 5.4 in isolation of other paras and material facts and evidences put forth in the show cause notice. Further, I find that had it been their intention, the provision of filing revised ST-3 returns with in 90 days of filing regular ST-3 is prescribed under Rule 7B of Service Tax Rules,1994, which also they have not followed. Therefore, I am unable to accept their plea that their assessment of taxable service be governed under notification No. 12/2003. Therefore, I am unable to accept re-quantification of taxable value under notification No. 12/2003-ST and subsequent payment service tax of Rs.5,84,736/- on 09.08.2010 against the present show cause notice dated 17.12.2009 issued after completion of investigation.

10.18.1 The said assessee further submitted that Show Cause Notice has erred in stating that the value of materials supplied by the TPL at free of cost should be included while computing the value of gross receipts in terms of the Explanation to the said Notification; that in terms of the following decisions, the value of material supplied by the service receiver at free of cost should not be included while computing Service Tax in terms of Notification:

Cemex Engineers Vs. CST 2010 (17) STR 534 (T) Era Infra Engineers Ltd Vs UOI 2008 (11) STR 3 (T) Larsen & Toubro Ltd Vs UOI 2007 (7) STR 123 (Mad) 10.18.2 In this regard I have gone through the aforesaid decisions. I find that decision in the case of Cemex Engineers Vs. CST 2010 (17) STR 534 (T) delivered by Hon’ble Banglore Tribunal is based on the decision delivered in the case of Larsen & Toubro Ltd Vs UOI 2007 (7) STR 123 (Mad) by Hon’ble High Court of Madras.


10.18.3 As regard the decision delivered in he case of Era Infra Engineers Ltd Vs UOI 2008 (11) STR 3 (T) delivered by the Hon’ble High Court of Dehli in connection with the stay application filed by M/s Era Infra Engineers Ltd. The said decision has been deffered and disagreed by Hon’ble High Court of Calcutta in the case of Simplex Infrastructures Ltd.Vs CST, Kolkata cited as 2011 (21) S.T.R.11 (Cal.) and 2011 (263) E.L.T. 195 (Cal.) wherein while dismissing stay application on 09.07.2010 and writ petition filed by M/s Simplex Infrastructures Ltd was finally dismissed where in it was held that :-

Stay/Dispensation of pre-deposit - Modification of stay order - Single Judge order modifying earlier order by extending time for depositing Rs. 3.68 crore while holding that free supplies not includible in taxable value while extending abatement under Notification No. 1/2006-S.T. - Direction for deposit assailed in present appeal - Not open to petitioner to challenge modification order passed based on their plea - No scope for staying operation of exemption or granting exemption on modified term in revenue matters when notification challenged as ultra vires - Injunction if granted based on mere prima facie case without considering balance of convenience, prejudicial to interest of nation - No ground to interfere with discretion exercised by Singe Judge in directing deposit of admitted amount if writ petition failed - Appeal dismissed - Articles 14 and 226 of Constitution of India. [paras 3, 6, 10, 11, 13, 14, 17]

Recovery of dues - Stay when not grantable - Revenue matter where provision challenged as ultra vires the Constitution - High Court on mere finding of prima facie case not to grant unconditional injunction restraining collection of revenue without making adequate protection for realization of such revenue if challenge by petitioner fails. [para 15]

Precedent - Binding nature of interim order - Unconditional interim order in similar demand for previous year sought to be followed as precedent - Revenue not bound by decision in respect of demand for subsequent year for not filing appeal against an erroneous interim order in respect of demand of previous year. [para 16]

Order - Modification order - Benefit of extension of time for depositing amount sought and granted in modification order - Not open to challenge such order modifying original order based on such prayer of appellant. [para 14]

Appeal dismissed

10.18.4 In the said proceedings following two cases were also cited which are also cited in the present case by the said assessee. The Honb’ble Kolkota High Court have disagreed with both the cases.

