Brief of the Case
In the case of Quality Council of India Vs. CC, New Delhi, it was held that mere non-payment of duties is not equivalent to collusion or wilful misstatement or suppression of facts, otherwise there would be no situation for which ordinary limitation period would apply. Inadvertent non-payment is to be met within the normal limitation period and the burden is on Revenue to prove allegations of wilful misstatement. The onus is not on the assessee to prove its bona fides.
Facts of the Case
Appeal is filed against order in original dated 25/05/2009 in terms of which service tax demand of Rs. 1,02,40,938/- for the period 2003-04 to 2007-08 was confirmed under “Technical Inspection and Certification Agency” service along with interest and penalties by invoking the extended period for wilful misstatement/suppression of facts. The adjudicating authority held that the service rendered by the appellant fell under Technical Inspection and Certification Agency service and passed the impugned order.
Contentions of the assessee
The contentions of the assessee are as follows:-
(a) the adjudicating authority was not competent to adjudicate the case as it was assigned to it by the Chief Commissioner in terms of powers conferred in terms of Notification No. 6/2009-ST dated 30/01/2009 with authorised the Chief Commissioners to exercise the power of Central Board of Excise and Customs under Section 83A of the Finance Act, 1994 and under that section the Central Board of Excise and Customs was conferred the power in relation to the case involving penalty only while the show cause notice in this case did not merely involve penalty but also service tax and therefore under the power conferred under Notification No. 6/2009-ST, the Chief Commissioners was not empowered to assign this case to the concerned adjudicating authority. Consequently the impugned order is an order issued by a person not competent to issue the same and therefore is a nullity.
(b) the appellant was not providing technical testing and certification agency service inasmuch as it merely accredited / certified various organisations for the purpose of certifying various entities and granting certifications like ISO certifications.
(c) It was not providing any technical inspection and certification of any material, goods or immovable property.
(d) The word “process” appearing in the definition of “technical testing or inspection agency” service should be treated to mean only physical and chemical processes on the principle of noscitur a sociis / ejusdem generis. He cited the judgment in the case of American Quality Assessors Private Ltd vs. Assistant Commissioner, Hyderabad 2009 (16) STR 413 (Tri. Bangalore).
(e) there was no wilful misstatement or suppression of facts and the appellant was under bonafide belief that it was not liable to service tax. Indeed, the appellant as early as in 10/08/2000 took registration under Management Consultant service, started paying tax and stopped doing so only after obtaining legal advice that it was not covered thereunder. Technical inspection and certification agency service was introduced in 2003. Thus extended period and mandatory equal penalty are not invocable.
Contentions of the Revenue
The revenue contended that the services rendered by the appellant are clearly covered within the scope of the definition of technical inspection and certification agency service and therefore the impugned demand is sustainable, there was no ambiguity in this regard and appellants are guilty of wilful misstatement or the suppression of facts.
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that as regards the contention that the adjudicating authority was not competent to adjudicate the cases, it is not in dispute that the adjudicating authority was assigned this case for adjudication by the Chief Commissioner in terms of Notification 6/2009-ST dated 30/01/2009. The wording of the Notification No. 6/2009-ST makes it clear that it authorised the Chief Commissioners (for the purpose of assigning adjudication cases) to exercise powers exercisable by CBEC, not merely under the provisions of Section 83A ibid but in terms of provisions of Section 83A read with the Notification No. 16/2007-ST as well. Thus, the contention of the appellants that only powers exercisable by CBEC under Section 83A were delegated to Chief Commissioner vide Notification No. 6/2009-ST is misconceived.
The Perusal of Notification No. 16/2007-ST makes it clear that was issued not only in terms of powers conferred by Section 83A of the Finance Act, 1994 but under powers conferred by section 83A of the Finance Act, 1994 read with Rule 3 of Service Tax, 1994. Rule 3 of the Service Tax, 1994 states that “the Central Board of Excise and Customs may appoint such Central excise officers as it thinks fit for exercising the powers under chapter V of the Finance Act, 1994 within such local limits as it may assign to them as also specify the taxable service in relation to which any such Central Excise officer shall exercise his powers”. A fair and harmonious construction of Notification No. 6/2009-ST read with Notification No. 16/2007-ST leads to compelling conclusion that vide Notification No. 6/2009 the Chief Commissioner was empowered to exercise the powers of Central Board of Excise and Customs for the purpose of assigning adjudication of cases which did not merely involve penalty. Consequently the adjudicating authority having been assigned the responsibility to adjudicate this case by the Chief Commissioner, was legally empowered to do so.