Era Infra Engineering Ltd. v. Union of India — 2008 (11) S.T.R. 3 (Del.) — Disagreed [Para 15]

Larsen and Toubro Ltd. v. Union of India — 2007 (7) S.T.R. 123 (Mad.) — Disagreed [Para 15]


10.18.5 Thus, I find that all the decisions cited by the said assessee are not applicable to the present case.

10.19 I have also gone through their additional submission dated 27.06.2011 in respect of 7 contracts of M/s TPL given claiming benefit of notification No12/2003 St dted 20.06.2003 is also not considered in light of above discussions. I have also gone through the decisions cited in this submissions, however find that the said decisions are related to availment of benefit of notification 12/2003 ST and for allowing deduction of material value and charging service tax on service portion. Therefore, I find that these all four decisions are not relevant in the case on hand.

10.20 However, the amount of Rs. 5,84,736/- paid by them against their claim under Notification No.12/2003 ST is liable to be appropriated against the present demand being confirmed as discussed above.

11. Suppression of Facts and Limitation:-

11.1 The said assessee further submitted that the Show Cause Notice is barred by limitation under proviso to section 73(1) of the Finance Act,1994; and defended that the SCN raises a demand for Service tax not paid for the period from October 2005 March 2008; that in terms of settled law, the extended period of limitation can be invoked only where an evasion of tax has been occasioned by the suppression, omission or failure to disclose wholly or truly all material facts required by the assessee or when the assessee had an intention to evade the payment of tax; that the extended period of limitation can be invoked only on those grounds which are specifically provided under the Statute; that if the Department sought to invoke the extended period of limitation on grounds other than those mentioned in the Statute, then such an invocation of extended period of limitation is bad in law; that in the present case, larger period has been invoked on the premise that they had not declared the said Notification No. under which service tax has been paid nor the actual gross amount in the periodical return field by them; that the allegation is baseless, incorrect and frivolous since they declared the Notification No. in the return filed by tem from time to time; that they also mentioned the amount of Cenvat credit availed by them for discharging the Service Tax liability in the said returns; that despite the above disclosures, the Department had never objected and


denied the benefit of Notification; that they submitted the copies of the returns for the disputed period which shows the correct position; that in respect of gross amount charged, there are various decisions in which it is held that value of free supply materials cannot be included in the gross amount in terms of the Explanation to the said Notification; that in these circumstances, they had not shown the value of goods supplied free of cost by Torrent Power Limited in the returns; that the above facts shows that there was no mala fide intention on their part for not to pay Service Tax in terms of said Notification; that in view of the above facts and circumstances, larger period cannot be invoked.

11.2 I find that the aforesaid contention and submissions of the said assessee is not at all correct. I have gone through the ST-3 returns filed by the said assessee which are relied upon by the officers of the DGCEI, and find that the said noticee have not shown any notification No. under which abatement have been claimed. They have also availed and utilised Cenvat Credit under Cenvat Credit Rules, 2004. Further, the value of free issue material supplied by M/s Torrent Power Limited is not included in the gorss value charged in terms of Explanation to notification No. 15/2004 ST and 1/2006 ST as discussed in the show cause notice. Further, as regard the intention to evade service tax I find that Notifications No 12/2003 ST, 15/2004 ST, 1/2006 ST were all existed prior to they started payment of service tax. When they availed the benefit of notification No. 15/2004 ST, 1/2006 ST, they must ensured that all the conditions stipulated therein has to be strictly followed. Therefore, contention of the said assessee that there was no intention to evade service tax is not acceptable. All this facts clearly establishes beyond doubt that there exists suppression of material facts and therefore I am unable to accept their contention that the show cause notice is hit by the limitation. In the present case I find that charge of suppression of material facts convincingly established. In this regard I have also gone through the various decisions cited by the said assessee, however none of the decisions are applicable to the present case in light of aforesaid findings. Hence, I conclude that Show cause notice survives on the ground of extended period also.

11.3 I find that the charge of suppression of material facts with intention to evade service tax had been conclusively established herein above. Had the department not investigated, the said taxable value would have escaped assessment and might have resulted in non payment of service tax. They were aware of the facts regarding


payment of service tax on the above services rendered by them but have not paid/short paid or has not disclosed before the department and therefore the contention of the assessee that due to ignorance and lack of knowledge they have not paid service tax, is not acceptable in this case. The suppression with an intent to evade payment, on part of the assessee, is proved beyond doubt and proviso to Section 73(1) of the Finance Act, 1994 has rightly been applied in the instant case and therefore, by their such act of omission and commission, the assessee has rendered themselves liable for penalty. Further, how the extended period is to be computed has been clarified by various judgments. I rely on the following judgments of Hon’ble Supreme Court & Tribunals ;

Mathania Fabrics Vs CCE, Jaipur reported in 2008 (221) ELT 481 (SC)

CCE, Ahmedabad I Vs M Square Chemicals reported in 2008 (231) ELT 194 (SC)

Salasar Dyg & Ptg. Mills (P) Ltd., Vs CCE, Surat reported in 2009 (235) ELT 93 (Tri-Ahmd.)

Associated Cement Companies Ltd., Vs CC reported in 2001 (128) ELT 21 (SC)

11.4 Hon’ble High Court of Gujarat in the case of CCE, Surat – I Vs Neminath Fabrics Pvt. Ltd., reported at 2010 (256) ELT 369 (Guj), while deciding the similar issue in Central Excise, has held that proviso can not be read to mean that because there is knowledge, suppression which stands established disappears – concept of knowledge, by no stretch of imagination, can be read into provisions – suppression not obliterated, merely because department acquired knowledge of irregularities. The relevant para is reproduced below ;

“20. Thus, what has been prescribed under the statute is that upon the reasons stipulated under the proviso being satisfied, the period of limitation for service of show cause notice under sub-section (1) of Section 11A, stands extended to five years from the relevant date. The period cannot by reason of any decision of a Court or even by subordinate legislation be either curtailed or enhanced. In the present case as well as in the decisions on which reliance has been placed by the learned advocate for the respondent, the Tribunal has introduced a novel concept of date of knowledge and has imported into the proviso a new period of limitation of six months from the date of knowledge. The reasoning appears to be that once knowledge has been acquired by the department there is no suppression and as such the ordinary statutory


period of limitation prescribed under sub-section (1) of Section 11A would be applicable. However such reasoning appears to be fallacious inasmuch as once the suppression is admitted, merely because the department acquires knowledge of the irregularities the suppression would not be obliterated.”

12. Penalty under Section 78

12.1 As regards to imposition of penalty, I find that the said assessee failed to pay service tax on the correct taxable value of services provided by them. It can not be said that it was a new levy and a person providing such services was unaware of his service tax liability. It is, thus, clear that omission did not occur due to any misunderstanding of law or ignorance of law but non payment of service Tax was with intent of tax evasion. If they had any reasonable doubt regarding liability of service tax, they should have approached Service Tax department for immediate clarification and guidance. However, no such effort was made by the said service provider to resolve any such doubt. The evasion of service tax was detected by the department as a result of investigation. The circumstances of the case establish that the said service provider did not discharge their statutory obligations deliberately, with the intent to avoid payment of service tax.

12.2 As it is already proved that the service provider had suppressed the facts, the consequences shall automatically follow. Hon’ble Supreme Court has settled this issue in the case of U.O.I Vs Dharmendra Textile Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the case of U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Hon’ble Supreme Court has said that the presence of malafide intention is not relevant for imposing penalty and mens rea is not an essential ingredient for penalty for tax delinquency which is a civil obligation.

12.3 They have rendered themselves liable to penalty under Section 78 of the Finance Act, 1994, as they were not paying service tax inspite of the facts that they were providing the taxable service. My above view gets support from below mentioned case laws ;


Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680 (Tri.Ahmd.)

CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40 (Tri. Ahmd.)

Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010 in the case of M/s Bajrang Security Services Vs CST, Ahmedabad.

12.4 I further observe that recently hon’ble High Court of Punjab & Haryana, in the case of CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal to service tax imposed under Section 78 of the Finance Act, 1994. Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K Vijaya C Rai reported at 2011 (21) STR 224 (Kar.).

13. Penalty under Section 76

13.1 Since the said assessee had not discharged service tax liability on time on the amount of taxable service demanded under the show cause notice and therefore, they have contravened the provisions of Section 67, 68, of the Finance Act, 1994 and thereby rendered themselves liable to mandatory penalty under Sections 76 of Finance Act 1994.