The appellant has contended that technical inspection and certification refers to inspection or examination of goods or process or material or immovable property to certify that such goods or processes or material or immovable property qualify or maintain the specified standards. The appellant however was inspecting or examining the process employed by professional bodies which on being found competent were accredited by it to certify others. It was also contended that by virtue of the principle of noscitur a sociis / ejusdem generis, the meaning of the word “process” appearing in the definition given in Section 65(105) (108) ibid has to be understood in the context of the society of the words in which it appears, namely, goods, materials and immovable property and for that reason the word “process” appearing in the definition of “technical inspection and certification” should be taken to mean / cover only physical or chemical processes as was held in the case of American Quality Assessors (supra).
The contention that the noscitur a sociis / ejusdem generis principle would confine the meaning of “process” in the above quoted definition only to physical or chemical processes does not appear to be tenable. This is so since, the word “process” does not appear in the company of words which can be said to form a society inasmuch as “goods” and “immovable property” do not make a society at all; indeed they are mutually exclusive; whatever is “goods” cannot be “immovable property” and vice versa. Therefore the said principle cannot be called in aid for determining the scope and meaning of the word “process”, in the above quoted definition. However, this contention has been made with the support of CESTAT judgment in the case of American Quality Assessors (supra). For the simple reason that, as stated earlier the word “process” is not in the company of the words which form/ constitute a society. Even so, the only inference which was drawn in the said judgement by applying the said principle was that the “process” mentioned in the definition “could relate only to physical and chemical processes”. Even if the said inference is accepted, there is no doubt that for assessment whether an organisation seeking accreditation/ certification by the appellant had the competence to assess and certify other bodies about quality management and environment management systems would at the very least require the appellant to undertake a physical verification processes to ascertain and assess the processes adopted, the efficacy of such processes, the ability of the organisation to properly carry out such processes and availability and efficacy of tools/equipment, if any, required to enable the organisation to carry out such processes before the organisation can be accredited / certified by the appellant as competent to assess and certify other bodies. Even at the cost of sounding repetitive, it is pertinent to iterate that it is axiomatic that certification (by the appellant) of any organisation as competent to assessee and certify bodies entities would at least require undertaking physical process of inspecting their (i.e. other bodies) processes, wherewithals and the equipments/ tools, if any, required for conducting such processes and of this actively clearly falls within the ambit of technical inspection and certification agency service, defined in Section 65(105)(108)/(109)(zzi) ibid.
The Hon’ble CESTAT further stated that nothing has been brought out in the impugned order as to how the appellant was guilty of wilful misstatement / suppression of facts. An assessee who has a bonafide belief that it is not liable to tax would naturally not obtain registration, assess itself to tax or file returns. This by itself does not tantamount to wilful misstatement / the suppression of facts. Further the fact that the appellant initially took registration on 10.08.2000 thinking that it was providing management consultant service and even paid tax thereunder for a while before it was advised that it was not liable to pay service tax under Management Consultant Service by its legal Consultant, establishes its bonafides. The appellant is a council comprising 38 members having representatives of government, industry and other stakeholders. In the case of Uniworth Textiles Ltd vs. Commissioner of Central Excise Raipur 2013 (288) guilty 161 (SC) it was held that mere non-payment of duties is not equivalent to collusion or wilful misstatement or suppression of facts, otherwise there would be no situation for which ordinary limitation period would apply. Inadvertent non-payment is to be met within the normal limitation period and the burden is on Revenue to prove allegations of wilful misstatement. The onus is not on the assessee to prove its bona fides. In the case of Chemphar Drugs 1989 (040) ELT 0276 (SC), the Supreme Court held that something positive other than mere inaction or failure on the part of the assessee or conscious or deliberate withholding of information when assessee knew otherwise, is required before it is saddled with the liability the extended period. In Continental Foundation Joint-venture 2007 (216) ELT 177 (SC) Supreme Court went to the extent of ruling that mere omission to give correct information is not suppression of facts unless it was deliberate and that an incorrect statement cannot be equated with wilful misstatement. Thus even in the show cause notice the only grounds on which wilful misstatement/ suppression of facts has been alleged are that the appellant did not declare the service to the Department, did not obtain registration and did not pay tax. These grounds have been analysed above in the light of authoritative judicial pronouncements and held to be inadequate for the said purpose in the absence of any substantial evidence that all that was wilful and to evade tax.
In the light of the foregoing analysis, it was held that the appellant provided “Technical Inspection and Certification Agency” service but was not guilty of wilful misstatement or suppression of facts. Therefore the extended period of limitation and mandatory penalty under Section 78 are not invocable. Accordingly, the appeal was allowed by way of remand to the primary adjudicating authority for denovo adjudication in conformity with our analysis and conclusions supra, confining the same to the normal period of one year.