13.2 Accordingly, I find that M/s P C Snehal Construction Co., are liable to pay mandatory penalty under Section 76 of the Finance Act, 1994 for failure to pay Service Tax on time till final payment. My conclusion is also based on below mentioned decision of Hon’ble High Courts & Tribunals, which have settled the issue of imposition of penalty under Section 76;

CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.)

UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)

UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)

Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd)


CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–Ahmd)

Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-Ahmd)

13.3 I further observe that the Hon’ble CESTAT in a recent judgment in the case of M/s Gujarat Industrial Security Force Society Vs CST, Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated 05.08.2010, has held that no lenient view can be taken under section 76 of the Finance Act, 1994. The relevant paras are reproduced below ;

“2. After hearing both the sides, I find that in this case, the assessee was registered more than 6 years back and no explanation has been given by them for delayed filing of return and delayed payment of service tax. Under these circumstances, I am not finding fault in stand taken by the lower authority that penalty is imposable under section 76 and once it is held that penalty is imposable under section 76, the amount fixed as per the provision of section 76 is required to be imposed. Under these circumstances, even though the Ld. Advocate submitted that the appellant is a non profit organization, no lenient view can be taken in view of the provisions of law.3. Accordingly, the appeal is rejected.”

13.4 Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port Officer, reported at 2010 (19) STR 641 (Guj) has now settled the issue of penalty under Section 76. The relevant para is reproduced below ;

“10. A plain reading of Section 76 of the Act indicates that a person who is liable to pay service tax and who has failed to pay such tax is under an obligation to pay, in addition to the tax so payable and interest on such tax, a penalty for such failure. The quantum of penalty has been specified in the provision by laying down the minimum and the maximum limits with a further cap in so far as the maximum limit is concerned. The provision stipulates that the person, who has failed to pay service tax, shall pay, in addition to the tax and interest, a penalty which shall not be less than one hundred rupees per day but which may extend to two hundred rupees for everyday during which the failure continues, subject to the maximum penalty not exceeding the amount of service tax which was not paid. So far as Section 76 of the Act is concerned, it is not possible to read any further discretion, further than the discretion provided by the legislature when legislature has prescribed the minimum and the maximum limits. The discretion vested in the authority is to levy minimum penalty commencing from one


hundred rupees per day on default, which is extendable to two hundred rupees per day, subject to a cap of not exceeding the amount of service tax payable. From this discretion it is not possible to read a further discretion being vested in the authority so as to entitle the authority to levy a penalty below the stipulated limit of one hundred rupees per day. The moment one reads such further discretion in the provision it would amount to re-writing the provision which, as per settled canon of interpretation, is not permissible. It is not as if the provision is couched in a manner so as to lead to absurdity if it is read in a plain manner. Nor is it possible to state that the provision does not further the object of the Statute or violates the legislative intent when read as it stands. Hence, Section 76 of the Act as it stands does not give any discretion to the authority to reduce the penalty below the minimum prescribed.”

13.5 The Hon’ble High Court of Gujarat has further confirmed the above view in the case of CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105 (Guj.) and CCE Vs Bhavani Enterprises reported at 2011 (21) STR 107 (Guj.).

Both Penalty under Section 76 & 78 – Justified:

14.1 I also find that penalty under Section 76 ibid is provided for failure to pay service tax whereas penalty under Section 78 ibid is for suppressing value of taxable service. In the instant case, service tax liable to be paid in terms of Section 68 read with Rule 6 of the Service tax Rules, 1994, have not been found paid as well as service tax has not been paid / short paid by suppressing value of taxable service by reason of willful mis-statement and suppression of facts. Of course these two offences may arise in the course of same transaction, or from the same action of the person concerned. But the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act the penalty is imposable for ingredients of both offences, this aspect was also considered by the Hon’ble High Court of Kerala in the case of Assistant Commissioner, C.Ex. Vs Krishna Poduval – 2006 (1) STR 185 (Ker). I also find that the Hon’ble Mumbai Tribunal in the case of Golden Horn Container Services Pvt. Ltd. v/s Commr. of C. Ex., Raipur reported at 2009 (16) S.T.R. 422 (Tri.-Mumbai), has held that Section 76 provides for a penalty who commits default simpliciter in payment of the tax whereas section 78 is a more stringent penal provision, which provides harsher penalty who commits default with mens rea. Since in this case also, M/s P.C.Snehal Construction Co. has


committed default with mens rea, the decision of the tribunal is squarely applicable.

14.2 Therefore, I am of the view that in the facts and circumstances of the case, it is justifiable, if the penalty is imposed under the provisions of Section 76 and 78 of the Finance Act, 1994, separately, following the decisions of Hon’ble Kerala High Court and Mumbai tribunal (supra). My views are also further supported by various decisions of tribunals in the cases of ;

a) Shiv Network v/s Commissioner of Central Excise & Customs, Daman reported at 2009 (14) S.T.R. 680 (Tri.-Ahmd.)

b) Commissioner of Central Excise, Vapi v/s Ajay Sales Agencies reported at 2009 (13) S.T.R. 40 (Tri.-Ahmd.), and

c) Mett Macdonald Ltd. v/s Commissioner of Central Excise, Jaipur reported at 2001 (134) E.L.T. 799 (Tri.-Del.).

d) M S Shah & Co., Vs CST, Ahmedabad – Order No. A/1328/ WZB/ Ahd/ 2010 dated 30.06.2010 / 26.08.2010.

e) Bajarang Security Services Vs CST, Ahmedabad – Order No. A/745/ WZB/Ahd/2010 dated 09.06.2010 / 23.06.2010.

f) CESTAT, Principal Bench, New Delhi in the case of Bajaj Travels Ltd., Vs CCE, Chandigarh – 2009 (16) STR 183 (Tri.Del.).

15. Under the circumstances, their claim under section 80 of the Finance Act, 1994 did not survive and I am unable to accept the same.

16. In view of the above discussions and findings, I pass the following order

ORDER

(i) I confirm the demand of Service Tax amounting to Rs.38,53,888/-[Rupees thirty eight lakhs fifty three thousand

eight hundred eighty eight only] (Rs.37,61,888/- as Service Tax and Rs.71,049/- as Education Cess and Rs.20,951/- as higher education cess) short paid by them, under the provisions of Section 73(2) of the Finance Act, 1994 and I appropriate an amount of Rs. 5,84,736/- against the said confirmed demand which they have paid on 09.08.2011 and order to recover remaining amount.


(ii) I also order that M/s P.C.Snehal Construction Co. shall pay Interest at the appropriate rates as prescribed under Section 75 of the Finance Act, 1994 from the due date on which the Service Tax was liable to be paid till the date on which the said Service Tax is paid;

(iii) I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon them per day or at the rate of 2% of the service tax amount per month, whichever is higher, under the provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay Service Tax and Education Cess within the stipulated period as required under the provisions of Section 68(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1944, as amended. As the actual amount of penalty could be depending on actual date of payment of service tax, however, as per Section 76 of the Finance Act, 1994, penalty will be restricted to the above confirmed amount of service tax liability.

(iv) I also impose a penalty of Rs.38,53,888/-[ Rupees thirty lacs fifty three thousands eight hundred eighty eight only) upon them under Section 78 of the Finance Act, 1994. If the service tax amount is paid along with appropriate interest as applicable, within 30 days from the date of receipt of this order, then the amount of the penalty shall be reduced to 25% of the service tax amount, provided the penalty is also paid within such period of 30 days.

-Sd-

[DR. Manoj Kumar Rajak] Additional Commissioner

Service Tax, Ahmedabad.

F.No.STC-110/O&A/SCN/JC/PCS/R-15/D-III/09 Date : 14/10/2011

By R.P.A.D.

To,M/s. P C Snehal Construction Co., Pravesh Appt. Mahadevnagar Society, Nr. Sardar Patel Statue, Stadium Road,Naranpura, Ahmedabad- 380014


Copy to :-

1. The Commissioner, Service Tax, Ahmedabad. (Atten. Review Cell).2. The Director General of Central Excise Intelligence, Ahmedabd

Zonal Unit, Ahmedabad, For information. 3. The Assistant Commissioner, Service Tax, Division-III, Ahmedabad.4. The Superintendent, Service Tax, AR-XV, Division-III, Ahmedabad

along with an extra copy of OIO to be delivered to the assessee and submit the acknowledgement to this office.

5. Guard File/Office Copy.

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